Initial margin constitutes the margin obligation required to be fulfilled by a Member prior to placement of Borrow and/ or Lend orders. Members are to deposit initial margin in the form of cash or securities, in advance, before placing any borrow and/ or lend orders. Presently members are required to deposit upfront a minimum cash of Rs.1,00,000 towards Initial Margin. Any additional requirement may be met from surplus available in securities deposited towards Borrowing Limit. All members are required to provide Initial Margin on their TREP wise net trade positions.
Initial margin is charged at a rate notified to the members from time to time on the net repayment value of outstanding positions for each TREP ID. The rate can be changed by CCIL after duly notifying the member and can be different based on tenor of Triparty Repo (TREP IDs) or for separate class of members Moreover, while arriving at the net outstanding positions for each TREP ID, offset is allowed between borrow and lend trades on FIFO basis and loss if any due to such offset, is also recovered as part of Initial Margin.
Borrowing limit is a limit given to members against the value of collateral deposited by them, net of haircut, to enable them to borrow funds under Triparty Repo arrangement.
The eligible securities deposited by a member in Triparty Repo Collateral towards borrowing limit are subjected to a valuation exercise at the end of each business day. The valuation is carried out using CCIL’s mark-to-mark price for such securities. Aggregate value of securities contributed by a member (subject to collateral concentration limits), net of haircut, rounded downwards to the nearest rupee is set as permissible borrowing limit for such member. Any security deposited during the day as collateral towards borrowing limit is also revalued at last available MTM price of the security and such a value, net of haircut, is made available as Borrowing Limit. Value of any security withdrawn during the day is reduced from the available borrowing limit.
Presently all Central Government Securities, Treasury bills and SDLsare accepted as collateral for borrowing limit. While the collateral deposit in liquid and semi-liquid securities (market value net of haircut) is fully eligible for borrowing limit, for availing Borrowing limits against, Illiquid Government of India Securities and SDLs collateral concentration limits are in place. CCIL periodically prescribes a list of such securities eligible along with their liquidity category for contributions as collateral by members.. Certain special securities issued by Government of India like oil marketing bonds etc may be made eligible for acceptance as contributions towards Triparty Repo Collateral, if the security meets the liquidity criteria for becoming eligible, as per CCIL's Risk Management Policy. Haircut rates for Special Bonds, FRBs and SDLs the haircuts are set at substantially higher level.
The market value of a security, offered as collateral, may depreciate before realization due to rise in interest rates. To take care of the possibility of such reduction in value, CCIL imposes haircut on the market value of securities placed by the members as collateral. Hair-cut rate is security specific, based on Value at Risk for the security for a 5 day holding period, adjusted for pro-cyclicality. Haircuts for illiquid and semi-liquid securities are set at higher levels by using appropriate multiplicands based on their levels of liquidity.
Borrowing results in utilization of borrowing limit. The utilized portion of the borrowing limit of a member would be equal to the aggregate repayment value of the net borrowing outstanding for each TREP ID in the account of such member. Face value of the Securities covering the outstanding borrowings are debited from borrowers GILT account and credited to the lenders GILT account maintained with CCIL.
Securities in excess of the required collateral for Tri party Repo obligation/any other margin utilisation can be withdrawn by a member after giving required notice as per the Regulations applicable for the segment. Securities credited to the lender’s GILT account, on account of its lending, with CCIL can be substituted before session closure. Such substitution is allowed till T+0 trading session closure. In case of term TREPS, securities credited to the lender’s account would continue till the maturity unless the borrower wants a substitution.
Mark to Market Margin (MTM) constitutes the margin obligation required to be fulfilled by a member to cover the notional loss on account of adverse movement in rates for T+1 trades and/ or depletion in value of securities deposited in Triparty Repo Collateral compared to outstanding net borrowing positions.
All outstanding T+1 trades of the day are considered for End of the Day MTM margin computation. End of the day MTM rates for various TREPs are computed as per process described below. MTM loss on Tri party Repo trades is arrived at after allowing full offset between positions in different TREPs. Net loss, if any, is collected as MTM Margin - net MTM gains are ignored. MTM margin applicable on trades is treated as incremental MTM margin payable at EOD debited immediately on assessment of the same at end of the day. In case of a resultant shortfall in margin, Members are required to fund their Triparty Repo Collateral account within stipulated time on the next business day. Similarly, based on the Market to Market valuation of securities done either at end of day and/ or on intraday basis, in case there is an MTM margin call, Members are required to contribute securities in Triparty Repo Collateral to the extent of MTM margin call. Failure to do so attracts penalty.
CCIL gives primacy to the traded interest rates. For the TREPs traded during a day, weighted average rate of last five trades of the day in the said TREP (or of all trades, if number of trades in a TREP during the day is less than five) are taken into consideration. Market outliers are ignored for this purpose. In case there is no trade in a TREP on a particular day in the past and 2nd leg of which is due for a settlement, rate interpolated or extrapolated from trades in TREPs of nearby maturities or interest rate in inter-bank market for corresponding tenor is used. MTM prices computed every day in the Securities Segment are used to value the securities deposited as Triparty Repo Collateral towards Borrowing Limit. It is the same as is applicable for outright/ market repo trades.
Sudden volatility in interest rates / bond prices during the day may substantially erode the Initial margins / hair cut amount collected from the members. CCIL therefore, everyday at 12.00 noon & 3 PM revalues all outstanding trades of the members as at the time of computation (including trades outstanding at previous EoD and new trades concluded on the current day) ,using the latest available rates. Collaterals are revalued using the intra-day MTM prices arrived at for computation of intra-day MTM margin in Securities segment. Net MTM loss in the portfolio of a member is computed as sum of net MTM value depletion on outstanding trades and reduction in value of collateral under charge. If the net MTM Loss arrived at as above exceeds a specific percentage (as notified from time to time) of the sum of the haircut value of collateral under charge and the initial margin collected, the difference is collected as intra-day MTM margin.
Single Order Limit (SOL) is a limit allocated by CCIL to each member. The member can place a single borrow and / or lend order in the order matching system only upto such limit. Pre-order margining process ensures that member would not be able to place an order in trading platform without adequate collateral / Initial Margin.
Default Fund in respect of its Triparty Repo Segment has been set up with a view to meeting losses arising out of any default by the members of this segment in discharging their obligations.
Default Fund quantum is based on the highest stress loss observed in the preceding six months and is reviewed at end of every month or at such frequency as decided by CCIL from time to time. A member’s contribution to the default fund is determined based on 1) Average of (a) outstanding gross trade volume of the member and (b) Initial margin contributions and 2) Highest of its Stress Loss, during preceding six months period, with 50:25:25 as weights for these components, respectively. The minimum contribution for a member is Rs. 10 Lacs.
The securities contributed by the members towards Default Fund are valued daily at end of the day. If the value of the securities net of haircuts falls below a threshold level as notified by Clearing Corporation from time to time, members are required to contribute such additional sums to the Default Fund as may be necessary
Operational FAQs
Borrowing Limit is allowed against collateral deposit in GOI securities (including STRIPS) categorised by CCIL as liquid and semi-liquid securities up to 100% (market value net of haircut) of such collateral deposit. However, Borrowing Limit against collateral deposit in illiquid GOI securities and SDLs is capped at 20% (market value net of haircut) of the collateral deposit in liquid and semi-liquid securities (market value net of haircut). Further, no limit is allowed on collateral in illiquid GOI securities/SDLs on a stand-alone basis.
As explained above, borrowing limit against illiquid GOI securities /SDLs is allowed at 20% of the collateral deposited in liquid and semi-liquid GOI securities. The liquidity category of all the GOI securities is reviewed monthly and the changes are effected after giving 15 days’ notice. In such case, if any Liquid/semi-liquid GOI Security (ies), against which 20% borrowing limit was allowed on the collateral in illiquid GOI securities/SDLs become illiquid, the limit available against illiquid GOI securities/ SDLs would become zero. Further, if the collateral is in only Floating Rating Bonds, no borrowing limit will be available in collateral in illiquid GOI bonds/SDLs.
The list of eligible securities with their classification into liquid/semi/illiquid along with applicable haircuts is notified on CCIL website under Risk Management Tab > Tri-Party Repo section.
Please login to report browser and download the reports as mentioned below: 1) Borrowing Limit and Initial margin limit report 2) TREPS Collateral Status Report 3) TREPS Lender Report