InvestorQ : How is margining on IRF done?
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Aashna Tripathi made post

How is margining on IRF done?

Answer
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Tisha Malhotra answered.
2 years ago


Like in the case of other futures and options contracts, the IRF also prescribes different kinds of margins payable on initiation and continuation of positions.

Initial Margin

Initial margin is payable on all open positions of Clearing Members, up to client level, and on an upfront basis by Clearing Members in accordance with the margin computation mechanism and/ or system

Span Margin

Initial Margin includes SPAN margins and such other additional margins. Clearing Corporation adopts the SPAN® (Standard Portfolio Analysis of Risk) system for the purpose of real time initial margin computation.

Initial margin requirements are based on 99% value at risk over a one day time horizon. However, in the case of futures contracts, where it may not be possible to collect mark to market settlement, before the commencement of trading on the next day, the initial margin is computed over a two day time horizon by applying an appropriate statistical formula. The methodology for computation of value at risk percentage is as per the recommendations of SEBI from time to time.

Initial margin requirement:

For client positions – is netted at the level of individual client and grossed across all clients, at the trading / clearing member level, without any set-offs between clients.

or proprietary positions – is netted at trading / clearing member level without any set-offs between client and proprietary positions. The margins so computed would be aggregated first at the trading member level and then aggregated at the clearing member level.

Updation of risk parameters

The risk parameters are updated 6 times in the day, based on the prices/yield at 11:00 a.m., 12:30 p.m., 2:00 p.m., 3:30 p.m. , end of the day and begin of the day.

For the purpose of intra-day updation of cash settled interest rate future contract, the future price of the interest rate future contract shall be used and for 91-Day T-Bill Futures the previous day futures closing yield of 91 day GOI T-Bill futures shall be used.

Minimum Initial Margin

The minimum initial margin for cash settled interest rate future contract is 1.5% of the value of the contract subject to minimum of 2.8% on the first day of trading and for 91-Day T-Bill futures contracts minimum of 0.10% of the notional value of the futures contract on the first day of trading and 0.05% of the notional value of the futures contract thereafter (The notional value of the contract shall be Rs 200000) will be scaled up by look ahead period as may be specified by the Clearing Corporation from time to time.