Salient features of the cross margining available are as under:
- Cross margining benefit is available across Cash and Derivatives segment
- Cross margining benefit is available to all categories of market participants
- For client/entities clearing through same clearing member in Cash and Derivatives segments, the clearing member is required to intimate client details through a file upload through Collateral Interface for Members (CIM) to avail the benefit of Cross margining
- For client/entities clearing through different clearing member in Cash and Derivatives segments they are required to enter into necessary agreements for availing cross margining benefit.
- For the client/entities who wish to avail cross margining benefit in respect of positions in Index Futures and Constituent Stock Futures only, the entity's clearing member in the Derivatives segment has to provide the details of the clients and not the copies of the agreements. The details to be provided by the clearing members in this regard are stipulated in the Format.
Positions eligible for cross-margin benefit:
Cross margining is available across Cash and F&O segment and to all categories of market participants. The positions of clients in both the Cash and F&O segments to the extent they offset each other are being considered for the purpose of cross margining as per the following priority
- Index futures and constituent stock futures in F&O segment
- Index futures and constituent stock positions in Cash segment
- Stock futures in F&O segment and stock positions in Cash segment
- In order to extend the cross margin benefit as per (a) and (b) above, the basket of constituent stock futures/ stock positions should be a complete replica of the index futures. NSE CLEARING specifies the number of units of the constituent stocks/ stock futures required in the basket to be considered as a complete replica of the index on the website of the exchange (www.nseindia.com/NSCCL/Notification) from time to time.
- The number of units are changed only in case of change in share capital of the constituent stock due to corporate action or issue of additional share capital or change in the constituents of the index.
- The positions in F&O segment for the stock futures and index futures should be in the same expiry month to be eligible for cross margining benefit.
- The position in a security is considered only once for providing cross margining benefit. E.g. Positions in Stock Futures of security 'A' used to set-off against index futures positions will not be considered again if there is an off-setting positions in the security 'A' in Cash segment.
- Positions in option contracts are not considered for cross margining benefit.
Cross-margin benefit in case of Futures on Global Indices
The cross margin benefit shall be provided for offsetting futures position to the extent where the number of contracts of S&P 500 and DJIA are in the ratio of 5:6
Entities/clients eligible for cross margining
The clearing member has to inform NSE CLEARING the details of client to whom cross margining benefit is to be provided. The cross margining benefit is available only if clearing members provide the details of clients in such manner and within such time as specified by NSE CLEARING from time to time.
- Client/entity settling through same clearing member in both Cash and F&O segment
- The clearing member has to ensure that the code allotted (code used while executing client trade) to client/entity in both Cash and F&O segment is same
- The clearing member must inform the details of clients to whom cross margining benefit is to be provided through a file upload facility provided in Collateral Interface for Members (CIM).
- Client/entity settling through different clearing member in Cash and F&O segment
- In case a client settles in the Cash segment through a trading member / custodian and clears and settles through a different clearing member in F&O segment, then they are required to enter into necessary agreements.
- In case where the client/entity settles through Custodian in Cash segment, then the client/entity, custodian and the clearing member in F&O segment are required to enter into a tri-partite agreement as per the format
- In case where the client/entity clears and settles through a member in Cash segment, and a different clearing member in F&O segment, then the member in Cash segment and the clearing member in F&O segment have to enter into an agreement as per the format. Further, the client/entity must enter into an agreement with the member as per the format.
The clearing member in the F&O segment must intimate to NSE CLEARING the details of the client/entity in F&O segment along-with letter from trading member/custodian giving details of client/entity in Cash segment who wish to avail cross margining benefit.
Facility of maintaining two client accounts
As specified by SEBI, a client may maintain two accounts with their respective members to avail cross margin benefit only. The two accounts namely arbitrage account and a non-arbitrage account may be used for converting partially replicated portfolio into a fully replicated portfolio by taking opposite positions in two accounts. However, for the purpose of compliance and reporting requirements, the positions across both accounts shall be taken together and client shall continue to have unique client code.
Computation of cross margining benefit
- The computation of cross margining benefit is done at client level on an online real time basis and provided to the trading member / clearing member / custodian, as the case may be, who, in turn, shall pass on the benefit to the respective client.
- For institutional investors the positions in Cash segment are considered only after confirmation by the custodian on T+1 basis and on confirmation by the clearing member in F&O segment.
- The positions in the Cash and F&O segment are considered for cross margining only till time the margins are levied on such positions.
- While reckoning the offsetting positions in the Cash segment, positions in respect of which margin benefit has been given on account of early pay-in of securities or funds are not considered.
- The positions which are eligible for offset, are subject to spread margins. The spread margins are 25% of the applicable upfront margins on the offsetting positions or such other amount as specified by NSE CLEARING from time to time.
The difference in the margins on the total portfolio and on the portfolio excluding off-setting positions considered for cross margining, less the spread margins is considered as cross margining benefit.
Provisions in respect of default
In the event of default by a trading member / clearing member / custodian, as the case may be, whose clients have availed cross margining benefit, NSE CLEARING may:
- Hold the positions in the cross margin account till expiry in its own name.
- Liquidate the positions / collateral in either segment and use the proceeds to meet the default obligation in the other segment.
- In addition to the foregoing provisions, take such other risk containment measures or disciplinary action as it may deem fit and appropriate in this regard.
Additional reports providing details of cross margin benefit and off-setting positions at client level are provided to members as per the format specified