To

All Market Participants of IIBX (Members, Clients, Qualified Jewellers & Qualified Suppliers), IFSC Authorised Vaults and India International Depository IFSC Limited (IIDI)

Subject – Framework for segregation and monitoring of collateral at Client Level in IIBX Futures Trading

The Members are requested to note that the following framework for segregation and monitoring of collateral at client level has been implemented for Futures Trading:

A. Addition of Collaterals

 While depositing collateral, the Clearing Members (CMs) shall allocate the collaterals into proprietary account of CM, and/or proprietary account of any Trading Member (TM) clearing through the CM, and/or account of any of the clients clearing through the CM, and/or of any of the clients trading through the TM who in turn is clearing through the CM.

 The benefit for collateral deposited shall be provided by IIBX Clearing only after receiving the allocation of the same from the CM.

 The amount of collateral allocated shall not exceed the amount of collateral received by the TM/CM from the client and reported as such under the client collateral reporting mechanism. Also, the allocation of collateral shall not be lower than the amount of collateral reported under the client collateral reporting mechanism as having been passed on by the CM to IIBX Clearing.

 CMs shall also perform the aforementioned checks in respect of the allocation received by them from the TMs clearing through them.

 The total allocation by CM cannot exceed the total collateral deposited by the CM with IIBX Clearing.

 The allocation provided by the CM to IIBX Clearing shall be considered as final by IIBX Clearing for the purpose of granting exposure and utilization during default.

 The detailed procedure for addition and allocation of various forms of collateral is specified in Annexure 1.

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B. Blocking of Margins and Monitoring

 The procedure for blocking of margins specifies the order of blocking of collateral available with IIBX Clearing. There shall be no change in the requirement of collection of upfront margins by the TM/CM. The TM/CM shall be required to ensure that sufficient collateral is allocated to clients to cover their margin collection requirements.

 The TM/CM collateral shall mean the proprietary collateral of the TM/CM only and shall not include the collateral of any of their clients.

 On receipt of a trade from a client account, the margin shall first be blocked from the value of the client collateral. If the client collateral is not sufficient, the residual margin shall be blocked from the TM proprietary collateral of the TM of such client. If the TM proprietary collateral is also not sufficient, then the residual margin shall be blocked from the CM proprietary collateral of the CM of such TM.

 In case of a trade from the proprietary account of a TM, the margin shall first be blocked from the TM proprietary collateral, and in case such collateral is not sufficient, then the residual margin shall be blocked from the CM proprietary collateral.

 Margins based on trades from proprietary account of the CM shall be blocked from the proprietary collateral of the CM only.

 Example of blocking of margins is provided at Annexure 2.

 For monitoring of the risk reduction mode (90% utilization) and margin violation, the following procedure shall be adopted:

o TM level risk reduction mode: Client margin in excess of 90% of the client collateral shall be identified for each client under a TM. The total of such client margin in excess of 90% of the client collateral, plus the proprietary TM margin shall be assessed against the TM proprietary collateral for monitoring of TM level risk reduction mode.

o CM level risk reduction mode: Sum of client margin in excess of 90% of the client collateral for each client under a TM plus the proprietary TM margin, in excess of 90% of TM proprietary collateral shall be calculated as TM margin in excess of 90% of TM collateral. Sum of such margin for each TM clearing through a CM, plus sum of client margin in excess of 90% of the client collateral for each client clearing through such CM, plus the proprietary CM margin shall be assessed against the proprietary CM collateral for monitoring of CM level risk reduction mode.

 Example for monitoring of risk reduction mode is provided at Annexure 3.

C. Change of allocation

 CMs shall be permitted to change the allocation of collateral deposited with IIBX Clearing. CMs to ensure that the value allocated to any TM /client does not exceed the value of actual collateral received from that TM/client. However, such change of allocation shall be permitted subject to adequacy of available collateral with IIBX Clearing after the change vis-à-vis the margin obligation of CM/TM/ Client. Example for change in allocation is provided at Annexure 4.

D. Withdrawal of collateral

 Collateral shall be released only if sufficient amount is available as un-allocated collateral. Accordingly, CMs shall ensure that sufficient amount is un-allocated prior to placing release request for collateral.

 CMs can un-allocate collateral using the process specified in Annexure 4.

E. Deemed allocation and Short Allocation monitoring

 CMs shall ensure that sufficient collateral is allocated to TM Prop/clients to cover their margin requirements. However, if the margin applicable at IIBX Clearing for a TM Prop/client in a segment exceeds the collateral allocated to the TM Prop/client, then the proprietary collateral of the TM/CM shall be blocked. Such margin blocked from the proprietary collateral towards a TM Prop/client’s margin shall be deemed to have been the collateral allocated to that TM Prop/client. This provision shall include deemed allocation of TM’s proprietary collateral towards client margins and deemed allocation of CM’s proprietary collateral towards TM Prop/client margins. Examples for deemed allocation has been provided in Annexure 2.

 CMs shall ensure that allocated collateral for a TM Prop/client is at all times greater than or equal to the minimum margin collection requirement for the respective TM Prop/client in the respective segment.

 In case where the allocated collateral in respect of a TM Prop/client, is falling short of minimum margin collection requirement, same shall be considered as short allocation and shall be subject to penalty.

The figures shown in various Annexures (examples) are illustrative only .

Members are requested to take note of the above.

For and on behalf of

India International Bullion Exchange IFSC Ltd.

Vinod Ramachandran

Head – Clearing, Settlement & Risk Management

Contact No. +91 79 69 697 123

Email Id: cs.ops@iibx.co.in