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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management

A client's Value at Risk (VaR) margin on a cash market position is computed as a percentage of the trade value. Which statement about VaR margin in the cash segment is correct?

VaR margin is designed to cover the maximum loss expected on 99% of days over the period needed to liquidate a position. It is applied to positions in the securities, not to the broker's net worth, and is not refunded on the same day as the trade.

  1. AIt is meant to cover the largest loss expected on 99% of days over the time taken to liquidate the positionCorrect
  2. BIt is levied only on sellers and never on buyers
  3. CIt is refunded to the client on the same day after the trade is made
  4. DIt is computed on the broker's net worth rather than on the client's positions

Explanation

VaR margin is a statistical measure based on a 99% confidence level, aimed at covering potential loss over the settlement and liquidation period. It applies to positions of both buyers and sellers and is collected, not refunded same day. It is based on positions, not net worth.

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