AS Chakravarthy NISM : Initial Margin in Currency Derivatives

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Initial Margin in Currency Derivatives

The initial security deposit paid by a member is considered as his initial margin for the purpose of allowable exposure limits. Initially, every member is allowed to take exposures up to the level permissible on the basis of the initial deposit. The Initial Margin requirement is based on a worst scenario loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes would be so computed so as to cover a 99% Value at Risk (VaR) over a one-day horizon. In order to achieve this, the price scan range is fixed at 3.5 standard deviation.

The initial margin so computed would be subject to a minimum margin for the first day of trading and a minimum margin % thereafter. The prescribed level of minimum initial margin for different currency pair is given below:

	USDINR	EURINR	GBPINR	JPYINR
Minimum margin requirement on first day	3.5%	2.8%	3.2%	4.5%
Minimum margin requirement after first day	2%	2%	2%	2.3%

The initial margin shall be deducted from the liquid net worth of the clearing member on an online, real-time basis.

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Calendar Spread Margins

A currency futures position at one maturity which is hedged by an offsetting position at a different maturity is treated as a calendar spread. The benefit for a calendar spread continues till expiry of the near-month contract. For a calendar spread position, the extreme loss margin is charged on 1/3rd of the mark-to-market value of the far-month contract.

The calendar spread margin in Rupees for different currency pair is given below:

	USDINR		EURINR		GBPINR		JPYINR
1 month spread	400		700		1500		600
2 month spread	500		1000		1800		1000
3 month spread	800		1500		2000		1500
4 or more months spread	1000		1500		2000		1500