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TMI BlogComprehensive Risk Management Framework for Electronic Gold Receipts (EGR) segmentX X X X Extracts X X X X X X X X Extracts X X X X ..... ars, the risk management framework applicable to the EGR segment on the recognized Stock Exchange/s is prescribed in Annexure A to this circular. 4. This circular shall come into force with immediate effect. 5. This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 , to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 6. This circular is issued with the approval of competent authority. 7. This circular is available on SEBI website at www.sebi.gov.in under the category Circulars and Info for Electronic Gold Receipts . Yours faithfully, Priyanka Mahapatra Deputy General Manager Division of Risk Management Commodity Derivatives Market Regulation Department [email protected] ANNEXURE A COMPREHENSIVE RISK MANAGEMENT FRAMEWORK FOR EGR SEGMENT MARGINS 1. Overview The core of the risk management system is the liquid assets deposited by members with the Clearing Corporation (CC). These liquid assets shall cover the following requirements: 1.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Bullion (Note j ) 20% Gold ETF/Bullions as collateral for any clearing member shall not exceed 30% of the total liquid assets of the clearing member (Note f ) EGR 20% No limit Notes: a. The valuation of the liquid assets shall be done on a daily basis after applying applicable haircuts. b. The Stock Exchange shall lay down exposure limits either in rupee terms or as percentage of the total Liquid Assets that can be exposed to a single bank directly or indirectly. The total exposure towards any bank would include Bank Guarantees issued by the bank as well as debt or equity securities of the bank which have been deposited by members towards total liquid assets. Not more than 1% of the total liquid assets deposited with the Stock Exchange, shall be exposed to any single bank which has a net worth of less than INR 500 crores and is not rated P1 (or P1+) or equivalent, by a recognized credit rating agency or by a reputed foreign credit rating agency, and not more than 10% of the total liquid assets deposited with the Stock Exchange shall be exposed to all such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3. The MTM losses shall be collected on the gross open position of the member. The gross open position for this purpose would mean the gross of all net positions for all the clients of a member including his proprietary position. For this purpose, the positions of all the clients of a broker would be grossed. Further, there would be no netting across two different settlements. 3.4. There would be no netting off the positions and setoff against MTM profits across 2 rolling settlements i.e. T day and T-1 day. However, for computation of MTM profits/losses for the day, netting or setoff against MTM profits would be permitted. 3.5. The MTM losses so collected shall be released along with the pay-in, including early pay-in of EGR. 4. VaR Margin 4.1. Computation of VaR Margin The VaR Margin is a margin intended to cover the highest loss that can be encountered on 99.9% of the days (99.9% Value at Risk). The VaR Margin would be based on 6 , subject to minimum initial margin of 9%. 4.2. Collection of VaR Margin 4.2.1. The VaR margin shall be collected on an upfront basis by adjusting against the total liquid assets of the member at the time of trade. 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandated by SEBI. Clearing Corporations are encouraged to analyse these situations and bring the matter to the attention of SEBI for further action. 6.2. Any additional margins that the Clearing Corporations may impose shall be based on objective criteria and shall not discriminate between members on the basis of subjective criteria. 7. Margin provisions for intra-day crystallised losses 7.1. The intra-day crystallised losses shall be monitored and blocked by Clearing Corporations from the free collateral on a real-time basis only for those transactions which are subject to upfront margining. For this purpose, crystallised losses can be offset against crystallised profits at a client level, if any. 7.2. If crystallised losses and applicable margins (as defined above) exceed 90% of the free collateral available with the Clearing Corporation, then the entity shall be put into risk reduction mode as given under para 17. 7.3. Crystallised losses shall be calculated based on weighted average prices of trades executed. 7.4. Adjustment of intraday crystallised losses shall not be done from exposure free deposit of the clearing member. 8. Provision of Early ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = Short-collection/non-collection of margins per client per segment per day 11.2. If short/non-collection of margins for a client continues for more than 3 consecutive days, then penalty of 5% of the shortfall amount shall be levied for each day of continued shortfall beyond the 3rd day of shortfall. 11.3. If short/non-collection of margins for a client takes place for more than 5 days in a month, then penalty of 5% of the shortfall amount shall be levied for each day, during the month, beyond the 5th day of shortfall. 11.4. All instances of non-reporting shall amount to 100% short collection and the penalty as applicable shall be charged on these instances in respect of short collection. 11.5. The penalty shall be collected by the Clearing Corporation within five days of the last working day of the trading month and credited to its SGF. 11.6. The margin statement which is forwarded on a daily basis by the broker to the clients shall include a column stating the margin charged by the Stock Exchange/Clearing Corporation. 11.7. When penalty is being collected by a broker for short collection/ non-collection of other than upfront margins from a client, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker shall be immediately deactivated for fresh positions and will only be allowed to square-off existing positions. 14.2. Pay-in shortfall: 14.2.1. In cases where the amount of shortage in a settlement for a clearing member is in excess of the deposit prescribed as per SEBI (Stock Brokers) (Amendment) Regulations,2022, the clearing facility of the member shall be withdrawn and the EGR pay-out due to the member shall be withheld. 14.2.2. In cases where the amount of shortage exceeds 20% of the deposit but less than the deposit on six occasions within a period of three months, then also the clearing facility of the member shall be withdrawn and the EGR pay-out due to the member shall be withheld. 14.2.3. Upon recovery of the complete shortages, the member shall be permitted to provide clearing facility subject to his providing a deposit equivalent to his cumulative funds shortage as the 'funds shortage collateral'. Such deposit shall be kept with the Clearing Corporation for a period of ten rolling settlements and shall be released thereafter. Such deposit shall not be available for adjustment against margin liabilities and also not earn any interest. The depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis at member level. 19. Activity Schedule for T+1 Rolling Settlement The activity schedule is as under: Sr. No. Day Time Description of activity 1 T Trade Day By 2.00 AM Completion of process and download provisional obligation files to stock brokers/ custodians by the Clearing Corporation. 2 T+1 By 2.00 PM Funds and EGR pay-in By 4.30 PM Funds and EGR pay-out Custodian confirmations shall happen before beginning of T+1. 20. Settlement of Funds 20.1. Clearing Corporation shall empanel clearing banks based on various financial and operational criteria. Clearing members shall open single settlement account with any of the clearing banks. 20.2. The paying member shall have clear funds in settlement account on settlement day. The Clearing Bank shall debit the paying members' account. in accordance with electronic instructions received from Clearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Day Description of activity 1 T Trade Day 2 T+1 Pay-in/Pay-out of EGR and funds Auction settlement for T day trade 3 By T+1 Auction session 4 By T+2 Pay-in/pay-out and close-out of auction 23.2. In case of bank holidays, when multiple settlements (say S1 and S2) are conducted on the same day (say Tm), on the working day immediately following the day(s) of the closure, the auction session shall be as under: 23.2.1. The auction of first settlement (S1) shall be conducted on the same day (Tm) and settled by next day (Tm+1). 23.2.2. The auction for the second settlement (S2) shall be conducted on the next day (Tm+1) along with the shortages/auction of that day. The settlement of the same shall happen by the subsequent day (Tm+2). 24. Close-out Procedure 24.1. The Close-out Procedure shall be as below: The close out Price shall be the highest price recorded in that EGR on the Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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