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

Which of the following best describes the role of the Value at Risk (VaR) margin collected by the exchange or clearing corporation?

VaR margin covers the potential loss on a position over a defined holding period at a given confidence level, commonly 99%. It is collected upfront by the clearing corporation to protect against adverse price moves and is not a fee or brokerage.

  1. AIt covers the potential loss on a position over a defined holding period at a given confidence levelCorrect
  2. BIt is a charge for the broker's brokerage income
  3. CIt covers only the exposure to delivery of shares
  4. DIt is the fee collected for settlement guarantee fund contribution

Explanation

VaR margin estimates the loss that a portfolio may suffer over a specified time horizon with a given confidence level, such as 99%. It is collected to cover the price risk of open positions. It is not a fee, nor a brokerage charge, nor limited to delivery.

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