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Revision of Initial Margin in the Equity Derivatives - Effective from 21st January 2019 on wards.


Posted on 15-Jan-2019 Comments  0

Dear Customer,

Greetings from Tradeplus!!!

 

In our constant endeavor to keep you updated of the latest regulatory changes, we hereby notify on the NSE circular no. NSCCL/CMPT/ 39766 dated December 26, 2018(Click forCircular) pursuant to SEBI circular No. SEBI/HO/MRD/DRMNP/P/2018/155 dated December 17, 2018.

 

Following are the changes in the Span Margin Computation methodology as per the above NSE circular

 

1.      The MPOR ( Margin Period of Risk ) will be set as 2 (two) trading days from January 21, 2019 while currently it is set as 1 (one ) Trading day.

2.      The Exposure margin is increased to 4.24% which is currently 3% for Index futures and options

3.     The Exposure margin is increased to 7.07%  (minimum increase) or higher which is currently 5% for stocks futures and options

4.     The short option minimum charges are increased to 5% from the existing 3% (Index).

 

By making this change in the MPOR, the SPAN+Exposure margin will go up by a maximum of 41% of the current margins as volatility for 2 trading days is considered instead of 1 day in the current scenario.

 

We also try to explain in detail about MPOR and how the change will affect SPAN+ Exposure margins: 

 

SPAN margins are charged to cover for the worst possible movement in the contract you are trading for a single day.The exchange has now revised this to cover for possible volatility over 2days. SPAN margins are charged by calculating the Price Scan Range of the index or the stock.

 

Price Scan Range (PSR) is the worst possible movement in a scrip in a day. PSR is calculated using the daily volatility of the scrip. It is 3 sigma of the daily volatility for index contracts and 3.5 sigma for stocks. The exchange also prescribes minimum PSR of 5% of the contract value for index and 7.5% for stocks in case the 3 (and 3.5) standard deviation is lower than the above-mentioned minimum. This will now be multiplied by 1.41 to cover for 2days’ price movement.

 

Exposure margins are charged over and above SPAN margins. This is 3% of the contract value for index and 5%(or 1.5 sigma, whichever is higher) for stock F&O. This will also be increased to 4.24% for index and 7.07% (or 1.5 sigma, whichever is higher) for stock F&O.

 

Short Option Minimum (SOMis a minimum margin for all strikes of option short contracts that fall beyond thePrice Scan Range. For instance, Nifty has a PSR of 762 points (covering a 7%movement). This effectively means that holding a 11700 CE or 10000 PE isrisk-free, however, SOM of 3% is charged for such contracts. This will now goup to 5% of the contract value. There is no increase in SOM for stock options.

 

Example: - Below are the incremental span +exposure (worst scenario increase) for theNifty & Bank Nifty.

 

Symbol

Underlying Close Price (A)

Lot Size

Current SPAN+ Exposure

Revised SPAN+Exposure

Current SPAN+

Exposure

Revised SPAN+

Exposure

Difference

Change %

 

 

 

 

 

 

 

 

 

NIFTY

10921.65

75

10.02%

11.29%

82,076

92,479

10,402.87

12.67%

BANKNIFTY

27556.6

20

10.02%

11.29%

55,223

62,223

6,999.38

12.67%

 

We therefore inform you that revised initial Margin ( Span + Exposure Margin ) shall come into effect from Monday,21st January 2019 and request you kindly to keep additional amount of Margin in your client account to avoid any shortfall  and penalty as per the Exchange guide lines.

 

We request you to take note of the above and in case of any query or clarifications, please contact our customer support desk 044-49427576, 044- 28214171 or Write to us at support@tradeplusonline.com

 

Assuringthe Best service Always.

Warm regards,

Tradeplus Team

 

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