InvestorQ : How is the risk management done in case of the SLBS system?
prachi Patwardhan made post

How is the risk management done in case of the SLBS system?

Answer
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Nisha Chandani answered.
1 year ago


The risk management of SLBS is done at multiple levels using multiple parameters for appropriate risk reckoning. Here are a few key parameters for risk management in the SLBS system:

Position Limits

The applicable position limits for SLBS are as under:

The market-wide position limits for SLB transactions is 10% of the free-float capital of the company in terms of number of shares.

No Clearing Member/Participant should have open position of more than 10% of the market-wide position limits.

For a FII/MF, the position limits are the same as of the Participant

The client level position limits should not be more than 1% of the market-wide position limit.

All the applicable position limits applicable are computed on the last trading day of every month which will be applicable for the next month.

No position limits are applicable to early recall/repayment transactions. However position limits are applicable to the original transaction till the successful completion of the settlement of early recall/repayment transactions.

Collection of Collateral Deposits

Participants may deposit collaterals (Ref. Circular No: NSE Clearing/SLBS/2008/005) in the form of cash equivalents i.e. cash, fixed deposit receipts and bank guarantee. The collateral deposited by the participant are utilized towards margin requirement of the participant.

In case of failure of the participant to meet its obligation, the collaterals provided by the participants may be liquidated by NSE Clearing to meet the obligation of the participant.

Minimum Collateral

Every participant is required to continuously maintain minimum collateral of Rs.10 lacs in the form of cash as prescribed by NSE Clearing. This deposit should be provided by the participant at the time of registration in Securities Lending and Borrowing Scheme (SLBS).

Applicability of margins in case of SLBS

All transactions under SLBS are subject to margins. Following margins are applicable for transactions under SLBS.

The following margins are levied in respect of first leg of transactions under SLBS.

Borrow transaction: The borrower is levied only the Lending fee on T day.

Lend transaction: Lenders may bring in early pay-in of securities on the day of the transaction execution itself. In such cases no margins are levied on the lender.

The following margins are levied on the Participants for lend transactions till the time the pay-in of securities:

Mark to Market Margins at EOD

25% of the Lending price

Borrow transaction- Reverse leg

The borrower is levied margins in respect of reverse leg of transactions under SLBS. The following margins are levied on the Participants for a borrow transaction from T+1 to the reverse leg settlement day.

Value at Risk Margins

Extreme Loss Margins

Mark to Market Margins

Lending price

Lending price is collected in the form of cash or cash equivalents as prescribed by NSE