Understanding client margin report – Equity Segment trading


The client margin report is a mandatory report which needs to be sent to the client in addition to the contract note. This report indicates the margin you require for a position and the margin you have. In short do you have excess or shortfall of margins ?


 

 

Margins available till T day

Margin required by
Exchange / NSCCL end of T day

 

 

 








Segment







Trade
day








Funds





Value of
Securities
(after
haircut)






Bank
Guarantees
/ FDR




Any
other
approved
form of
Margins*






Total
Margins
Available







Initial
Margin







Exposure
Margin







Total
Margin



Excess /
Shortfall
w.r.t.
Requirement
by Exchange
/ NSCCL


Additional
Margin
required
by
member
as per
RMS

Margin
Status
(Balance
with
Member
/ Due
from
client)

 

 

A

B

C

D

E=(A+B+C+D)

F

G

H=(F+G)

I=(E-H)

J

K=(I-J)

NSE-CM

12/09/14

 

 

 

 

 

 

 

105555.44

-105555.44

 

-105555.44

NSE-CM

15/09/14

 

 

 

 

 

 

 

 

 

 

 

NSE-CM

15/09/14

 

 

 

 

 

 

 

106470.47

-106470.47

 

-106470.47

 

 

*approved from as may be specified by the Exchange/NSCCL from time to time


Segment:  NSE-CM indicates NSE Cash Market


Trade Day: The client margin report will be sent on T (trade day) and T+1. This is because on T+2 days the position is converted to delivery and shares are either received from exchange or given to exchange. Until the position is converted to delivery on T+2 day, it is required by the exchange to keep appropriate margins on those respective positions. These margins are called Value at Risk or VaR margins.


VaR Margin: As mandated by SEBI, the Value at Risk (VaR) margining system, which is internationally accepted as the best margining system, is applicable on the outstanding positions of the members in all scrips. a) The VaR Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). For liquid stocks, the margin covers one-day losses while for illiquid stocks, it covers three-day losses so as to allow the Exchange to liquidate the position over three days. This leads to a scaling factor of square root of three for illiquid stocks. For liquid stocks, the VaR margins are based only on the volatility of the stock while for other stocks, the volatility of the market index is also used in the computation.


Funds (A):  This refers to the funds available in your ledger balance.


Value of Securities after haircut (B) : If you have given shares as collateral then the value of those shares after haircut will be displayed here. The haircut is the VAR margin of the respective scrip. For example if you have given 50 shares of Infosys as collateral and the previous closing price of Infosys is Rs. 3500 and the VAR margin of Infosys is 8% then the Value of Securities after haircut would be - 50 shares multiplied by Rs. 3500 previous closing price – ( 8% multiplied by 50 shares multiplied by Rs. 3500 previous closing price) which is Rs. 1,61,000.


Bank Guarantee / FDR : You can also give cash collaterals in the form of Bank guarantee / FDR in favor of the company. If you have given such cash collaterals then the value would be reflected in this column.


Initial Margin (F): For equity trades the Initial margin is the sum of VaR margin of each scrip in which you have open position.


Exposure margin (G): The extreme loss margin aims at covering the losses that could occur outside the  coverage of VaR margins. For equity trades the exposure margin is the sum of extreme loss margin of each scrip in which you have open position, if applicable by the exchange.


Important points to be noted:


Negative value in Column K indicates shortfall in Margin.

When you sell shares from your Depository account, you will receive the credit in your ledger for sale amount with value date of T+2 days. However the client margin report is sent for T day and T+1 day. Thus it is possible that your funds column (A) may be zero and the report may indicate that you have funds due payable to the broker which is the sum of VAR and Exposure margins on your positions.  These dues will automatically be reversed once your shares are delivered and sale proceeds received on T+2.


For more resources on understanding margins click here..