1. What are the different components of capital and collateral that a member needs to maintain with NSE in order to be eligible to trade ?
1. Members are required to provide and maintain a certain minimum deposit with the NSE/NSCC in order to be eligible to trade on the Capital Market segment of NSE. This amount is known as Base Minimum Capital (BMC) or Base Capital.
2. Besides this, members may also provide additional deposits known as Additional Base Capitals (ABC). Such ABC may either be margin adjustable, viz - Margin Adjustable Base Capital (MABC) or margin non-adjustable, viz - Non-Margin Adjustable Base Capital (NMABC) i.e. ABC = NMABC + MABC
3. BMC plus ABC constitute the Total Base Capital (TBC) of a clearing member.
2. How much turnover/exposure is a member allowed on these ?
1. The maximum permissible gross exposure is a multiple of the Net Total Base Capital (NTBC) available and is determined as under :

NTBC upto Rs.1 crore : 7.9 * NTBC

NTBC greater than Rs.1 crore : (Rs.7.9 crore) + (10.8 * NTBC in excess of Rs.1 crore)

Note : NTBC = TBC – MABC adjusted towards margin

2. The gross exposure allowed is cumulated for open positions across market sub-segments until the actual pay-in day of each settlement, and includes positions for securities in no-delivery.
3. Permissible turnover limit is 33.33 times of NTBC available. This limit is computed intra-day and is reset at the beginning of each day.
3. What is the difference between NMABC and MABC ?
1. Exposure and turnover limits are available against both NMABC and MABC, but as the name suggests, NMABC is not adjusted against margin requirements whereas MABC is used for meeting margin requirements. If a particular amount is payable as margin on a day, it is first adjusted against the MABC available. Balance margin, if any, is required to be paid in cash. To the extent that MABC is adjusted against margins, it will not be available for exposure/turnover purposes. The MABC available for exposure will therefore fluctuate daily depending on how much of it has been utilized against margins.
2. In the case of NMABC, the entire amount is available for exposure and turnover and no margins are adjusted against the same.
4. What is the benefit of providing NMABC and MABC? Can one still trade without providing these?
1. The benefit of providing MABC are as follows:

2. Margins are collected at the end of day. Intra-day, the MABC is available for gross exposure and turnover purposes
3. MABC can be provided in the form of bank guarantees or FDRs, which leverages funds available with members and reduces liquid cash requirements against margins.

1. The benefits of providing NMABC are as follows:

1. Margins are not adjusted against NMABC and this component of your base capital is always available for gross exposure. This is unlike MABC where the entire amount may set off against margins; this may trigger disablement of member on account of exposure violation if the member has already used the MABC towards exposure limits. NMABC thus allows the member to have some exposure limit available irrespective of margin payable and reduces instances of disablement from trading on account of exposure violation. This also reduces uncertainty regarding the exposure limits permissible.
2. Unlike with MABC, approved securities can be used towards NMABC upto a maximum of 75% of the total ABC. Therefore, liquid cash is not blocked to take additional exposures.

1. It is not necessary to provide any additional amount towards MABC and NMABC. In that case, gross exposure allowed will be dependent on the BMC and daily margin payable will require to be paid in cash.

1. What are the acceptable forms in which one can provide Base Capital?
0. Over and above the cash component that is required to be submitted at the time of obtaining membership, a certain portion of the BMC has to be maintained in the form of either cash or collaterals in order to fulfill minimum requirements for commencing trading operations.
1. As per clause 18.1 of Circular no. NSCC/CM/C&S/108 dated June 11, 1999,

1. Cash to be deposited with the Clearing Corporation,
2. Bank guarantee in favour of NSCCL as per the specified format from approved banks (scheduled commercial banks only)…...
3. Deposit of Fixed Deposit Receipts (FDRs) issued by approved banks, National Savings Certificate and Kisan Vikas Patra issued by Post office, SGL securities, Certificate of Deposits (CDs) issued by banks / institutions and securities with approved custodians of the Clearing Corporation. The custodians presently approved for this purpose are HDFC Bank Ltd. and Stock Holding Corporation of India Ltd."

1. As per clause 17.6.2 of Circular no. NSCC/CM/C&S/112 dated August 03, 1999.

"….If TM clearing members desire to increase the limit (..GE and turnover limits), additional deposits by way of cash, bank guarantee or Fixed Deposit Receipt (FDR) have to be submitted to the Clearing Corporation. In case of additional deposits by way of cash, members are required to submit a letter as per format…..

….Such deposit by way of demat securities may not exceed 75% of the total additional deposit made by a member. These additional deposits other than deposits in the form of securities will be considered for the purpose of meeting margin requirements."

2. The essence of the above provisions can be condensed into the following table for ready reference.

1. MARGIN COMPUTATION
1. What are the different forms of daily margins levied by the Clearing Corporation?
1. There are three forms of daily margins payable

2.1.1.1 Gross Exposure margin (GEM)

2.1.1.2 Mark to Market margin (MTM)

2.1.1.3 Volatility margin (AVM)

2. How is Gross Exposure margin payable computed?
1. The net outstanding position in every security is first computed by taking the difference of the Buy Value and Sell Value. The total outstanding gross exposure is then arrived at by summing up all the security-wise net outstanding positions in value terms irrespective of whether the net outstanding position is a net buy or net sell position across all securities traded – G.E. = S | Buy_value – Sell_value |.
2. The following example will clarify the calculation of gross exposure utilized:

Security	Buy Value	Sell Value	Buy Value – Sell Value
A	20,00,000	10,00,000	+10,00,000
B	10,00,000	30,00,000	-20,00,000

GE = S (| 10,00,000| + | -20,00,000| )

= 30,00,000

3. The Gross Exposure margin is calculated by applying the margin percentage relevant to the margin slab on this figure of Gross Exposure, as given in circular number NSCC/CM/C&S/125 dated January 07, 2000.
3. How is Mark to Market Profit/Loss calculated?
1. The difference between the close price and the price at which the trade was executed (trade price) multiplied by the cumulative buy and sell open position in each security would give us the Mark to Market Profit/loss in each security.

Mark to market profit/loss can be calculated using the formula given below:

MTM Profit/Loss = [(Total Buy Qty * Close price) – Total Buy Value] + [Total Sell Value – (Total Sell Qty * Close price)]

Example:

Sr. No.	Security	Buy Quantity	Buy Price	Sell Quantity	Sell Price	Close Price	Mtm Profit/Loss Per Security
1	A	1000	50000.00	2000	90000.00	56.00	-16000
2	B	1600	64000.00	1800	73800.00	36.00	2600
3	C	600	3000.00	300	1500.00	5.00	0
4	D	0	0.00	2000	30000.00	14.00	2000
5	E	1000	6300.00	0	u0.00	5.00	-1300
6	F	800	32000.00	500	19250.00	35.00	-2250

MTM Profit / Loss for security A has been calculated using the above mentioned formula :

MTM Profit / Loss for A = [(1000 * 56) – 50000] + [90000 – (2000 * 56)]

= - 16000

MTM Profit / Loss for all other securities have also been calculated in the same manner.

4. Can Mark to Market Loss incurred in one security be set off against Mark to Market profits made in another security?
1. No. In the case of the current settlement for which the settlement obligations have not yet been frozen, mark to market profits are not taken into account. The margin requirement is based on all the mark to market losses.
2. After close of a trading cycle, mark to market margin is continued to be computed for transactions of the closed trading cycle till the relevant funds pay-in day. Between the period of end of the trading cycle, and the relevant funds pay-in day, mark to market losses of the closed trading cycle are set off against mark to market profits in other scrips of the same closed trading cycle. MTM profits of one closed trading cycle are not in any case, adjusted against the mark to market losses of the current trading cycle, or other closed trading cycles. (Example given in Annexure 2A)
5. In case net outstanding position in a security, say X, is zero, will mark to market margin still be payable?
1. In such a scenario the difference between the buy and sell values will be considered for the purpose of mark to market loss calculation. (Example in Annexure 2A)
6. How is volatility margin calculated?
1. Volatility Margin is charged on the net outstanding value of a security as per the applicable volatility margin percentage for that security. Therefore,
2. Volatility margin = Absolute of [(Buy Value – Sell Value) * Volatility margin percentage] or,

Mod | (Buy Value – Sell Value) * Volatility margin percentage |

3. To arrive at the appropriate volatility margin percentage, the volatility percentage of the security is first calculated in the following manner:
4. Volatility percentage of a security = (High price – Low price) *100 /Low price where the high price and low price considered are the highest and lowest traded prices of the security for the past 6 weeks.
5. Appropriate adjustments are made for price variations on account of calls, bonuses, rights, mergers, amalgamations and other corporate benefits, and when securities are traded ex-benefits, for the purpose of computing volatility percentage.
6. The volatility percentage for all securities is calculated on the last day of every normal settlement. Then, on the basis of the volatility percentage slabs (as per circular no NSCC/CM/C&S/126 dated January 27, 2000, download number - 1422), the volatility margin percentage corresponding to the volatility percentage of the security is identified and applied on that security for the next settlement.
7. Do all securities attract volatility margin and how much is the volatility margin applicable?
1. All securities traded at a price of Rs. 40/- and above attract volatility margin. A list of securities on which volatility margin percentages are applicable is made available on the extra-net (FTP) server on the last day of a normal settlement, normally on Tuesday, after market hours. This report is accessible as VLT_<Settlement No.>.DAT in the <clearing reports> subdirectory under the <common> directory of the extra-net server.
8. Are both Mark to Market as well as volatility margins charged for every security?
1. For each security, both, the mark-to-market profit / loss and the volatility margins are calculated. A comparison is then made between the MTM loss and the volatility margin for each security, and the higher of the two is considered for the calculation of daily margin. (Example given in Annexure 2A).
9. How is the daily margin amount computed?
1. The higher of the Gross Exposure Margin (GEM) and Mark to Market Margin (MTM) is taken and the Volatility Margin (VM) is added to it to arrive at the daily margin payable :

Daily Margin Amount = Higher of (GEM, MTM) + VM

The above calculation of margin amount is explained by way of an example in Annexure 2B.

10. When is daily margin payable?
1. Daily margins are payable by afternoon of T+1 day, where ‘T’ is the trade day, and 1 is the succeeding working day. Margins on Friday’s positions are payable on Monday. This margin is debited to member’s accounts normally in the evening.
11. When will daily margins collected be released?
1. Margin calculations are maintained on the basis of total outstanding positions as on that day. Thus, margins calculation is a running account on the basis of total outstanding positions.
2. In case of pay-in day of a particular settlement, (typically Monday for a normal settlement), the outstanding positions for the previous settlement are not considered and therefore, the margin payable figures may reflect a decrease to the extent of margins for the positions of the previous settlement.
3. If margins payable on the evening on Monday reflects a negative figure, then this amount is released to the member on Tuesday, when the settlement pay-in is completed.
4. For a detailed example on the calculation of releasable margins, refer to Annexure 1.
5. Members are advised to refer to the detailed margin report available at the extranet server (FTP), which provides settlement-wise, security-wise positions and margins charged on them.
12. Will one get the benefit for collateral (Bank Guarantees, Fixed Deposit Receipts, Cash Deposit) available with the Clearing Corporation towards the margin obligation?
1. Benefit is given to the extent of MABC submitted. However, if the margin amount payable exceeds the value of collateral available, the same is required to be paid in cash on T+1 day.

Source: National Stock Exchange