Risk Management

What is the primary role of a clearing corporation/house in the equities segment?

To maximize profits for brokers and clearing members.
To facilitate stock trading on behalf of investors.
To provide settlement guarantee in case of broker/clearing member failures.
To regulate stock exchanges.

What is the significance of margins in the risk management system of the equity market

Maximizing profits for investors.
Protecting brokers from market volatility.
Covering potential losses for open positions held by members.
Determining stock prices.

Which margin is intended to cover the largest potential loss that can be encountered on 99% of the trading days?

Mark to Market Loss Margin
Value at Risk Margin (VaR)
Extreme Loss Margin
Liquid Asset Margin

How are securities categorized for margin calculation in the VaR margin framework?

By their trading volume.
By their impact on market sentiment.
By their liquidity and impact cost.
By their industry sector.

How is the VaR margin collected in the equity market?

It is collected at the end of each trading day.
It is adjusted against the member's total liquid assets at the time of trade.
It is collected after the pay-in of securities.
It is not collected upfront.

What does the Extreme Loss Margin cover in the risk management framework?

Unexpected gains in securities trading
Potential losses that go beyond those envisaged in the VaR margin.
Administrative costs incurred by clearing corporations.
Losses from trading in sectoral indices.

In the Trade for Trade-Surveillance market (TFTS), what upfront margin rate is applicable for all securities?

0.5
0.75
1
1.25

What is the primary purpose of collecting Mark to Market (MTM) margin in the equities market?

To maximize profits for brokers.
To cover potential losses on open positions
To facilitate trading between buyers and sellers.
To determine the closing prices of securities.

How is MTM margin collected from members in the equity market?

It is collected at the end of each trading day.
It is adjusted against the cash/cash equivalent component of the member's liquid assets.
It is collected along with the pay-in of securities.
It is not collected upfront.

What does “gross open position” refer to in the context of MTM margin calculation?

The total number of securities held by a member.
The total net positions across all the clients of a member.
The total open positions of a member's proprietary trading.
The total trading volume in the equity market.

In the context of MTM margin, what happens when a security is in the Trade for Trade Surveillance (TFTS) market?

MTM margin is not applicable
MTM margin is collected based on the closing price of that security.
MTM margin is adjusted against mark to market profits.
MTM margin is collected for buy transactions only.

What is the purpose of additional margins on highly volatile stocks in the equity market?

To encourage trading in highly volatile stocks.
To cover potential losses in highly volatile stocks.
To reduce trading activity in highly volatile stocks.
by their industry sector.

What is the purpose of Base Minimum Capital (BMC) in the equity market?

To determine the opening price of securities.
To provide exposure for trading members.
To cover potential losses of clearing members.
To meet contingencies in any segment of the Exchange.

What is the significance of the “trading frequency” and “impact cost” when classifying securities into liquidity groups?

They determine the dividend yield of the securities.
They indicate the profitability of the securities.
They help categorize securities based on their liquidity.
They are used to calculate mark to market losses.

Who is responsible for paying margins in institutional trades in the cash market?

Stock Exchanges
Custodians
Institutional Investors
Clearing Members

What is the consequence of a shortfall in margin payments in the equity market?

A penalty for margin violation.
Withdrawal of trading facilities for members.
No consequence; margins are not mandatory.
An increase in the Base Minimum Capital (BMC).

What is the minimum percentage of the BMC deposit that must be in the form of cash and cash equivalents?

0.25
0.5
0.75
1

What is the purpose of additional margins imposed by exchanges/clearing corporations in the equity market?

To provide exposure to members.
To discriminate between members.
To cover potential losses based on objective criteria.
To maximize profits for brokers.

When should Delivery Margin and margin on consolidated crystallized obligation be collected from clients in the F&O segment?

By T+1 day
By T+2 day.
By T+3 day.
By T+5 day.

What happens if Trading Members fail to collect upfront margins from their clients in advance of the trade in the Currency Derivative segment?

The exchange will cover the shortfall.
The trade will be cancelled.
The client is liable for any margin deficit.
There are no consequences.

According to SEBI guidelines, what is prohibited concerning the transfer of securities to a TM/CM’s demat account for margin purposes?

Transfer of securities is allowed without restrictions.
Transfer of securities must be done only through Pledge/Re-pledge.
Transfer of securities must be done without any documentation.
Transfer of securities for margin purposes is not allowed.

What is the purpose of early pay-in of funds by trading members/clearing members?

To cover margin obligations.
To facilitate trade execution.
To avoid risk reduction mode.
To reduce order-level checks.

What is the maximum value limit per order that the Stock Exchange can accept for execution in the normal market according to the article?

Rs 1 crore per order.
Rs 5 crore per order.
Rs 10 crore per order.
Rs 20 crore per order.

What is the basis for the computation of initial margin for client positions in the F&O segment?

Netted at the clearing member level.
Netted at the trading member level.
Set as a fixed percentage of the contract value.
Calculated based on the client's trading history.

What is the Liquid Net Worth of a clearing member?

The total assets deposited with the Clearing Corporation
The net worth of the clearing member after adjusting for margin requirements
The total assets minus liabilities of the clearing member
The total liquid assets deposited with the Exchange/Clearing Corporation minus initial margin and extreme loss/exposure margin applicable to the total gross open positions