Margins applicable on client positions have to be compulsorily collected from the clients and reported to NCCL by the members.
- 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.
- The members are required to collect upfront initial margins 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 clearing corporations/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 as clients are allowed 2 days to pay margin due from them
- 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 not be included in standard client margin reporting and hence no penalty shall be levied on short collection / non-collection of the same by the members from their clients.
- The members shall report to NCCL on T + 5 day the actual short collection/non-collection of all margins from clients.
- 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
- In case of short-collection /non collection of initial margins, the above penalty structure would be applicable from T day.
- Penalty for short-collection/non-collection of margins from clients due to increase in initial margins resulting from devolvement of options into futures shall not be levied for the first day.
E.g. assuming the option contract expiry is on February 21, 2018. In case of devolvement of options into futures, the initial margin requirement shall increase on February 22, 2018 however no penalty for short-collection / non-collection from clients due to increase in initial margins resulting from devolvement of options into futures is applicable for the first day. This increased initial margin amount may be collected by February 23, 2018 and accordingly, the member may report the margin collected from clients after considering the effect of collection of such increased amount.
- 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.
- The penalty shall be collected by NCCL not later than five days of the last working day of the trading month.
- 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.)
- 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 the Exchange 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.
- NCCL / Exchange shall examine the implementation of these instructions during the inspection of its members. If during inspection or otherwise, incorrect reporting on collection of margin from client by member is found, the member shall be penalized up to 100% of such amount short collected.
- 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.