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The computation of risk arrays for Stock option contract is done only at discrete time points each day and the latest available risk arrays is applied to the portfolios on a real time basis. The risk arrays is updated 5 times in a day taking the closing price of the previous day at the start of trading and taking the last available traded prices at A portfolio based margining model is adopted which will take an integrated view of the risk involved in the portfolio of each individual client comprising of his positions in all the derivatives contract traded on Derivatives Segment.
The parameters for such a model are as follows: The initial margin or the worst scenario loss is adjusted against the available liquid net worth of the Member. The Members in turn will collect the initial margin from their clients on an up front basis. The scenarios to be used for this purpose are: However, the Derivatives Segment may specify a higher price scan range than the said 3.
The price scan range shall be linked to liquidity, measured in terms of impact cost for an order size of Rs. The Black-Scholes model is used for valuing options. The notional value of option positions is calculated by applying the last closing price of the underlying stock.
Thus mark-to-market gains and losses on option positions will be adjusted against the available liquid net worth of the Clearing Member.
Since the options are premium style, there will be no mark-to-market profit or loss. However, the premium is deducted only for those portfolios where open position is long for a particular series. For the purpose of computing 1. This value shall be applicable for the next month and shall be re-calculated at the end of the month by once again taking the price data on a rolling basis for the past six months.
However, BSE may specify higher exposure margin for better risk management. Position Limits a Market Level: A market wide limit on the open position in terms of the number of underlying stock on stock options and futures contract of a particular underlying stock is: The limit would be applicable on all open positions in all futures and option contracts on a particular underlying stock.
The Market Wide limit is enforced in the following manner: Though the action is taken only at the end of the day, the real time information about the market wide-open interest as a percentage of the market wide position limits is disclosed to the market participants. At the end of each day during which the ban on fresh positions is in force for any scrip, BSE tests whether any Member or client has increased his existing positions, or has created a new position in that scrip. The penalty is recovered along with the Mark-to-Market on the next day.
Once a Member reaches the position limit in a particular underlying, he is permitted to take only offsetting positions which results in lowering the open position of the Member in derivative contracts on that underlying. The position limit at Trading Member level will be computed on a gross basis across all clients of the Trading Member.
Members are advised to disclose the position of the clients in case the client crosses the aforesaid limits. Members are also advised to inform their clients about the disclosure requirement to BSE on part of the client. The gross open position across all derivative contracts on a particular underlying stock of a sub-account of a FII should not exceed the higher of: Exercise Limits At present, there is no exercise limit for trading in Stock Option contracts.
However, the Derivatives Segment may specify such limit as it may deem fit from time to time. Assignment of Options On exercise of an Option by an option holder, it will be assigned to the option writer on random basis at client level. The system will use the same algorithm as in case of assignment of Stock Option Contracts. Final settlement for Stock options Exercise of all open positions for single stock options will be solely at the discretion of the buyer on last trading day.
In other words, there will be no automatic exercise of stock options contracts on expiry day. All outstanding positions at expiry for which exercise notices have been received by the Exchange will be settled by delivery of the underlying stock at the respective strike prices. The risk management framework of the equity cash segment shall be applicable to all such delivery based derivatives positions w.
The settlement of such net outstanding delivery based derivatives positions would be settled separately as per the settlement calendar issued for the said Delivery Based Stock Derivatives Segment and as per the delivery mechanism prevalent in the cash segment.