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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 is long 4 lots and client B is short 3 lots of the same stock future in the same expiry. Under the clearing corporation's margining of positions, how is the clearing member's position for margin computation at the client level handled?

Margin is calculated separately for each client on that client's own net position, with no netting across clients. Client A is margined on 4 lots and client B on 3 lots, since offsetting positions of different clients does not reduce risk.

  1. AClient positions are netted against each other and margin is levied on 1 lot
  2. BMargin is levied on 7 lots, since gross open positions across clients are added
  3. CMargin is calculated on each client's net position separately, with no netting across clients, so 4 lots and 3 lots are each marginedCorrect
  4. DMargin is calculated only on the 3 short lots as they are the smaller position

Explanation

Margins are computed client-wise on a net basis within a client, but positions across different clients are not netted. Thus client A is margined on 4 lots and client B on 3 lots. Netting across clients (1 lot) would understate risk, and adding positions into one pool is not how it is computed; ignoring a client's long is also wrong.

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