APNA GODAM TECHNOLOGIES PRIVATE LIMITED

1. Liquid Assets

AGTPL has defined norms and procedures for acceptance of liquid assets, applicable haircuts and concentration limits applicable to Clearing Members (CMs) and their clients.

These liquid assets are classified as Cash equivalents and Other Liquid Assets. Cash equivalent shall mean Cash, Bank Fixed Deposits (FDs), Bank Guarantees (BGs).

Other Liquid Assets shall mean, Warehouse Receipt(s) (WR) of approved commodities issued by designated warehouse/ vault and any other form of collateral as may be prescribed from time to time.

Cash equivalents shall be at least 50% of liquid assets. This would imply that Other Liquid assets in excess of the total Cash Equivalents would not be regarded as part of member’s liquid assets as well as total liquid assets.

CMs are required to maintain at least 50% of the total collateral in the form of cash equivalents. At individual client level, a client may have allocation of cash equivalent less than the value of non- cash collateral provided by him. In other words, the minimum 50% cash equivalent collateral requirement may not be applied at the client level. For the purpose of monitoring of at least 50% cash-equivalent collateral at the level of CM, the excess cash-equivalent collateral of a client shall not be considered for other client or for proprietary account of TM/CM. However, the excess cash- equivalent collateral of proprietary account of TM/CM can be considered for clients trading clearing through them, for the purpose of monitoring minimum 50% cash-equivalent requirement.

The types of liquid assets acceptable by AGTPL with the applicable haircuts and concentration limits are listed below:

Notes:

• i. The valuation of the liquid assets shall be done on a daily basis after applying applicable haircuts.
• ii. The approved commodities as collateral shall be permitted to a maximum of Rs. 10 Crore (after haircut) as part of Additional Base Capital for a member.
• iii. A maximum value of Rs. 100 Crore (after haircut) of approved commodities shall be permitted to be accepted as collateral across all members of AGTPL.

• iv. AGTPL shall accept liquid assets as collateral only as per the list of liquid assets specified in the table above. However, AGTPL may decide not to accept certain types of liquid assets specified in the table above based on its risk perception, capability to hold and arrangements for timely liquidation. AGTPL may stipulate concentration limits at member level / across all members as may be necessary.
• v. The approved commodities as collateral may be restricted to a maximum limit as updated time to time (after haircut) as part of Additional Base Capital for a member however currently there is no limit at both client or STCM level and/or security level.

  Note: The liquid assets acceptance, applicable haircuts, limits are subject to periodic review from time to time. Clearing Members and participants are required to refer to latest circulars issued in this regard.

a. Clearing Banks and Approved Bank for acceptance of Cash, Bank Guarantee and Fixed Deposits

The Platform will accept bank Guarantee and Fixed Deposits from only those banks which are schedule commercial bank and their balance sheet size must be above 1lakh crore.

b. Approved collaterals and their valuation:

Approved commodities as collateral:

• a) Clearing members shall be permitted to provide clearing member proprietary WRs / trading member proprietary WRs / client WRs / CP WRs towards the non-cash component of margin deposit requirements.
• b) The approved commodities shall be subject to a haircut as may be decided by the AGTPL from time to time.
• c) The AGTPL may issue/revise the list of approved commodities and the haircut requirements from time to time.
• d) The benefit on the approved commodities shall be withdrawn 30 days prior to the validity period of the approved commodities.
• e) All approved commodities to be accepted as collateral should be of same quality specification which is deliverable under the contract specification of commodity derivatives being traded on the Exchange.

Valuation of approved commodities as collateral:

• a) The value of the approved Commodities deposited as collateral will be reckoned daily at the spot prices disseminated by Platform.
• b) In case, the spot prices are not available for a given day, the latest available spot price will be used for the purpose of valuation.
• c) The above valuation shall be reduced by the relevant haircut to arrive at the collateral value of commodities. Only the net value shall be considered as the value of commodity for the purpose of Base Capital (BC).
• d) Valuation of Commodity shall be done on daily basis or at such regular intervals and in such manner as may be specified by AGTPL.
• e) No benefit shall be provided on the commodities which have been discontinued from the approved list

2. Security Margin

Security margins are imposed to cover potential future exposure to participants in the interval between the contract date and settlement date.

AGTPL shall review the categories of all commodities once in every six months’ period based upon past three years’ data. Commodity may be moved from higher volatility category to lower volatility category. However, movement from a lower to higher volatility category shall be done based upon a single review.

The categorization shall be done on 1st March and 1st September of each year on rolling basis and changes if any shall be made applicable from 1st April and 1st October respectively of each year.

• A. Risk Reduction Mode (RRM)

  Clearing & Trading Member shall be compulsorily placed in risk reduction mode when the collateral utilization breaches 90%. When a member moves in to risk reduction mode:

  • a. All unexecuted orders shall be cancelled.
  • b. All new orders shall be checked for sufficiency of margins.
  • c. Members will be able to trade in normal mode as and when the collateral utilization goes below 85%.
• B. Monitoring of Risk Reduction mode (RRM)

  For monitoring of the risk reduction mode (90% utilization or such applicable limit), the following procedure shall be adopted:

  • a. TM level risk reduction mode:

    Client margin in excess of 90% of the client collateral shall be identified for each client under a TM. The total of such client margin in excess of 90% of the client collateral, plus the proprietary TM margin shall be assessed against the TM proprietary collateral for monitoring of TM level risk reduction mode.

  • b. CM level Risk Reduction mode:

    Sum of client margin in excess of 90% of the client collateral for each client under a TM plus the proprietary TM margin, in excess of 90% of TM proprietary collateral shall be calculated as TM margin in excess of 90% of TM collateral. Sum of such margin for each TM clearing through a CM, plus sum of client margin in excess of 90% of the client collateral for each client clearing through such CM, plus the proprietary CM margin shall be assessed against the proprietary CM collateral for monitoring of CM level risk reduction mode.

  • c. Once a CM is in RRM mode, all the TMs clearing through the CM shall be in RRM mode
  • d. An illustration for monitoring of risk reduction mode is provided as Annexure - I

• C. Blocking of Margins
  • a. The procedure for blocking of margins only specifies the order of blocking of margins against the collateral allocated at the Client / Custodial participant (CP), Trading Member(TM) and Clearing Member (CM) Level by CM plus the value of equity securities, mutual funds, government securities and commodity collateral provided through margin pledge/re- pledge by the respective client, CP and TM. The TM/CM shall be required to ensure that sufficient collateral is allocated to clients to cover their margin requirements.
  • b. On receipt of a trade from a client account, the margin shall first be blocked from the value of the client collateral. If the client collateral is not sufficient, the residual margin shall be blocked from the TM proprietary collateral of the TM of such client. If the TM proprietary collateral is also not sufficient, then the residual margin shall be blocked from the CM proprietary collateral of the CM of such TM.
  • c. In case of a trade from the proprietary account of a TM, the margin shall first be blocked from the TM proprietary collateral, and in case such collateral is not sufficient, then the residual margin shall be blocked from the CM proprietary collateral.
  • d. Margins based on trades from proprietary account of the CM shall be blocked from the proprietary collateral of the CM only.
  • e. An illustration of blocking of margins at Client, TM and CM level and deemed allocation at TM and CM level is provided as Annexure - II

  Blocking of Margins for Custodial Participants (CP):

  • i. Pre-confirmation of trades by CM

    In case of CP trades executed by TMs, the margin shall be blocked in the following order:

    • • CP collateral through the executing TM, if any,
    • • residual margin from the proprietary collateral of the executing TM, and
    • • Residual margin from the proprietary collateral of the CM of the executing TM.
  • ii. Post confirmation of trades by CM

    Upon confirmation of such trades by CM of the CP, the margin so blocked prior to the confirmation shall be released, and shall be blocked in the following order:

    • • CP collateral through the confirming CM, and
    • • residual margin from the proprietary collateral of the confirming CM
• D. Measures in case of repeated shortfall in margin / pay-in amount

  Non-fulfilment of Margin Obligation and settlement obligation by scheduled date and time is a violation of AGTPL Bye-Laws, Rules and Regulations and attracts penal action as may be stipulated by AGTPL from time to time. The following measures shall be initiated in case of repeated shortfall in margin / pay-in:

  • I. Measures in case of repeated shortfall in margin

    In cases, where margin utilization exceeds 100% of Clearing Member’s capital/collateral resulting in margin shortages on three occasions in the previous 30 days, then:

    • i. An amount equivalent to cumulative margin shortages of the past 30 days shall be blocked from the deposits of the Clearing Member. The margin shortage at the time of violating the trigger point of 100% on each of occasion shall be considered.
    • ii. In case, there are more than one instance of margin shortage in a day, the highest amount of margin shortage at the time of violating the trigger point of 100% shall be considered.

• • • iii. The amount shall be blocked for a period of 30 days and shall be released only if no further margin shortages are reported for the member during the said period.
    • iv. The amount blocked shall not be available towards any margin benefit.
  • II. Measures in case of repeated shortfall in pay-in

    In case of a shortfall in meeting pay-in obligations by a Clearing Member over Rs.3.00 Lakh is observed on three occasions in past 30 days, then:

    • i. Funds shortage of the past 30 days shall be blocked from the deposits of the Clearing Member.
    • ii. The amount shall be blocked for a period of 30 days and shall be released only if no further funds shortages are reported for the member during the said period.
    • iii. The amount blocked shall not be available towards any margin benefit.
• E. Levy of Charges for Overnight Margin Shortage

  In case of non-fulfillment of either the whole or part of the margin obligations by a clearing member on over-night basis, a disablement charge at the rate of 0.09 % per day computed on the amount outstanding from the day on which monies are due to be paid until the day the margin obligations are fulfilled shall be charged (Subject to a Minimum of Rs.500/- per instance).

  Further, in case of overnight margin shortage for more than 3 consecutive days, positions of the member may be liquidated.

  AGTPL shall not have any liability whatsoever to any Clearing Member or to any other person (including, without limitation, any Client or (Associated) Trading Member) in respect of any damage, loss, cost or expense of whatsoever nature suffered or incurred by a Clearing Member or any other person, as the case may be, as a result of liquidation of such position.

• F. Peak Margin
  • a) AGTPL shall send alert on WhatsApp of client wise margin requirement to Trading Members (TM)/Clearing Members (CM) for them to know the intraday margin requirement per client/Custodial Participant/TM. The alerts would be sent on every shortfall at client level.
  • b) The margin requirements to be considered for intraday snapshots, shall be calculated based on fixed beginning of the day (BOD) margin parameters. The BOD margin parameters would include all margin parameters as well as ELM requirements. This is only for the purpose of verification of upfront collection of margin from clients and levy of penalty. The margin parameters applicable for collection of margin obligation by AGTPL shall continue to be updated on intraday, as per the extant provisions.
  • c) The margin file provided by AGTPL to CMs/TMs shall contain the EOD margin reporting requirements of the client/Custodial Participant/TM as well as the peak margin requirement of the client/Custodial Participant/TM, across each of the intra-day snapshots.
  • d) AGTPL shall aggregate the margins on confirmed trades as well as unconfirmed trades for a given CP and include the same in the intraday snapshot file provided to the clearing member.
  • e) The peak margin requirement of the CP across each of the intra-day snapshots shall be provided at the end of day to the clearing members

3. Default Management

• A. Regaining matched book

  In the event of a Clearing Member failing to honor pay-in/margin obligations, AGTPL may employ the below given alternative tools to liquidate the positions and regain a matched book based on the conditions of market liquidity, volatility, size of position to be liquidated etc. Any tool lower in the list prescribed hereunder may be resorted to only in extremely rare occasions when AGTPL reasonably expects that it may not be able to restore a matched book by choosing the alternatives above it.

  • a) Liquidation of positions in the normal market (with relaxed price limits, if required)
    • i. Upon the occurrence of a failure by a Clearing Member to honour its obligations, AGTPL may, at its discretion, initiate a procedure to liquidate the Open Positions registered in the name of such defaulting Clearing Member.
    • ii. The implementation of liquidation of Open Positions shall be notified by AGTPL to the defaulting Clearing Member within a reasonable time frame once the process for such liquidation is completed.
    • iii. AGTPL shall not have any liability whatsoever to any Clearing Member or to any other person (including, without limitation, any Client or (Associated) Trading Member) in respect of any damage, loss, cost or expense of whatsoever nature suffered or incurred by a Clearing Member or any other person, as the case may be, as a result of the occurrence and management of an event of default/ failure as referred above.
    • iv. AGTPL shall liquidate the following Open Positions:
      • • Proprietary open positions registered in the name of the defaulting Clearing Member, and
      • • TM and client open positions registered in the name of the defaulting Clearing Member.
  • b) Auction of the positions within a specified price band
    • i. Upon a default/failure by a Clearing Member, AGTPL may, at its discretion, initiate a procedure to auction the open positions registered in the name of the defaulting Clearing Member and its TM/Clients.
    • ii. A separate auction session shall be conducted by AGTPL and the auction mechanism shall be notified to the Clearing Members.
    • iii. AGTPL shall not have any liability whatsoever to any Clearing Member or to any other person (including, without limitation, any Client or (Associated) Trading Member) in respect of any damage, loss, cost or expense of whatsoever nature suffered or incurred by a Clearing Member or any other person, as the case may be, as a result of the occurrence and management of an event of default.
    • iv. All the Clearing Members/TM/Clients can bid in the auction market (except the defaulting Clearing Member/TM/clients).
  • c) Voluntary tear-up of positions
    • i. Tear up (or ‘termination ’) refers to the cash settlement and cancellation of contracts. Tear up may be voluntary or partial, where the smallest subset of contracts that will return AGTPL to a matched book is selected for termination.
    • ii. The tear up of contracts shall be done for those positions that are opposite to the positions of the defaulting Clearing Member and its TM/clients.

• • • iii. AGTPL shall invite non-defaulting Clearing Members to nominate their contracts for tear up to assist restoration of a matched book. The CMs/TM/Clients may voluntarily give their consent for tear up of their contracts.
    • iv. AGTPL shall select the nominated contracts for termination. AGTPL may terminate some or all open consents received in order to return to a matched book and reduce further losses.
    • v. The termination could be for only those contracts needed to offset the defaulted contracts.
    • vi. The compensation will be paid to the non-defaulting Members/clients whose contracts have been selected for tear up. Voluntary tear-up shall be done at last traded price along with compensation equal to 50% of penalty
    • vii. In case of breakup of netting arrangement of the contracts selected for tear up, AGTPL shall not be responsible or liable in any manner.
    • viii. Over and above the compensation, a penalty equal to 3% of last traded price shall be levied on the defaulting Clearing Member/TM/clients and credited to SGF.
    • ix. In case of voluntary tear up, if AGTPL receives more nominations from the non- defaulting members for tear up than the allocation shall be done on pro rata basis or as decided by AGTPL.
• B. Default Management Process

  The default management process by the Platform in case of default by a CM shall take place in four stages

  • a) Stage 1: Completion of settlement to non-defaulting CMs
  • b) Stage 2: Portability or immediate return of collateral
  • c) Stage 3: Close-out of positions and provisional appropriation of collateral
  • d) Stage 4: Identification of defaulting clients and final appropriation of collateral
  • a) Stage 1: Completion of settlement to non-defaulting CMs

    AGTPL shall utilize available financial resources to complete settlement in a timely manner and complete the pay-outs to the non-defaulting members

  • b) Stage 2: Portability or immediate return of collateral
    • i. AGTPL shall put in place a mechanism/ process for TMs/clients/CPs of defaulting CM to establish that they are not in default to the defaulting CM and have deposited collateral to the extent of allocation (including deemed allocation). This process shall be completed within a pre-specified time period. On identification of such non- defaulting TMs/clients/CPs, AGTPL shall provide them opportunity for either porting of their positions and collateral to another CM or immediate return of their collateral.
    • ii. Pre-Conditions for porting of positions and collateral:
      • I. A non-defaulting TMs/Client/CP has an already established alternative trading/clearing arrangements with other TMs/CMs registered with AGTPL other than the defaulting CM.
      • II. The defaulting CM provides the prescribed declaration to AGTPL containing the details of defaulting and non-defaulting TMs/clients/CPs and porting preference including the details of new TMs/CMs within the timelines as specified from time to time.

• • • • III. The CM/TM identified by the non-defaulting TM/client/CPs has confirmed its willingness in the format prescribed by AGTPL to accept the position proposed to be ported along with/without collateral.
      • IV. The collateral given by the defaulting CM such as cash and FD will be invoked by AGTPL. The collateral that can be ported to the confirming CM/TM will be to the extent of allocation of such non-defaulting client.
      • V. The confirming CM/TM has to ensure availability of sufficient collateral as against the proposed position to be ported including the readily portable collateral by making necessary allocation of such collateral.

      AGTPL may not allow porting in case of failure to meet any of the pre-condition for porting as specified above or any other additional conditions or requirements which AGTPL may prescribe from time to time and on case to case basis.

      It is therefore requested to take note that in the event of the failure to meet any of the condition(s) as prescribed by AGTPL by either the defaulting CM and the non-defaulting TMs/clients/CPs it may result in close out the positions of such non-defaulting TMs/clients/CPs. In such cases, any loss arising out of close out of such positions, the same shall be adjusted from the collaterals of such non-defaulting TMs/clients/CPs and the remaining collateral shall be returned.

    • iii. Immediate return of collateral:

      Collateral of such entities shall only be utilized to the extent of losses due to liquidation of their respective positions and the remaining collateral shall be returned, along with the pay-out due to such entities, if any. As a result, the amount of such pay-out shall be added to the pay-in shortfall of the defaulting CM.

    • iv. In some circumstances, it may be desirable to liquidate the positions and even the collateral, since both are subject to risks. Under such circumstances, not closing out positions/collateral to allow for portability may lead to accumulation of losses. Considering the nature of positions, market conditions and such other risk assessment, AGTPL may at any stage decide to not provide the facility of portability. If AGTPL decides to not provide the opportunity for portability, AGTPL shall crystalize the profits/losses on close-out of positions and the value of collateral arrived at after liquidation of the same.
    • v. AGTPL shall apply provisions of regaining matched book in case positions of the defaulting CM including of its TMs/clients/CPs cannot be liquidated in normal market.
  • c) Stage 3: Close-out of positions and provisional appropriation of collateral
    • i. For the remaining entities after Stage 2, i.e., entities other than the ones who could avail the opportunity of either porting or immediate return of collateral in Stage 2, following process shall be followed:
      • I. AGTPL shall close out all open positions of the defaulting CM, including the positions of TMs/clients/CPs clearing through such CM.
      • II. AGTPL shall first utilize the CM/TM/Client/CP collateral for meeting any losses in close-out of respective positions. It is clarified that TM/Client/CP collateral shall include both allocated collateral (including deemed allocated collateral) and the value of equity securities, mutual fund units, government securities and commodity collateral provided through margin pledge/re-pledge to the level of AGTPL.

• • • • III. In case of any shortfall in collateral of any entity under the CM, any excess proprietary collateral of the TM / CM of such entity shall be used. This shall follow the same order of utilization as in case of blocking of margins. Any shortage in the proprietary collateral of the TM / CM shall be met by applying the SGF of the AGTPL.
      • IV. With regard to the defaulted settlement obligations, following process shall be followed:
        • i. Any pay-out made to the non-defaulting clients in Stage 2 shall be added to the defaulted obligations.
        • ii. The defaulted obligations (including pay-out in Para (i) above) shall be first adjusted with the proprietary obligation of the defaulting CM to the extent of funds payable for the proprietary trades.
          • • Any shortage in the proprietary collateral of the defaulting CM shall be met by applying the SGF of the AGTPL.
          • • Any excess proprietary collateral of the CM shall also be used for meeting the defaulted obligations.
        • iii. Remaining defaulted obligations shall be attributed pro-rata: funds pay-in shortfall shall be attributed pro-rata among TM/clients/CP having funds payable. Such losses shall be recovered from the collateral of the TM/clients/CP available, if any. Any shortage in the collateral of such TM/clients/CP shall be met by applying the SGF of the AGTPL.
        • iv. In case of any defaulted obligations attributed to a TM in Para (iii) above (and in turn to its clients), the process enunciated above at Para (ii) and (iii) above for a defaulting CM and its constituents shall apply, mutatis mutandis, to the TM.
        • V. The aforesaid pro-rata attribution of shortages shall be provisional. The actual attribution of shortages to clients shall be done in Stage-4.
        • VI. In case there is any profit to a TM/client/CP during the close-out process, such close-out profit shall be considered as pay-out due to the TM/client/CP.

    An Illustration on the procedures to be followed in the Stage-2 and the Stage-3 are given at Annexure - III.

  • d) Stage 4: Identification of defaulting clients and final appropriation of collateral

    The procedure for verification and settlement of claims of constituents of defaulting CM shall be as follows:

    • i. The process for identification of defaulting TM/CP/clients and the return of collateral of non-defaulting TM/CP/clients shall be administered by Member Committee (MC) of the AGTPL.
    • ii. The amount that can be claimed by the non-defaulting TM/CP/clients from the AGTPL shall be limited to the allocated collateral (including deemed allocated) and the value of equity securities, mutual fund units, government securities and commodity collateral provided through margin pledge/re-pledge to the level of AGTPL, plus the pay- out (including profit if any during close-out) due to the constituent less the losses in close-out of positions of the constituent.
    • iii. The MC of the AGTPL shall implement the relevant procedures for verification and settlement of claims of the non-defaulting TM/CP/clients of the defaulting CM.

• • • iv. The constituents actually in default shall be identified and the pro-rata attribution of shortages performed in Stage-3 shall be replaced by the actual attribution of shortages. If there has been any excess collateral appropriated at Stage-3 due to pro- rata attribution, such excess appropriation shall be corrected and the constituents shall be returned the collateral in full along with the pay-out due to such entities. This amount shall be recovered from the constituents who have higher shortage (pursuant to actual attribution) than the one attributed on pro-rata basis. If such clients do not have sufficient collateral, then the SGF of the AGTPL.
    • v. For any collateral of a client retained by TM/CM, and not allocated to that client’s account, the AGTPL shall initiate suitable actions before appropriate court of law for liquidating the assets (movable and immovable) of the defaulter member as per the existing provisions.

    Illustration on procedures to be followed in Stage-4 are provided at Annexure – IV

• C. Default of TMs to CMs

  The following procedure shall be adopted in case of default of TM to CM

  • a) The CM shall continue to meet its obligations towards its other constituents, as well as the AGTPL.
  • b) The CM shall close-out all open positions of the defaulting TM (including clients under the TM).
  • c) Under the supervision of the AGTPL, the CM shall appropriate the collateral towards losses. The losses in closing-out open positions and the settlement obligations due from clients of the TM shall be appropriated first from the allocated collateral (as per allocation provided by TM to CM, including deemed allocated) and equity securities, mutual fund units, government securities and commodity collateral provided through margin pledge/ re- pledge to the level of CM/AGTPL of respective clients. Any residual losses as well as the losses in closing-out open positions and the settlement obligations of the TM proprietary account shall be appropriated from the TM proprietary collateral. In case of TM proprietary collateral being insufficient, the losses shall not be appropriated from any other constituent of the CM or any constituent of the defaulting TM.
  • d) After the above utilization towards losses in closing-out open positions of the defaulting TM (and clients under the TM) and net settlement shortfall, all remaining collateral/funds received from the defaulting TM (lying with CM) shall be provided by the CM to the AGTPL.
  • e) Since the TM will be leading to default, the AGTPL shall institute relevant applicable procedures against the TM as per existing Policy.

4. Settlement Guarantee Fund (SGF)

Norms for Settlement Guarantee Fund is given below.

Core Settlement Guarantee Fund (Core SGF)

• a) Objective of Core SGF

  AGTPL shall have a fund called Core SGF to guarantee the settlement of trades executed. In the event of a Clearing Member (member) failing to honour settlement commitments, the Core SGF shall be used to fulfil the obligations of that Member and complete the settlement without affecting the normal settlement process.

• b) Corpus of Core SGF

  The corpus of the fund should be adequate to meet out all the contingencies arising on account of failure of any Member(s). The risk or liability to the fund depends on various factors such as trade volume, delivery percentage, maximum settlement liability of the Members, the history of defaults, capital adequacy of the members, and the degree of safety measures employed by the AGTPL etc.

  A fixed formula, therefore, cannot be prescribed to estimate the risk or liability of the fund. However, in order to assess the fair quantum of the corpus of Core SGF, AGTPL shall consider the following factors:

  • • Risk management system in force
  • • Current and projected volume/turnover to be cleared and settled by AGTPL on guaranteed basis
  • • Track record of defaults of members (number of defaults, amount in default).

  However, Minimum Required Corpus of Core SGF is 5 lakhs as prescribed by Rajasthan Govt. and as may be prescribed by other State Govt.

Annexure – I

Monitoring of Risk Reduction Mode

Suppose the total collateral (allocated collateral plus securities collateral placed through margin pledge/ re-pledge to AGTPL) and margin obligation of CM Proprietary, TM Proprietary and Client level is as given below:

TM level monitoring

In the above table, “Client Margin>90%”, has been calculated as margin for the client less 90% of the client collateral. Risk reduction mode monitoring for TM shall be based on assessment of [TM Prop Margin + Client Margin>90%] against the [TM Prop collateral]. Accordingly, margin utilization percentage of TM1 and TM2 would be as under:

Margin utilization percentage of TM1 = [400 + (60 + 0 + 20)] /500 = 96%

Margin utilization percentage of TM2 = [200 + (20 + 0)] /500 = 44%

In other words, for TM1, margin of Rs 30 is in excess of 90% of its prop collateral, while there is no excess margin for TM2 against its prop collateral. The same has been tabulated below:

CM level monitoring

In the above table, “TM Margin>90%”, or TM Margin in excess of 90%, has been calculated as [Client Margin>90% + TM Prop margin] in excess of 90% of TM prop collateral. Risk reduction mode monitoring for CM shall be based on assessment of [CM Prop Margin + TM Margin>90%] against the [CM Prop Collateral]. Accordingly, margin utilization percentage of CM1 would be as under:

Margin utilization percentage of CM1 = [800 + (30 + 0)]/1200 = 69.1%

Annexure - II

Blocking of Margins

Suppose the total collateral (allocated collateral plus securities collateral placed through margin pledge/ re-pledge to AGTPL) available against various entities are as given below:

• • Trade-1:

  TM-1 Cli-2 trades with margin requirement of Rs 100. Blocking of margin shall be as follows:

  Entity	Collateral (Rs.)	Margin Utilized (Rs)	Blocking under (Rs)	Deemed Allocation (Rs)
  CMTM Prop	1,000	500	300	300
  TM-1 Prop	500	0	0	0
  TM-1 Cli-1	300	0	0	-
  TM-1 Cli-2	300	100	100	-

• • Trade-2:

  TM-1 Cli-1 trades with margin requirement of Rs 600. Blocking of margin shall be as follows:

  Entity	Collateral (Rs.)	Margin Utilized (Rs)	Blocking under (Rs)	Deemed Allocation (Rs)
  CMTM Prop	1,000	0	0	0
  TM-1 Prop	500	0	300	300
  TM-1 Cli-1	300	600	300	-
  TM-1 Cli-2	300	100	100	-

• • Trade-3:

  TM-1 Cli-2 trades with revised margin requirement for Cli-2 of Rs 600. Blocking of margin shall be as follows:

  Entity	Collateral (Rs.)	Margin Utilized (Rs)	Blocking under (Rs)	Deemed Allocation (Rs)
  CMTM Prop	1,000	0	100	100
  TM-1 Prop	500	0	500	600
  TM-1 Cli-1	300	600	300	-
  TM-1 Cli-2	300	600	300	-

• • Trade-4:

  TM-1 Cli-2 trades with revised margin requirement for Cli-2 of Rs 900. Blocking of margin shall be as follows:

  Entity	Collateral (Rs.)	Margin Utilized (Rs)	Blocking under (Rs)	Deemed Allocation (Rs)
  CMTM Prop	1,000	0	00	400
  TM-1 Prop	500	0	500	900
  TM-1 Cli-1	300	600	300	-
  TM-1 Cli-2	300	900	300	-

Annexure - III

Procedures to be followed in Stage-2 and Stage-3

Consider an example of a SCM defaulting. An illustration of the cash settlement obligations of prop/clients and attribution of shortage is provided below (the available collateral shown against different entities comprises of both allocated collateral (including deemed allocated) and value of demat securities collateral provided through margin pledge/re-pledge to the level of AGTPL):

• Scenario 1: All pay-out clients establish not being in default
  • 1. Suppose Client-3 and Client-4 establish within the pre-specified time period that they are not in default, do not have debit balance/dues towards the member and have not received the pay-out due.
  • 2. The remaining collateral of Client-3 and Client-4 (Rs 13 crore and Rs 2 crore respectively), along with the pay-out for the clients (Rs 2 crore each), shall be provided to the clients.
  • 3. The settlement shortfall would now be Rs 9 crore (Rs 5 crore shortfall in net pay-in, plus Rs 4 crore of pay-out made to Client-3 and Client-4).
  • 4. The settlement shortfall of Rs 9 crore shall be first adjusted with the SCM proprietary pay- in obligation of Rs 3 crore. Excess remaining proprietary collateral of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
  • 5. Remaining settlement shortfall of Rs 3 crore shall be attributed pro-rata to clients having pay-in, i.e., settlement shortfall of Rs 1.5 crore each shall be attributed to Client-1 and Client- 2 and appropriated from their collateral.

• Scenario 2: One pay-out client establishes not being in default
  • 1. Suppose Client-3 establishes within the pre-specified time period of not being in default, not having debit balance/dues towards the member and not having received the pay-out due.
  • 2. The remaining collateral of Client-3 (Rs 13 crore), along with the pay-out (Rs 2 crore), shall be provided to the Client-3.
  • 3. The settlement shortfall would now be Rs 7 crore (Rs 5 crore shortfall in net pay-in, plus Rs 2 crore of pay-out made to Client-3).
  • 4. The settlement shortfall of Rs 7 crore shall be first adjusted with the SCM proprietary pay- in obligation of Rs 3 crore. Excess remaining proprietary collateral of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
  • 5. Remaining settlement shortfall of Rs 1 crore shall be attributed pro-rata to clients having pay-in, i.e., settlement shortfall of Rs 0.5 crore each shall be attributed to Client-1 and Client- 2 and appropriated from their collateral.
• Scenario 3: One pay-out client and one pay-in client establish not being in default
  • 1. Suppose Client-1 and Client-3 establish within the pre-specified time period of not being in default, not having debit balance/dues towards the member and not having received the pay-out due, where applicable.
  • 2. The remaining collateral of Client-1 and Client-3 (Rs 7 crore and Rs 13 crore respectively) shall be provided to them. The pay-out due to Client-3 (Rs 2 crore) shall also be provided to Client-3.
  • 3. The settlement shortfall would now be Rs 7 crore (Rs 5 crore shortfall in net pay-in, plus Rs 2 crore of pay-out made to Client-3).
  • 4. The settlement shortfall of Rs 7 crore shall be first adjusted with the SCM proprietary pay- in obligation of Rs 3 crore. Excess remaining proprietary collateral of SCM (Rs 3 crore) shall also be used towards the settlement shortfall.
  • 5. Remaining settlement shortfall of Rs 1 crore shall be attributed to Client-2 (since it is established that Client-1 is not in default, no shortage shall be attributed to Client-1).

Annexure – IV

Procedures to be followed in Stage-4

Illustration 1:

Suppose an SCM had no proprietary positions, and the net pay-in obligations were based on five clients. There was a pay-in shortfall of Rs 300, against the net pay-in of Rs 600. Suppose none of the clients could establish within the pre-specified time period of not being in default, not having debit balance/dues towards the member and not having received the pay-out due. Assume there is no position close-out loss. The pay-in shortfall of Rs 300 would be attributed during the Stage 3 on a pro-rata basis from the clients having pay-in obligations. This would be utilized from their available collateral (the available collateral shown against different entities comprises of both allocated collateral (including deemed allocated) and value of securities collateral provided through margin pledge/re-pledge to the level of AGTPL).

Suppose the actual client defaults and position of payables/receivables are identified as follows:

Accordingly, the remaining collateral of defaulting clients shall be utilized to fulfil the claims of non-defaulting clients. The additional realization and claim settlement is tabulated below:

In the event of the remaining collateral of Client-3 and Client-4 not being sufficient (say, due to excess losses in liquidation of positions), the SGF of the AGTPL shall be applied for such losses.

Illustration 2:

The following illustration demonstrates the limit on maximum admissible claim against the collateral at the AGTPL by the TM/clients/CP of the defaulting CM. The AGTPL shall recognize the claim of the clients up to the collateral allocated by the CM, plus the value of securities re- pledged till the level of the AGTPL, plus the collateral deemed to be allocated based on the margin requirement of the client. Some examples are tabulated below:

In the last example (Client-6), the CM shall not be permitted to allocate collateral or permit client to trade beyond the available collateral. In case of such violations, the claim shall not be admissible, and the collateral (allocated and/or deemed so) shall be treated as proprietary collateral of the CM.

End of Document