Margin Funding Process 300114

download Margin Funding Process 300114

of 18

Transcript of Margin Funding Process 300114

  • 8/11/2019 Margin Funding Process 300114

    1/18

    NBFC Process & Risk

    Management

  • 8/11/2019 Margin Funding Process 300114

    2/18

    Introduction - Margin Funding

    RBI is the regulator for a Non Banking Finance Corporation

    Margin Funding is a lending facility where client can avail loan to trade in shares

    (Cash Segment of BSE & NSE ) against margin amount

    The investor pays only an agreed percentage (margins) of the total value of

    shares bought and the remaining is funded by Angel Fincap Pvt Ltd (AFPL)

    AFPL then charges 18% interest on this loan to the investor on the actual ledger

    from T+2 day ( it is computed on daily basis but levied Monthly )

    Loan facility will be provided only to those clients who would be providing an

    initial margin in cheque, DD, PO or equivalent value of securities after

    appropriate haircut as specified

  • 8/11/2019 Margin Funding Process 300114

    3/18

    Margin Funding facility is beneficial to the investors who trades on delivery basis

    and holds investment

    As per the Exchange guideline Debit is not allowed in Broking beyond T+7

    To take high exposure

    Why NBFC?

  • 8/11/2019 Margin Funding Process 300114

    4/18

    Process Margin Funding

  • 8/11/2019 Margin Funding Process 300114

    5/18

    Process Margin Funding

  • 8/11/2019 Margin Funding Process 300114

    6/18

    Credit Process

    The loan application form is sent to KYC team for verification. Post verification, the loan documents i.e. DP statement, Income source

    documents and Bank statements are sent for credit appraisal (if there are no

    objections raised) for determining the credit worthiness of the borrower

    The Credit appraisal process involves assigning credit score considering the

    clientsbackground, name clearance (RBI & SEBI defaulter list), trading history,occupation, source of income, scrutiny of bank statement(last 6 months), risk

    profiling by RM and CIBIL score (should be above 600)

    Based on income parameters and the credit score, the risk appetite is

    ascertained and loan amount is sanctioned

    If any of the parameters are not satisfied then the loan application is rejected

    and in exception cases it is send to the Credit Committee for approval

  • 8/11/2019 Margin Funding Process 300114

    7/18

    Formulae

    Particulars Definition/Formula

    Projected Risk (Ledger + holding) ( VaR + ELM (Extreme Loss Margin) considered

    for calculating projected risk on open positions ) - Pure risk

    Logical Ledger Balance Loan ledger balance in books of AFPL (including unsettled

    trades plus outstanding interest)

    Actual ledger +/- unsettled + Accrued Interest

    Stock before haircut Value of holdings before haircut ( Total holding )

    Value after hair cut Net value of securities (after application of scrip-wise

    differential margins) purchased and/ or accepted as margin.

    Total holdingMargin ( Haircut )

    Pure Risk Logical ledger (Dr) > Stock before haircut

    Margin Excess / Shortage Value after hair-cut Logical Ledger Balance

    If positive, client is in margin excess.

    If negative, client is in margin shortage.

  • 8/11/2019 Margin Funding Process 300114

    8/18

    Scrip

    Name

    Case Scrip Category Exchange

    VaR

    Angel VaR Final VaR Justification I Projected VaR

    margin

    Justification II

    ABC I

    Blue chip or

    Good 20% - 20%

    Exchange VaR

    or Angel VaR

    whichever is

    higher 10%

    Projected VaR

    would be 50%

    of Final VaR

    II Average 20% 40% 40%

    Flat 40% or

    Exchange VaR

    whichever is

    higher 20%

    Projected VaR

    would be 50%

    of Final VaR

    III Poor 50% 100% 100%

    Exchange VaR

    or Angel VaR

    whichever is

    higher

    Flat 100% of

    holding value

    Projected VaR

    would be flat

    100% of the

    holding value

    Final VaR & Projected risk haircut

  • 8/11/2019 Margin Funding Process 300114

    9/18

    Example of Projected Risk Calculation

    = (Ledger + holding) (VaR + ELM considered for calculating projected risk

    on open positions as shown in above table) Pure risk.

    Given below is an example for Code AAB123 :-

  • 8/11/2019 Margin Funding Process 300114

    10/18

    Logical Ledger: (50,79,689.51) Dr

    Projected Risk would be as follows:

    Ledger + holding 50 % of exchange VaR margin for blue chip, good and

    average scrip and flat 100% of holding value for poor scrip - Pure risk.

    = (50,79,689.51) + 4565359.04(holding with HC applying scrip wise haircuts

    for projected risk)

    = (5,14,330.47)

    Contd

  • 8/11/2019 Margin Funding Process 300114

    11/18

    Contd

  • 8/11/2019 Margin Funding Process 300114

    12/18

    Total

    Holding

    Logical

    Ledger

    Ex. VAR %

    (Margin)

    Holdings

    after HC

    considering

    exchangeVaR

    30% of Ex. VAR

    for auto square

    off projected risk

    Min margin to

    be maintained

    to avoid auto

    square off

    Margin

    shortage

    25,000 24,000 15% 21,250 4.5% 1,125 (2,750)

    Square off process

    The client needs to maintain minimum 30% of the Ex. VAR in order to avoid auto

    square off EXAMPLE- Consider Client X, Initial Margin - 1,000 and Margin Funding -

    24,000

    As we square off to the tune of margin shortage, in the above example, only 2,750

    (21,250-24,000) will be squared off and not entire debit of 24,000.

    A Square off SMS is sent to the client

  • 8/11/2019 Margin Funding Process 300114

    13/18

    Type of Margin Call Criteria Course of Action

    Collection Call All margin shortage clients Daily intimation via SMS to

    clients

    Final Margin Call (Ledger + holding) (VAR +

    ELM considered for calculating

    Projected risk on open

    position) - Pure risk

    (Considering 50%)

    Collection to be updated

    within 3 days

    Liquidation Call (Ledger + holding) (VAR +

    ELM considered for calculating

    auto square off on open

    position) - Pure risk

    (Considering 30%)

    Compulsory square Off will be

    done

    Margin Call

  • 8/11/2019 Margin Funding Process 300114

    14/18

    Concentration in single scrip would be restricted up to the limits given

    below:

    Concentration in BlueChipCategory - Up to 3 crores

    Concentration in GoodCategoryUp to 50 lacs Concentration in AverageCategoryUp to 15 lacs

    PoorCategory would be allowed purely on Cash& Carrybasis

    Single Scrip Concentration

  • 8/11/2019 Margin Funding Process 300114

    15/18

    SMS alerts for margin shortage are sent to all AFPL clients on a daily basis.

    Client can view ledger report, margin report, holding report, transaction

    statement, etc. any-time through online access to account information.

    Can view the Margin available at beginning of the day

    Day to day tracking of Margin Shortfall Reports for viewing the holding statement of shares under MF facility

    Consolidated view for client Ledger

    Reports for details of Interest accrued till date

    List of Approved Scrip list

    Facilities to clients

  • 8/11/2019 Margin Funding Process 300114

    16/18

    Selling/square off in AFPL only to cover shortfall whereas in Angel broking

    to cover the entire debit.

    Client has no obligation to square off in a specific tenure if adequate

    margins are maintained, unlike broking.

    Cannot keep position in broking while it can be done in AFPL.

    Any appreciation in the value of the Securities given as margin would

    automatically allow enhancement in drawing power.

    As compared to derivatives market, where clients can leverage for only

    large cap companies, margin funding facility provides lending for selected

    Mid Cap as well as Small cap companies.

    Comparison of NBFC with broking

  • 8/11/2019 Margin Funding Process 300114

    17/18

    Email ID - [email protected]

    Contact Number - 022-29211530/537

    Margin Funding Helpdesk

    mailto:[email protected]:[email protected]
  • 8/11/2019 Margin Funding Process 300114

    18/18