RISK MANAGEMENT AND SURVEILLANCE NSBL Policy, Procedure & Guidelines 22nd April, 2009.

RISK MANAGEMENT AND SURVEILLANCE

NSBL Policy, Procedure & Guidelines

22nd April, 2009

POLICY & CONTROL – RISK MANAGEMENT

Trading Limits• Trading limits to above clients are purely on Financial Ledger credits

and Approved stock credits• The trading limit is set as Ledger + Approved stock only. Unapproved

stocks if any are not considered. • The limit set based on =ledger (balance) + Approved stocks (50 %

hair cut)

Liquidation• On T+3 or on breach of threshold of 85% of Cash to Stock, whichever

is earlier, NSBL liquidates positions at 10:30 a.m. in Cash Market• On T+1 for non replenishment of Margin Shortfall due to MTM losses

POLICY & CONTROL – RISK MANAGEMENT

B. SEBI – MTF CLIENTS – MTF only in CM Segment• Clear margin (realized amount) has to there in client's credit before

initiating any trade.• The limit set for Cash - delivery is as per the ledger balance (credits) • The limit set for Derivatives - are as per the ledger balance (credits) =

ledger • Maintenance margin is 40% at which level client needs to immediately

replenish margins• No further position allowed nor benefit of M2M passed to client once

he reaches 40% • Compulsory liquidation at 30%. • Minimum margin requirement of 50% either in Cash, BG or FD only • Client is required to pay margin only from his own sources and not of

borrowed funds. Client shall not avail any financing facility from any 3rd party for meeting his margin obligations under MTF.

• If MTF clients take delivery of unapproved stocks, 100% margin are adjusted from the ledger credit .If this were to bring client to out of money, HO are liquidate positions at 9:55 am on T+1

RMS REPORTS• RMS report Summary• Stock Valuation• RMS report DetailRMS Detail• The RMS report is built on three basic parameters:• Ledger Balance• FO Margins• Approved Securities Value • RMS exposure limits are based on the above as = Ledger Balance –

FO Margins (if any) + Approved Securities Value • Details of the above three:

Ledger Balance– NSE-CM Ledger Bal(A)– BSE-CM Ledger Bal(B)– NSE F&O Ledger Bal©– Ledger Bal (D=A+B+C)

RISK MANAGEMENT - REPORTS

FO Margins– IM Margin(E)– VAR Margin(F)– F&OMargin (G=E+F)

Approved Securities Value– App. Securities value (G)– UnApp. Securities value (H)– POA App. Securities Value (I)– POA UnApp. Securities Value (J)– Stock Value (Broker+POA) (G+H+I+J) (K)– Stock Value (App. Securities) = (G+I) (L)– Haircut Value = (H+J+ 50 % (G+I)) (M)– MTM (-Ve Indicates Loss) (N)– VAR (O)– ELM (P)– CM Margin (VAR+ELM+M2M) (Q)– Approved Securities Value = L –( higher of M and Q)


• RMS report Summary• This reports contains the Ledger Balance – FO Margins (if any) +

Approved Securities Value @ 50 % hair cut• It contains the total stock holding and valuation for all clients• It contains both approved and unapproved stocks valuation• The reports has the holding details i.e. with NSBL (Broker) or NSBL

(PoA – DP)• The valuations in the report are at closing rates i.e. full value as

well as at 50%.

Notes: All delivery sale not with NSBL (Broker or DP) will be capture (-ve sale value) in Approved or unapproved securities values as the case may be.


CLIENTS

• NORMAL / REGULAR CLIENTS

• SEBI – MTF Clients

*Networth – Intraday Product

GENERAL – SEBI- MTF

• To trade on margin, the client need a margin account. This is different from a regular cash account in which the client trade using the money in the account. By law, NSBL is required to obtain the clients signature to open a margin account. The margin account may be part of the client standard account opening agreement or may be a completely separate agreement. An initial investment is required for a margin account. This deposit is known as the margin. Once the account is opened and operational, the client can borrow up to 50% of the purchase price of a stock.

• This portion of the purchase price that the client deposit is known as the initial margin. the client can keep the client loan as long as the client want, provided the client fulfill the client obligations. First, when the client sell the stock in a margin account, the proceeds go to NSBL against the repayment of the loan, until it is fully paid. Second, there is also a restriction called the maintenance margin, which is the minimum account balance the client must maintain deposit more funds or sell stock to pay down the client loan. When this happens, it's known as a "margin call."

•Not all stocks qualify to be bought on margin. The SEBI regulates which stocks are marginable.

GENERAL – SEBI- MTF

SEBI-MTF : NSBL NORMS

• NSBL has permission from NSE & BSE• Client allowed to obtain MTF only in Cash market & from one

broker per exchange.• Client to give declaration on whether he has availed MTF from any

broker in any exchange or whether his request for MTF was ever rejected.

• Existing Client to sign up MTF papers alone; new clients to sign up in fresh kit (point 2 & 3 covered)

• Existing clients signing up for MTF can choose to use their existing POA NSBL CDSL DP exclusively for MTF purposes. Outside transfers and operation by clients not allowed in this DP account.

• (ii) Alternatively they can choose to open a fresh POA NSBL CDSL DP account for MTF purposes.

• (iii) New clients opting for MTF have to mandatory open a POA NSBL CDSL DP.

• (iv) Existing clients who do not have POA DP with NSBL but now opt for MTF have to give a DP POA.



• Minimum margin requirement of 50% in either Cash (i.e.Cheque), BG or FD only. NO SECURITIES.

• Above margin should be available "clear balance" in client ledger prior to placing order.

• Client is required (by SEBI) to pay margin only from his own sources and not of borrowed funds. Client shall not avail any financing facility from any 3rd party for meeting his margin obligations under MTF.


• MTF permitted only in Group 1 securities as categorised by SEBI.

• Once signed up for MTF, all trades of client will be considered under MTF.

• NSE-CM and BSE-CM ledger amounts shall be clubbed for client convenience. However the NSE- F&O ledger including F&O Margins shall be treated standalone for all NSBL clients.

• In case of non-approved securities being BOUGHT by client, such purchase amounts shall be fully adjusted from available ledger credits first and balance credits will be used to arrive at 50% margin requirement for approved securities outstanding positions of the client. NOT vice-versa.


• Maintenance margin is 40% at which level client needs to immediately replenish margins. No further position allowed nor benefit of M2M passed to client once he reaches 40% until the earlier replenishment happens.

• Compulsory liquidation at 30% margin.• In case of any shortfall of margins breaching above prescribed

limits, where necessitated positions shall be liquidated at Broker discretion.


• Cash Market outstanding positions whose physical delivery is in NSBL possession will be sold first irrespective of exchanges. Approved securities will be sold after unapproved, if there be such possibility.

• Cash Market outstanding positions whose physical delivery is in POA DP possession will be sold second irrespective of exchanges. Approved securities will be sold after unapproved, if there be such possibility.

• (iii) Cash Market outstanding positions whose pay-out has not yet been received will be sold last, and at client risk i.e. of any possible delivery shortages.


• Amount funded by NSBL towards MTF in client ledger shall carry 18% interest p.a.

• As & when UIN under MAPIN is re launched, client may have to necessarily get UIN.

• Client under MTF in CM segment will be permitted to sell securities bought by him (approved category and meeting margin norms) anytime after his purchase with no restriction; but purely at client risk of short deliveries.

• NSBL shall provide a live web access of the client's trades, positions, P&L, ledger, holdings and securities movement register, besides digital contract notes etc.

• Any NSBL client's including MTF client's F&O trades will be treated absolutely separately.

NSBL – F&O NORMS

• In case of financial ledger being in debit, such ledger debits also shall be levied "delayed payment charge" of 15% p.a. from "T+2" day.

• On T+2 morning outstanding F&O positions shall be liquidated where there is ledger debit as arrived at end of T+1 irrespective of extra credit of securities available with us. In case of margin shortfalls as arrived at end of "T" day, outstanding positions shall be liquidated on T+2 morning after arriving at shortfall so continuing to persist at end of T+1 day, i.e. client is allowed to replenish margins during T+1 day.

• Liquidation shall be done to the extent of recovery of debits & margins and at discretion of Broker, however subject to minimum trading lots applicable in F&O.

• As much as possible, the following sequence will be adopted during liquidation. But no assurances to client as the following depends on liquidity in contracts and market circumstances:-

NSBL – F&O NORMS

• Client will have to provide for separate margin upfront (clear balance in ledger) for trading in F&O.

• Client will be allowed to provide cash and securities towards margin obligations (Span + Exposure).

• Securities acceptable are as per the NSCCL list of securities. Haircut applicable on these securities shall be flat 50%. (note that we are supposed to deposit margins with NSCCL in 50:50 cash & securities ratio; however as a facility we are accepting full securities towards margin)

• Client will have to clearly indicate when he is giving securities towards F&O margin. If he is holding such securities in his non-MTF POA NSBL CDSL DP, then he shall give a slip to transfer to our F&O Margin beneficiary account.

NSBL – F&O NORMS

• Client's daily settlement of mark to market losses, premium payment shall happen only by way of Cash i.e. cheques / transfers only and ledger debits not adjustable with securities provided as margin.

• Client to settle the above debits in his ledger latest by T+1. (note that we have to meet pay-in on T+1 9:30 a.m.)

• Margin shortfalls will be arrived after giving credit to client's available securities in margin with 50% haircut and also adjusting the credits available in financial ledger. This will be done on "T" day itself.

• In case of shortfall in margins, such shortfall amount shall be levied "short margin charge" at 15% p.a. from end of "T" day itself.

NSBL – F&O NORMS In case of margin shortfalls:

• Outstanding "sell" option positions first and if shortfall not met, then

• The "futures" positions so as to get margin release and if still shortfall not met, then

• Any or all of the securities of client towards margin in the possession of NSBL

• And then, the "buy" option positions (to recover monies through ledger)

• And lastly any or all of the securities held in the client's POA NSBL CDSL DP account (non-MTF DP account)

NSBL – F&O NORMS :In case of ledger debits:

• The "buy" option positions first, and if debits not met then• Any or all of the securities of client towards margin in possession

of NSBL• And lastly, any or all of the securities held in the client's POA NSBL

CDSL DP account (non-MTF DP account)

APPROVED SCRIP SELECTION

Scrips will be from:• Approved List of Banks, • NSCCL,• Lending Institutions• SEBI Group I securitiesApproved stocks basis:-• Past 6 months high-low• Past 6 months average quantity• Past 6 months average number of trades• Last 2 quarters shareholding pattern to ascertain no. of

shareholders; check on promoter dilution or stake increase

APPROVED SCRIP SELECTION

• Quality of shareholders i.e. MF / Inst• Scan through shareholding of above 1% in public & check for

intermediaries holding• Ascertain the free float; check on no. of shares in physical form &

lock-in shares besides total no. of shareholders in public• Scan news items on any investigation, primarily SEBI related• Scan all bulk deals reported and trading at all NSBL branches in

specific scrip; look out for matching trades in a day• Based on assessment different margining may be applied to

different scrips• Approved list review will be done every month; client notice

period 15 days for shifting / shuffling

• Exposures are constantly monitored at Exchange level• Z group securities are not permitted for trading and if there were

any request for trade in them they are routed through RMS team only.

• T , TS & BE scrips are permitted with 5000 quantity restriction at branch dealer level, therefore there is constant monitoring in those scrips

• All securities under regulatory investigation are not permitted• Volumes at member level on thinly traded scrips are constantly

monitored.

SURVEILLANCE

SURVEILLANCE

• Price Band and Maximum quantity is fixed for on all IPO on Listing Day.

• Physical shares are not permitted.• Bulk deal is monitored and reported to the EXCHANGE if the

required limit is crossed.• Banned scrips in F&O segment is monitored and all the concerned

– branches and clients are informed on it.• Alerts are sent to all concerned at 70%, 80% & 90 % MWL reached

in F&O segment.

F&O Risk utility software monitoring for• Margin Increase• Client wise increase• 95% MWP limit contract transactions.• Random check of trade prices to ascertain unusual / wrong price

punching.• Random check of trade in any blocked scrips.• Top turnover clients are checked according to their exception

limits.

SURVEILLANCE

INTERNET TRADING - Exposure

S. No Type Applicable to Delivery Intraday

1 Normal Clients All Categories 3 times 5 times

3 SEBI-MTFStart with 50 % & Min MarginMaintenance of Rs. 40%** 2 times 10 times

* The margin MUST be in Cash i.e. Collateral will not be considered** As per SEBI MTF Rules

Normal / Regular Client• The User Deposit for Normal / Regular client is based upon the Ledger

balance + 50% on Approved Securities.

SEBI – MTF • The limit set for Cash is as per the ledger balance • The limit set for Derivatives are as per the ledger balance

INTERNET TRADING - LIMIT

INTERNET TRADING – Guidelines

• All such clients are expected to meet their obligations latest by T +2.• On T+3 mornings or on breach of threshold of 85% margin at EOD,

whichever is earlier, HO will liquidate positions at 9:55 a.m.• The 85 % threshold arrival will Ledger credits + Approved stock

credits• Trading limits to above clients will be purely on Financial Ledger

credits and approved stock credits.• All trade to trade scrips are blocked for trading for Internet trading.

ONLINE SURVEILLANCE

• All Intraday Positions get closed at 15:10 hours on Normal Trading days.

• All position of a particular client gets closed once 85% of Deposit Remaining + Margin against order is Breached.

• All Intraday short (sell) position in a particular scrip is closed once the price reaches 90 % of Days lower price band.

RISK MANAGEMENT AND SURVEILLANCE NSBL Policy, Procedure & Guidelines 22nd April, 2009.

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