Clearing involves the management of post-trading, pre-settlement credit exposures, to ensure that trades are settled in accordance with market rules. Settlement involves the payment and receipt of money to fulfill contractual obligations.
1. Collaterals as Deposits (Towards Margins)
Clearing Members can provide the following as collaterals towards Minimum Security Deposits (to be met at all times) in US Dollars:
- Non - Cash in the form of Letter of Guarantee/Bank Guarantee, in the approved format from any of the approved banks
- Non - Cash in the Term Deposits/Fixed Deposits, in the approved format from the Clearing Bank
The collaterals are utilised towards margins. Clearing Members may provide additional deposits to increase their exposure. The cash to non-cash ratio is defined as 40:60 i.e. is 1.5 times of cash collaterals.
Clearing Members can increase or release the additional deposits by forwarding a duly completed request instruction to the BCDC in the prescribed format.
Alerts are generated to the respective Member, when the Member's margin limit utilisation and the MTM limit utilisation reaches to 60%, 75% and 90% of their limits. The Members will receive the same alerts in their Member Admin Terminals based on the utilizations. These alerts are closely monitored and may require Members to provide additional deposit.
As soon as the margin utilisation and/or MTM limit utilisation reaches to 100%, the Member is put into "Square-off Mode". In this mode, the Member can view the market but cannot place fresh orders. The Member can only initiate trades to reduce its positions (squaring off positions).
2. Variation Margin (Mark-to-Market)
The BCDC will provide on a daily basis, at the end of the trading day, the settlement price which will be the official closing prices for computing variation margin. Variation margin is paid by Clearing Members on a daily or intraday basis in order to reduce the exposure created by carrying highly risky positions. By demanding variation margin from its members, clearing organisations are able to maintain a suitable level of risk and cushions against significant devaluations.
3. Settlement of Obligation
Unless specified the daily settlements i.e. pay-in and pay-out of funds shall be affected on a T + 1 basis (With T being referred as Trade Date). Any shortages will result in blocking of the outstanding amount from the margin limits and actions as decided by the BCDC from time to time. The amount blocked would be released from margin limits on receipt of funds. Currency contracts are deliverable on expiry, subject to seller's option.
4. End of Day Files
At end of day the BCDC will generate and send scrip master and market statistics to Members in common folder. Further, other end of day files sent on a daily basis to Member FTP folder are obligation details, margin details, positions etc.