Segments

Triparty Repo Process

CCIL's risk exposure in the Triparty Repo settlement Segment emanates mainly on two counts –

a. Risk of failure by a lender to meet its obligations to make funds available or by a borrower to accept funds by providing adequate security at the settlement of the original trade of lending and borrowing under Triparty Repo transaction. .

b. Risk of default by a borrower in repayment.

As the repayment of borrowing under Triparty Repo Settlement Segment is guaranteed by CCIL, it should have enough security to meet any eventuality of a default by the borrower. To take care of this risk, all borrowings are fully collateralized. This process is managed through setting up of Borrowing Limits for the members against their deposits of Government Securities as collaterals. These collaterals are subjected to hair-cuts and are revalued daily at the end of the day. Any shortfall in the value of collaterals (to cover outstanding borrowings) is collected through margin calls. A Clearing Member is required to maintain separate Borrowing Limits and Initial Margin Limits for each of its constituents. All orders before placement are validated for adequacy of Initial Margin and for Borrow Limits for borrow orders.

CCIL may be exposed to risks due to a member not honouring its obligation from a trade received for settlement. A member may undertake to either lend or borrow but may fail to honour such an obligation at the time of settlement. As CCIL extends guarantee for settlement of all Tri party repo transactions, to ensure that this risk is adequately taken care of, CCIL collects Initial Margin and MTM Margin from the members in respect of their deals for borrowing or lending under Triparty Repo transaction. As the risk on any such deal continues up to the settlement of the deal, Initial Margin collected on deals are released only on settlement of 1st leg on such deals. MTM margin applicable on trades and due to valuation of collateral is treated as incremental MTM margin payable at EOD. The same is debited immediately at end of the day. In case of a resultant shortfall in margin, members are required to contribute to Triparty Repo Collateral account within stipulated time on the next business day. Failure to do so attracts penalty.