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

A clearing member's position in a stock futures contract has an initial margin requirement of Rs 90,000. Previous day MTM was a loss of Rs 15,000 which was collected. Which description of margin collection is correct for the clearing corporation framework?

Initial margin is collected upfront on open positions, and mark-to-market losses are settled in cash every day, with profits credited. Settlement is not deferred to expiry, and MTM is not waived unless losses exceed initial margin.

  1. AInitial margin is collected upfront on positions, while MTM losses are collected in cash on a daily basisCorrect
  2. BInitial margin is collected only at expiry; MTM is adjusted at expiry
  3. CMTM losses are collected only if they exceed the initial margin
  4. DMTM profits are adjusted against initial margin and no cash moves

Explanation

Futures positions attract upfront initial margin (SPAN plus exposure margin type) and MTM losses are settled in cash daily, with profits paid out. It is not deferred to expiry nor conditional on exceeding initial margin.

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