SEBI tells clearing corporations to monitor intra-trade losses

Markets regulator Securities and Exchange Board of India (SEBI) has put in place stricter norms wherein clearing corporations are now required to keep a close tab on losses made by members during intra-day trades.

The move follows discussions about the risk arising out of accumulation of crystallised obligations or profit/loss on trade due to intra-day squaring off of positions.

"The intra-day crystallised losses shall be monitored and blocked by clearing corporations from the free collateral on a real-time basis only for those transactions which are subject to upfront margining.

"For this purpose, crystallised losses can be offset against crystallised profits at a client level, if any," SEBI said in a circular on Monday.

Besides, the regulator said that crystallised losses would be calculated based on weighted average prices of trades executed.

In case, the crystallised losses exceed the free collateral available with the clearing corporation, then the entity concerned would be put under risk reduction mode.

"Adjustment of intra-day crystallised losses shall not be done from exposure free liquid net worth of the clearing member," the circular said.

Currently, the margining system of clearing corporations levies margin based on net buy value of unsettled trades in the cash segment and on the net open positions in the derivatives segments.

"As such, the risk of crystallised obligations (profit/ loss on trade) incurred due to intra-day trades does not get fully captured in the margining system and consequently in the clearing corporation's risk management system for the purpose of providing further exposure to the clearing member," the circular said.

The issue of risk arising out of accumulation of crystallised obligations incurred on account of intra-day squaring off of positions was discussed at SEBI's Risk Management Review Committee meeting.