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

A clearing member's open positions in the futures segment require an initial margin of Rs 8 lakh. The member holds Rs 5 lakh cash and Rs 6 lakh of approved securities. Under the clearing corporation's collateral norms, at least 50% of the margin obligation must be in cash or cash equivalents. Which statement is correct?

Cash of Rs 5 lakh meets the minimum cash component. Fifty percent of the Rs 8 lakh margin is Rs 4 lakh, which the cash exceeds, and the balance can be covered by approved securities subject to haircuts.

  1. ACash of Rs 5 lakh meets the minimum cash component requirement of Rs 4 lakhCorrect
  2. BCash of Rs 5 lakh is short of the minimum cash requirement
  3. CThe member needs Rs 8 lakh entirely in cash
  4. DSecurities cannot be used as collateral at all

Explanation

50% of Rs 8 lakh is Rs 4 lakh. The member's cash of Rs 5 lakh exceeds this. The remaining Rs 4 lakh can be met from the Rs 6 lakh of securities after haircuts, and the total collateral of Rs 11 lakh is sufficient before haircuts. A full-cash requirement does not apply, and approved securities are acceptable collateral.

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