The Clearing Corporation of India Ltd. (CCIL) on November 26, 2024, issued the notification regarding the Risk Management processes and Margining Methodology.
The following has been stated namely: -
The Clearing Corporation of India Ltd (CCIL) has issued revised guidelines on the risk management and margining methodology for the Rupee Derivatives Segment, as detailed in their notification dated October 30, 2023. The guidelines outline processes for computing Initial Margins based on portfolio Value at Risk (VaR), which includes simulating swap scenarios using historical return series. Spread margins, calculated on net trades and classified into maturity buckets, are added to portfolio VaR to determine the applicable initial margin. The methodology also includes a step-up in Initial Margins for members with weaker counterparty risk grades, regulatory actions, or deteriorating financial health.
The notification further details the Mark-to-Market (MTM) valuation process, where end-of-day swap rates from standardized sources are used to revalue outstanding trades. MTM margins are computed for members/constituents and haircuts on gains are applied for crediting margins. Additionally, the guidelines introduce the concept of concentration margins, which are applicable when initial margin or gross positions breach specified thresholds. These margins are reviewed monthly and adjusted based on compression exercises to mitigate systemic risk.
Lastly, measures to manage exposure and replenishment levels have been outlined. CCIL monitors margin utilization thresholds, halting trade acceptance if utilization exceeds 95%. Incremental MTM Margins are imposed based on market movements, while exposure checks are conducted online for reported trades. These enhancements aim to strengthen risk management practices, ensure robust margining, and maintain market integrity in the Rupee Derivatives Segment.
The revised approach, as above, shall be effective from the end of the day on December 31, 2024, and supersedes our Notification No. RMD/DRVT/23/37 dated October 30, 2023, in this regard.
[Notification No. RMD/DRVT/24/16]
