Client Margin Reporting and Segregation & Monitoring (Allocation) of collateral at Client Level

1. Process for Client Margin Reporting (short / non-collection of margins)
   1. The 'margins' mean initial margin, extreme loss margin (ELM), mark to market margin, special/additional margin, delivery margin or any other margin as prescribed by NCCL to be collected by member from their clients.
   2. The members are required to collect upfront initial margins (VaR Margin + ELM) from their clients. The members will have time till 'T+2' working days to collect margins (except initial margins and ELM) from their clients. The clients must ensure that the initial margins and ELM are paid in advance of trade and other margins are paid as soon as margin calls are made by NCCL/Members. The period of T+2 days has been allowed to members to collect margin from clients taking into account the practical difficulties often faced by them only for the purpose of levy of penalty and shall not be construed that clients are allowed 2 days to pay margin due from them.
   3. The Risk Parameter Files used for collecting margins from the Members shall also be used for generating margin obligations from the clients throughout the trading hours.
   4. Reporting of peak margin collection

      The provisions with respect to reporting of peak margin collection are as follows: -

      • NCCL shall send minimum 5 snapshots of client wise margin requirement to Trading Members (TM)/Clearing Members (CM) for them to know the intraday margin requirement per client/TM/Custodial Participant. The snapshots would be randomly taken in pre-defined time windows.
      • Further, NCCL shall send an additional minimum two snapshots for commodity derivative contracts, which are traded till 9:00 PM.
      • Margin for the purpose of peak margin shall consists of Initial Margin and Extreme loss margin (ELM).
      • The maximum margin obligation across each of the intra-day snapshots shall be the peak margin.
      • Effective August 01, 2022, 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 SPAN margin parameters as well as ELM requirements. This change 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 Clearing Corporation shall continue to be updated on intraday, as per the extant provisions.
      • The client wise margin file (MG-18 / MG-19) provided by NCCL to CMs/TMs shall contain the EOD margin requirements of the client/TM/Custodial Participant as well as the peak margin requirement of the client/TM/Custodial Participant, across each of the intra-day snapshots, the collateral value at EOD, collateral value at peak short allocation, initial margin at peak short allocation and peak (intraday) short allocation amount. (Note: Collateral Value at EOD in MG-18/MG-19, is the value at the time of system EOD. However, this collateral value at EOD is not used to compute the EOD short allocation amount)
      • The member shall have to report the margin collected from each client/TM/Custodial Participant, as at EOD and peak Initial margin collected during the day.
      • The margins reported shall be compared in the following manner:
        1. EOD margin obligation of the client/TM/Custodial Participant shall be compared with the respective client/TM/Custodial Participant margin available with the TM/CM at EOD.
        2. Peak margin obligation of the client/TM/Custodial Participant, across the snapshots, shall be compared with respective client/TM/Custodial Participant peak margin available with the TM/CM during the day

      Higher of the shortfall in collection of the margin obligations at (a) and (b) above, shall be considered for levying of penalty as per the extant framework.

   5. Reporting of Peak Margins of Custodian Participants (CP) trades
      • NCCL 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 (MARGIN_REP) provided to the clearing member.
      • The peak margin requirement of the CP across each of the intra-day snapshots shall be included in MG-18 file provided at the end of day to the clearing members
      • Clearing member shall report the end of day and the peak margins through NCFE.
      • In case of any shortages in the reporting, the same shall be considered as shortfall of margin collection and penalty for the same shall be applicable. The penalty shall be levied and collected from the clearing member of the CP. The clearing member can collect such penalty from the respective CP
      • Reporting of peak margins by clearing member shall be a confirmation of availability of upfront margins at time of trade.
      • Even cases where trades are rejected by clearing member due to mismatch or error, the clearing member shall be responsible to report peak margins/penalty for short reporting. Such penalty can be collected from the respective Trading Members by the clients/clearing member.
      • The existing process of trade confirmation and settlement will continue between clearing member and Clearing Corporations, accordingly till the trade is confirmed by clearing member the collateral of the clearing member of the executing trading member would be blocked by the Clearing Corporation.
   6. Pre expiry margin on Options shall be levied on Options buyers (holders) and Options sellers (writers). The pre-expiry margin on Options shall be apart from other margins like initial margin, additional margins, spread margins etc. Pre-expiry margins shall be included in standard client margin reporting and hence penalty shall be levied on short collection / non-collection of the same by the members from their clients.
   7. The members shall report to NCCL on T + 5 day the actual short collection/non-collection of all margins from clients.
   8. Penalty shall be levied as per the details given below on the members for short / non-collection of margins from their clients beyond T + 2 working days:

      For each member

      'a'	Per day penalty as % of 'a'
      (< INR 1 lakh) and (< 10% of applicable margin)	0.5
      (>= INR 1 lakh) or (>= 10% of applicable margin)	1.0

      Where a = short-collection / non-collection of margins / short allocation per client per day

      In case of short-collection /non collection of initial margins, the above penalty structure would be applicable from T day.

   9. All instances of non-reporting shall amount to 100% non-collection of margin and the penalty as prescribed above shall be charged on these instances in respect of non-collection.
   10. The penalty shall be collected by NCCL not later than five days of the last working day of the trading month
   11. With respect to repeated defaulters, who default 3 times or more during a month, the penalty would be 5% of the shortfall in such instances. (Every short/non collection of margin is to be considered as one instance of default. In case margin shortage is reported for a client 3 times or more during a month, i.e., either in consecutive instances or in 3 different instances, the penalty would be 5% of the shortfall from 4th instance of shortfall. E.g. shortage is reported for a client on 1st and 2nd day of month consecutively; thereafter again on 10th day shortage is reported. So the number of instances are 3 and in case shortage is reported on any day later in the month, the penalty shall be 5% of the shortfall amount for all such instances beyond 3rd instance.)
   12. All the penalties collected as prescribed above shall be credited to the Settlement Guarantee Fund of the Clearing Corporation.
   13. Penalty is imposed only for actual short/non-collection of margins from clients. Member are advised to download penalty file after margin reporting is completed and verify the penalty levied. If member realize short/non-collection is reported on account of technical errors in reporting after the closure of ‘T+5’ window, then member has to submit request to NCCL for acceptance of revised file by 15th day of the month of billing of the said penalty. Member are advised to place suitable internal controls to avoid any instances of technical error/s in margin reporting.
   14. Report on the penalties as collected shall be submitted to SEBI by the 10th day of the following month.
   15. In exceptional situations wherein members and/or clients were not in position to square off the open positions to avoid levy of penalty for margin shortfall due to lack of adequate liquidity and/or high market volatility, NCCL may take a suitable decision depending upon the merit of the circumstances and keep SEBI informed of the same.
2. Monitoring mechanism for Short allocation
   1. Minimum client margin collection requirement less Client collateral value (only where client margins are greater than client collateral value) shall be considered short allocation. For this purpose, minimum client margin collection will mean margins required to be collected on upfront basis, excluding margins which can be collected by T+2.
   2. Client collateral value for this purpose shall be collateral value allocated by the CM to the client + value of securities re-pledged at NCCL for that client (value shall be after applying all prudential norms of NCCL other than 50:50 requirement).
   3. Such monitoring of short allocation shall happen intraday at the time of peak margin snapshot and at end of day.
   4. Client level short allocation shall be computed intra-day based on the peak margin snapshot and client collateral value at the time of the respective peak margin snapshot.
   5. Client level short allocation shall be computed at end of day based on the EOD minimum upfront margins required to be collected and client collateral value at EOD (Collateral Value at the allocation cut off time shall be considered for computing the EOD short allocation).
   6. The maximum amount of short allocation across all snapshots and EOD shall be considered as short allocation.
   7. Clearing Members shall ensure that Client Collateral value for a TM Pro/CP/client is at all times greater than or equal to the minimum margin collection requirement for the respective TM Pro/CP/client.
   8. Monitoring of EOD short allocation
      • In case of instances of EOD short allocation, members shall have an opportunity to report amount of Excess collateral (allocation and value of pledged securities over and above minimum margin) available with another Clearing Corporation. In case of such reporting, penalty will not be applicable.
      • Members shall use columns ‘Excess Collateral with Other CCs’ to report excess collateral available with other clearing corporations through file upload functionality available in NCFE web portal. The amount should be reported against the respective CC viz. MCXCCL, ICCL, NCL wherever excess collateral is available.
      • Such reporting shall be done by TMs for clients and by CMs for TM proprietary and CP code by T+5.
      • NCCL shall compute revised EOD short allocation amount after adjusting for the aforementioned reporting. The revised amount computed shall be considered as short allocation and penalty as specified shall be levied.
      • In case of false reporting, penalty as applicable on false margin reporting will be applicable.
      • The penalty on EOD short allocation is applicable from August 1, 2022.
      • Intraday/Peak short allocation Reporting
        • In case of instances of intraday short allocation, members shall have an opportunity to report amount of client collateral available with permitted reasons. In case of such reporting, penalty will not be applicable.
        • Members shall be provided details of client wise, maximum intra-day short allocation in the MG 18 and MG 19 file.
        • Members shall have an opportunity to modify the client collateral Value (Peak) available against such short allocation due to below mentioned reasons through file upload functionality available in NCFE web portal
          1. Excess collateral (allocation and value of pledged securities over and above minimum margin) available in another Clearing Corporation.
          2. Trades executed in wrong client code codes
          3. Allocation request submitted to NCCL however, allocation request accepted later.
          4. Securities re-pledged by CM to CC in the depository but not processed by CC (securities re-pledged by clearing member before considering peak short allocation snapshot)
        • For reporting the modified client collateral value (Peak), the member shall enter the incremental amounts in the prescribed upload format within the corresponding reason code. The modified Client Collateral Value (Peak) shall be determined by the NCCL after considering the value entered by the member against the respective reason code. NCCL shall compute revised intraday short allocation amount after adjusting for the aforementioned reporting.
        • NCCL shall calculate penalty after adjusting for the aforementioned modification and validation.
        • Such reporting of incremental Client Collateral Value (Peak) shall be done by TMs for their clients and by CMs for TMs and CP clients (in line with Margin reporting), by T+5.
        • In case false reporting, penalty as applicable on false margin reporting will be applicable.
        • The Penalty for intraday short allocation of collateral at Client Level is applicable from trade date May 2, 2023.
        • The members are further advised to ensure that while reporting the excess collateral with other CCs for Peak (Intraday) Short Allocation and EOD Short Allocation, the excess amount so reported should not be more than the actual short allocation amount.
3. Penalties for short allocation and short margin reporting
   1. In order to avoid duplicity of penalty levied for the same violation (i.e., non-collection and consequent non-allocation of client collateral), the penalty for short allocation and short margin reporting shall be combined (the provisions regarding higher penalty for multiple days shortfall etc. shall be considered across the violations and not separately.)
   2. A single penalty as per the existing penalty structure (applicable for client margin short reporting, including exceptions such as member has failed to upload the margin reporting due to some technical error etc. ) shall be applicable. The amount to be considered for levy of penalty shall be the highest of:
   3. End-of-day margin short-reported amount (margins required to be collected on upfront basis and including margin required to be collected by T+2)
   4. Highest intraday short allocation amount (after considering the reporting for valid reason codes if any) (margins required to be collected on upfront basis, excluding margins which can be collected by T+2)
   5. End-of-day short allocation amount (after considering the reporting for valid reason codes if any) (margins required to be collected on upfront basis, excluding margins which can be collected by T+2)