Risk Management

      • For every commodity, the maximum price movement during a day is limited by the Price Limits prescribed by the Regulator. Price limits (upper and lower) are based on the Previous Day Closing Price of the Contract and are prescribed in percentage term. If the price band limit is hit intraday, Exchange will relax the price band limits to a higher level, as per the set procedures in accordance with FMC guidelines.
      • Initial Margin
        Initial margin is charged to participants for initiating buy / sell trades and is collected up-front from the clearing members. Initial margin is based on the volatility of the future prices of underlying commodities and is subject to change intraday. Value at Risk (VAR) is a technique used to estimate the probability of loss of value of an asset or group of assets based on the statistical analysis of historical price trends and volatilities.Price change scenarios will be computed to cover a 99% VAR over a period of one day. Daily volatility of the futures prices is considered for the computation of VAR. Volatility is calculated using Exponentially Weighted Moving Average (EWMA) Method.
         
      • Fixing Minimum Initial Margin
        As per directives of the Forward Markets Commission, the VaR based Initial margin on all the commodities future contracts is subject to a minimum percentage defined per commodity as per contract specification.
         
      • Margin for Calendar Spread Positions
        Calendar spread position is defined as counter positions created by a client in two different expiries of a commodity. Calendar spread benefit is given to the members, as calendar spread positions are loss off-setting positions. (As contracts of same commodities tend to have similar price movement, because of this loss in one position of the spread is offset by profit in other position of the spread) Exchange will charge one half (1/2) of the Initial Margin on the 'Calendar spread positions', or at such rate as may be specified by the Exchange from time to time on the contracts identified for extension of Calendar Spread Benefit. The Exchange shall inform the members about the commodities not eligible for Calendar Spread benefit from time to time.
         
      • Tender Margin
        The Exchange may charge tender margins on contracts during the last 3-5 days of Expiry depending on contract specifications. Such margins are different for different commodities.
         
      • Delivery Margin
        The Exchange may charge delivery margin on all matched positions from the date of Expiry of the contract to the date of delivery settlement of the contract. The delivery margin percentage is different for different commodities.
         
      • Special / Additional margins
        The Exchange may levy additional margins as may be decided from time to time. These margins are over and above to the initial margin.
        • Unidirectional margins on long/short side are termed as Special Margins
        • Margins levied on both long and short side are termed as Additional Margins
        • Removal of such margins is at the discretion of Exchange
      • Regulatory Margins
        Any margin that is levied by the direction of the Regulator is termed as Regulatory margins. Such margins could be one sided i.e. either on long/ short or on both sides. Removal of such margins is at the discretion of the Regulator.
         
      • Failure to Pay Margins
        The Member who does not have sufficient funds in the Margin account to cover for various margins charged by the Exchange shall go into the square off mode. The member will remain in square off mode till the time he does not fulfill his margin commitments/or reduces positions such that the deposits are sufficient to make good the margin requirements. In Square off mode, member is not allowed to take fresh positions. However, member can log in to the terminal to square off his positions thereby reducing the margin utilization.

        The Exchange may charge penalty on violations of margin limits at such percentage as determined by the Exchange from time to time.

    • Profit/loss for all the Members on all Open Positions is tracked real time by the Exchange and settled in cash on the next trading i.e. T+1 day.This process of settlement of profit/loss at regular interval is called Mark to Market.
      All the open positions of the Members are marked to market at the end of the day and the MTM is determined as below:

      • On the day of entering into the contract, it is the difference between the bought / sold value and settlement value for that day.
      • On any intervening days, when the member holds an open position, it is the difference between the daily settlement value for that day and the previous day's settlement value.
      • On the expiry date if the member has an open position, it is the difference between the final settlement value and the previous day's settlement value The MTM is settled in cash on the T+1 day.If T+1 happen to be a banking holiday, then MTM would be settled on next clearing day.

      Benefits of Mark to Market:
      Daily MTM settlement ensures, buyers/sellers settle their trades on a daily basis via a Daily Settlement Price (DSP).This means, even if on the expiry day, the Final Settlement Price (FSP) value is different from the entry value; the net settlement for the buyer / seller is based on their entry value.

      The MTM of member is settled on a daily basis.This ensures that losses do not accumulate in members account at any point of time.

      Monitoring of Mark to Market Loss:
      The MTM pay-in of the Clearing Member is compared with the margin deposits to ensure that the MTM pay-in is always within pre specified limit.When the loss of a member increases beyond the pre specified levels, the system will automatically generate alerts at Trader Workstation.

      In case the MTM loss reaches/goes beyond upper limit set by the Exchange, the Member shall go into the Square off Mode.

      In square off mode, the member is not allowed to take fresh positions.The Member should immediately fund his pay-in account if there is MTM shortage which is resulting into Member receiving alerts and/or going into square off mode.
      • As a risk containment measure, the Exchange shall have restrictions on the maximum order size that the Member shall put on the Exchange platform. The Member who has higher Margin Limits and wishes to increase the single order limit can contact the Exchange for increase in Single Order Limit. The Exchange may increase the Single order limit depending on the margin limit and after due diligence.
      • Position wise limits are the maximum open position that a Member and/or his constituents can have in any commodity/contract at any point of time. Such limits are different for different commodities/contracts.Position Limits are specified at Member and Client levels.The Exchange may specify different position limits for near month contracts.The position limits applicable on various contracts applicable at the client level and the member level will be announced at the time of the launch of the contract. Any change in these levels shall be intimated to members vide circulars of the Exchange.


        Monitoring of Position Limits
        Members/client breaching position limit shall be liable to pay penalty to the Exchange based on the directives of the Exchange from time to time.The violators of position limits will be accountable for their large positions and will submit detailed information pertaining to their trading activities whenever the information is sought by the Exchange.