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PRISM (Parallel Risk Management System) is the real-time position monitoring and risk management system for the Futures and Options market segment at NSCCL. The risk of each trading and clearing member is monitored on a real-time basis and alerts/disablement messages are generated if the member crosses the set limits.

Initial Margin Violation; Exposure Limit Violation; Trading Member-wise Position Limit Violation; Client Level Position Limit Violation; Market Wide Position Limit Violation; Violation arising out of misutilisation of trading member/ constituent collaterals and/or deposits; Violation of Exercised Positions

Initial Margin violation: The initial margin on positions of a Clearing Member (CM) is computed on a real time basis i.e. for each trade. The initial margin amount is reduced from the effective deposits of the CM with the Clearing Corporation. For this purpose, effective deposits are computed by reducing the total deposits of the CM by Rs 50 lakh (referred to as minimum liquid networth).

The CM receives warning messages on his terminal when 70 per cent, 80 per cent, and 90 per cent of the effective deposits are utilised. At 100 per cent the clearing facility provided to the CM shall be withdrawn.

Withdrawal of clearing facility of a CM in case of a violation will lead to withdrawal of trading facility for all TMs and/ or custodial participants clearing and settling through the CM.

Similarly, the initial margins on positions taken by a Trading Member (TM) are computed on a real time basis and compared with the TM limits set by his CM. The initial margin amount is reduced from the TM limit set by the CM. Once the TM limit has been utilised 70 per cent, 80 per cent, and 90 per cent, a warning message is received by the TM on his terminal. At 100 per cent, the trading facility provided to the TM is withdrawn.

A member is provided with warnings at 70 per cent, 80 per cent and 90 per cent level before his trading/ clearing facility is withdrawn. A CM may thus accordingly reduce his exposure to contain the violation or alternately bring in ABC.

Exposure Limit Violation: This violation occurs when the exposure limit of a Clearing Member exceeds his liquid networth, at any time, including during trading hours.

Trading Member violation: This violation occurs when the open position of the trading member /custodial participant exceeds the Trading Member-wise Position Limit at any time, including during trading hours.

Client Limit violation: This occurs when the open position of any client exceeds the client-wide position limit.

The TM/ CM through whom the client trades/ clears his deals shall be liable for such violation.In the event of such a violation, TM / CM shall immediately ensure,* that the client does not take fresh positions and* reduces the positions of such clients to be within permissible limits.

Additionally, in the event of such a violation, the following penalty would be charged to Clearing Members for every day of violation:* 1 per cent of the value of the quantity in violation (i.e., excess quantity over the allowed quantity, valued at the closing price of the underlying stock) per clientor* Rs 1,00,000 per client, whichever is lower, subject to a minimum penalty of Rs 5,000/- per violation / per client. When the client level violation is on account of open position of client exceeding 5 per cent of open interest, a penalty of Rs 5,000/- per instance shall be charged to clearing member.

The Clearing Member may recover the penalty so charged, from the respective Trading Member / Client violating the requirement of position limits and in cases where it is levied and collected from Trading Member, such trading member, in turn, shall be entitled to recover the same from the respective clients, who violated the position limits.

For futures contracts, open interest is equivalent to the open positions in the futures contract multiplied by last available traded price or closing price, as the case may be. For option contracts, open interest is equivalent to the notional value, which is computed by multiplying the open position in that option contract multiplied with the last available closing price of the underlying.

Market-Wide Limits: Violation of the Market-wide Position Limit at any time, including during trading hours.

A facility is available on the trading system to display an alert once the open interest in the futures and options contract in a security exceeds 60 per cent of the market wide position limits specified for such security. Such alerts are currently displayed at time intervals of 30 minutes.

Misutilisation: This violation takes place when a clearing member utilises the collateral of one TM and/ or constituent towards the exposure and/ or obligations a TM/ constituent, other than the same TM and/ or constituent.

Violation of Exercised Positions: When option contracts are exercised by a CM, where no open long positions for such CM/ TM and/ or constituent exist at the end of the day, at the time the exercise processing is carried out, it is termed as violation of exercised positions.

Edited extracts sourced from the National Stock Exchange of India (www.nse.co.in)

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