Introduction

In volatile financial markets, both market participants and market regulators need models for measuring, managing and containing risks. Market participants need risk management models to manage the risks involved in their open positions. Market regulators on the other hand must ensure the financial integrity of the stock exchanges and the clearing houses by appropriate Risk management Policy

The following constitutes our Risk Management Policy:

1. At the EOD all the clear debits shall be asked for on a daily basis & the shares are not delivered where the debit persists. Clients Family accounts/groups where there is credit in one account and debit in another account shall be taken into consideration only after taking letter of adjustment of Credit & Debit in the group of family accounts.
2. F&O Transactions are traded only after collection of Initial Daily Margin & Exposure Margin. At the EOD MTM Margins are promptly collected if any, which should be paid by the Client before the start of the next Trading day. If the Previous day MTM Margin has not been paid by the client his trading Account is locked and no further F&O transactions can be carried out by the said Client.
3. If the F&O client does not pay the MTM Margins within the next Two working Days all outstanding transactions are Squared Off in the Market on the Third Working day & the Client is adviced accordingly.
4. All Debits in all accounts are collected within 5 working days of the trade being initiated.
5. If any client in the cash segment does not clear his Debits after 15 working days a final reminder is sent to the client and if the client does not respond to it in 48 hours then shares lying in his Account are sold and he is adviced accordingly.
6. The guidelines of Security and Exchange Board of India's (SEBI) guidelines pay stress on the liquid assets deposited by members with the exchange/clearing corporation. These liquid assets are suggested to be covered by the following four requirements or margins:
7. Mark to Market (MTM) Losses: MTM losses are made on outstanding settlement obligations of the member. Some particular procedure through which they can be collected are:
8. The Stock Exchanges have the option that before the start of the next day trading, the mark to market margin (MTM) can be collected from the member/broker.
9. The cash/cash equivalent component of the liquid net worth, which is deposited with the Exchange, is important as the MTM margin needs to be collected/adjusted from/against it.
10. The margin is required to be collected on the gross open position of the member. The gross open position signifies the gross of all net positions across all the clients of a member, including the proprietary position of the member.
11. In the end, the collected MTM is released along with the pay-in, which also includes the early pay-in of securities.
12. Value at Risk (VaR) margins:The potential losses encountered on 99% of the days are covered by these margins. The VaR margins are computed using scrip sigma, scrip VaR, index sigma, and index VaR.
13. Extreme Loss Margin:The extreme loss margin covers the expected losses in those cases, which are beyond the losses estimated in 99% VaR estimates. Here, the VaR estimates refer to the estimates as per the VaR margin.
14. Base Minimum Capital:It is a capital required for all risks other than market risk such as operational risk and client claims.
15. Patterns in Volatility
16. While analyzing pattern of volatility of cash market in India, it was found that a sharp increase in the volatility of stocks that have derivatives traded on them, would have meant that investors have to tread cautiously, as the higher the volatility, the higher the risk. Higher risk does not necessarily mean higher return; it could also mean higher losses.
17. Risk Management in F&O Trading
18. For price risk management, the traditional practice employed by the producers was the diversification of their farm and income sources, which made them less reliant on single commodity. In the current scenario, their marketing agents help them to manage risk with fixed-price contracts. The contracts allow the producers to know the price estimated for their product. This price estimation helped them to effectively manage their respective farms, as there is no price risk.