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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

A clearing member has two clients. Client A has a net long position of 600 units and client B has a net short position of 400 units in the same futures contract. The member also has proprietary long of 100 units. How is the member's margin base for clients computed under the principle that client positions are not netted across clients?

The margin base is the gross 1,000 units across the two clients, with the 100 proprietary units margined separately. Positions are not netted between different clients, and proprietary positions are segregated from client positions to protect client funds.

  1. ANet of A and B: 200 units, plus proprietary netted to 300 units
  2. BGross of clients A and B: 1,000 units, with proprietary margined separately on 100 unitsCorrect
  3. COnly the larger client position of 600 units
  4. DOnly the net of A, B and proprietary: 300 units

Explanation

Margins are collected on a client-wise basis and positions of different clients are not netted against each other, and proprietary positions are kept separate from clients. So client exposure is 600 + 400 = 1,000 units (gross across clients), and the proprietary 100 units is margined separately. Netting 600 and 400 would understate risk and violate client-level segregation.

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