Risk Management System

The Business model for Abhipra Capital Limited consists for both (a) ACL Head Office and (b) its Branches network. The clients are linked or mapped to their respective branch locations herein after called as Branches, and are engaged in trading through these "Branches". Apart from the trades executed from Branches, there are certain clients who are indulged in trading using the internet trading platform provided by ACL through approved application service providers. Controlling and monitoring of these trades are done by surveillance department.

Major Functions of RMS

1. Allocating exposure to the clients’ trading account and enabling the clients’ to do trades.
2. Monitoring of orders & trades by clients. Checking of order rejections and increasing exposure, if required.
3. Monitoring the MTM profit/loss incurred out of trades, comparing the Actual Margin requirements of clients and the Total Margin available for clients on a one to one basis and initiating remedial actions, if required.
4. Monitoring and squaring off of positions on account of MTM loss or Margin shortfalls or any other reasons that may come across.

The complete "Risk Management" in relation to all the trading activities for Clients is handled by Surveillance Department.

Hierarchy

In Abhipra Capital Limited, Surveillance department employs executives & senior executives, who are reporting to Manager-Surveillance. Manager Surveillance is reporting to Head of Operations. Decisions relating to routine activities are made by Manager-Surveillance. Activities which contain high risk and complications are to be put forward to the notice of Head of Operations and proper guidance shall be taken before executing any action on such activities.

Branches across the country are sub divided and allotted to these executives and senior executives and all the queries related to the trading activities and exposure requests from Branches are handled by the executives.

Abhipra Capital Limited classifies clients into High Risk Profile, Medium Risk Profile and Low Risk Profile. Such classification is done based on a personal relationship maintained with clients and respective Branch in Charges. Apart from this, all the clients are evaluated based on the initial margin and subsequent margins paid by them. The trading patterns of clients are also taken into consideration for classification of risk profile.

Trading

ACL is a registered stock broker of The National Stock Exchange of India Ltd. (NSE), Bombay Stock Exchange (BSE) and MCX-Stock Exchange (MCX-SX). All exchanges follow online trading system and having a settlement system of T+2 in Capital Market segment and Daily mark to market settlement & Final settlement in Futures & Options segment (including Currency Derivatives). ACL is using NOW (Neat on web) facilitated by NSE for trading in Capital Market, Derivatives segment and Currency Segment. The software is widely accepted amongst the industry as whole and is  used by several other broking companies across the country.

Every exchange fix a minimum initial deposit to be maintained by every trading members as initial margin (Base Minimum Capital) and trading members, at their discretion, can have more deposits (Additional Base Capital) to be used as Margin for the purpose of enabling the trading activities. The exposure levels set by these exchanges are on a member level and not on client level.

The Exchange provides user id for Exchange Trading terminals and ACL in turn activated CTCL login facility and provided NOW terminal to the branches across the country. Exposures on the CTCL terminal are set by ACL surveillance Department  and are done for each and every client based on the margin available with them. Trading is done from branches and the orders are placed by ACL’s relationship managers.

Exposure Rules

Each and every client registered with ACL needs to provide initial deposit by way of cheque. On clearance of the cheque the client will be able to put buy or sell orders through ACL’s trading platform. The term ‘Exposure’ means the extent to which the client’s initial deposit can be utilized for trading activities. In simple terms, if a client having Rs.100 deposit is allowed to trade for Rs.1000, his exposure for trading is TEN times of the initial deposit. The multiplier in the said example is TEN times.

ACL have different exposure policy for Investors and day traders. For an investor, ACL is providing a 2.5 to 4 times exposure for taking delivery positions in Capital Market. For e.g.: If a client is having Rs.1,00,000/- in his account as clear funds, he is allowed to take a delivery position up to Rs. 2,50,000/- to Rs.4,00,000/-. The difference amount needs to be brought in the form of a cheque on the same day itself or latest by T+1 day.

A day trader is provided with 8 to 10 times exposure for indulging in day trading activities.

The exposure rules may vary from time to time in accordance with the market conditions.

The positions taken for intra-day shall be cleared by 3.15 PM on the same day.

Once the MTM loss of the intra-day positions reach 75% of the margin available, the positions shall be cleared from the branch concerned, failing which the positions taken for the intra-day will be cleared off by surveillance department.

Intra-day exposure in Capital Market Segment may be availed based on the shares lying in Demat account with ACL / ACL Pool Account subject to appropriate haircut in the valuation (based on the script and market conditions) and with available credit balance in the A/C.

The exposure set in Capital Market segment and Futures & options segment (including Currency Derivatives) is different. In capital market the client is allowed to take the exposure on multiplier basis which can be anywhere up to 10 times of initial deposit. Whereas, in Futures & options segment, where exchanges have stipulated fixed initial margins and exposure margin, it is compulsory to keep 100% margin either in the form of clear fund balance or as collateral securities.

The term clear fund (Total Margin Available) means the account balance available for the client in his ledger account. Collateral shares means the share which are bought by the client in respect of which no payments are outstanding and are available in the margin account of the client. Shares in Demat account will not be considered as collaterals for the purpose of trading in Futures & Options segment. For availing the benefit of collateral margin, client needs to transfer the shares lying in his Demat account to margin account maintained in the name of Abhipra Capital Ltd. All the shares transferred as collateral can be considered for exposure after deducting appropriate haircut based on the scripts and market conditions.

In short, the total margin for exposure purpose is the sum total of fund balance + the value of shares available in the Margin Account (after haircut). Uncleared funds will not be considered for calculating the Total Margin available.

As a conclusion, clients are provided with an exposure of either 2.5 to 4 times delivery margin or 8 to 10 times intra-day margin in Capital Market segment or 1 times Futures & options margin.

Notes to the Exposure rules

1. Uncleared Funds: Every payment from clients should be in the form of cheque and the same will be considered for margin only after clearance of the instrument. There will not be any exposure provided to clients based on the uncleared funds.
2. However, based on the client’s previous track record and the value of collaterals available with ACL, exposure may be provided to clients based on uncleared funds. All such exposure will be provided on receipt of Exposure request in the predefined format signed by the Branch in charge concerned with an undertaking of responsibility or the guarantee that the cheque will be cleared. All request for amounts less than Rs. 1,00,000/- may be approved by the Surveillance Manager after a thorough evaluation of the client’s track record, previous instances of cheque dishonours from the branch and the reliability of the Branch in charge. All request exceeding Rs. 1,00,000/- will be processed only after getting approval from Head of Operations.
3. Shares in Pool Account & Demat Account will be considered for intra-day exposure in Capital Market segment subject to appropriate haircut based on the scripts and market conditions. Exposure for delivery will be based only on the clear fund balance. Similarly, as mentioned earlier, no F&O exposure will be provided against shares lying in Demat account.
4. Outstation cheques are not entertained. All the cheques collected against trading positions shall carry a valid MICR number.
5. All the cheque dishonour cases are viewed seriously and debit amounts in such accounts will be cleared from surveillance department. The normal rule for 5 days debit will not be applicable while selling the shares in cheque dishonour issues.

DEBIT Policy

Exchanges follow a settlement schedule of T+2 in Capital Market segment, daily M to M settlement & Final Settlement in Derivatives segment. Accordingly, the exposure policy designed by ACL directing the customers to pay the debit balance on the day of purchase itself or on next day. The left out clients’ debit will not be allowed to carry forward beyond 5 days. No extension is possible beyond 5 days in whatsoever circumstances. All the debits aging more than 5 days will be cleared from Surveillance dept without further intimation to branches. It is the duty of Branch in charge/Branch Manager/Relationship Manager (RM) to communicate to the client regarding the debits in their respective accounts. All the requests with genuine reasons for retaining debit up to 5 days shall be considered only after getting approval from Head of Operations through mail.

A client’s debit to collateral ratio shall always be in a ratio of 3:4. For a debit of Rs.3/- there should be a minimum collateral valuation of Rs.4/-. Any decrease in the collateral valuation will lead to realisation of funds by selling of shares so that the minimum debit to collateral ratio is maintained.

Futures & options Segment (Including Currency Derivatives)

In the segment, the exchanges stipulate that every position taken shall be based on the available initial margin. Apart from the initial margin, exchanges have introduced exposure margin in order to meet the market volatility and risk associated.

Based on the requirements of exchanges, ACL insists that all the clients in F&O segment shall have sufficient margins (Initial + Exposure margin) for taking position in the F&O segment. The margin shall either be clear credit balance or in the form of exchange approved collaterals or shares duly transferred to Margin Account or as a combination of these three. The appropriate hair cut  based on the script and market conditions is applicable for collaterals in the form of shares before taking the valuation.

The MTM loss arising in F&O positions need to be paid on the same day (T day) so that MTM settlement can be performed properly, failing which the positions will be reduced to the available margin level. No fresh positions will be granted against unclear cheque. ACL surveillance will reduce the positions if the MTM loss incurred on a day is more than 40% of the actual margin requirement. In order to retain the position in such cases is possible only if Funds are transferred from the client’s bank account either through online banking or Fund Transfer.
Clients can provide margin in the form of securities only by transferring the securities to margin account. In such cases also sufficient credit balance shall be maintained in client’s trading account in order to meet the daily MTM requirements. ACL stipulates that minimum 10% of the total margin shall be in the form of clear credit (Cash component shall be 10%). If the cash component is not sufficient to meet the MTM, the shares given as margin will be liquidated to bring the position to required margin level on T+1 day.

Special Points relating to Options segment

1. The options buying shall be allowed only against premium margin which shall be in the form of clear credit balance only. Collaterals, in any form, will not be considered as margin for options buying.
2. Options selling involve unlimited risk and thereby Exchanges specify high initial margin & exposure margin and hence will be allowed only against the exchange specified margin. Deep out of the money options selling will not be entertained and similarly options having lesser activities will not be allowed. The credit realizing from selling of options will not be considered as liquid credit balance and henceforth will not be considered for payout of funds.

Securities under Ban Period- [Market-wide Position Limit (MWPL)]

A facility is available on the trading system to display an alert once the open interest in the futures and options contract in a security exceeds 60% of the market wide position limits specified for such security. Such alerts are presently displayed at time intervals of 10 minutes. The aggregate open interest of the security across Exchanges shall be considered for the purpose of monitoring of MWPL. If the aggregate open interest of the security across exchanges exceeds 95% of the MWPL, no fresh positions shall be permitted for the said security from the subsequent trading day. The normal trading in the security shall be resumed only after the aggregate open outstanding position across Exchanges comes down to 80% or below of the MWPL. Once a client is taking any further position in the security for which MWPL has crossed 95% will be penalized with the amount of penalty as fixed by the exchanges. Hence, the responsibility of informing the clients regarding the MWPL limits is primarily vested with BIC/BM/Relationship Mangers.

Trading in Newly Listed Shares & Illiquid Securities

Newly listed shares, illiquid securities and Trade-to-Trade shares having high VaR margin and trading in these scrips are subject to the high market risks and rate fluctuations. Illiquid securities & Trade-to-Trade securities will have a daily price range and there are chances that these shares reach the upper DPR or Lower DPR during a trading day. Hence, the dealing in these securities will be subject to the permission from the surveillance department and will be subject to the available credit balance only.

Newly listed shares usually do not have any DPR and hence, the chances for rate fluctuations are more. The dealing in newly listed shares will be restricted to the available credit balance after considering the MtoM levels.

Internet Based Trading (IBT)

ACL provides internet based trading facility for its clients through NOW software.

The exposure for IBT clients in capital market segment for intra-day will be Five times and Delivery will be Two times of the margin available. The primary responsibility to monitor the risk of IBT customer lies with the branch where the client is mapped. However, RMS team will closely monitor the risk associated with trading of such clients.

Receipt Policy

All investors are required to make the payment from their respective Bank accounts registered with ACL either through cheque / online transfers / NEFT / RTGS. Payments through pre-funded instruments shall be discouraged and may be accepted only in the exceptional conditions subject to the approval from the senior manager at Head Office. All payments received through the pre-funded instruments by investors shall be subject to following conditions :

1. In case client makes a payment through pre-funded instrument having amount less than Rs 50,000/- in a day, same shall be accompanied with self declaration containing details of issuing Bank, Bank Account Holder name, and Bank Account Number and the purpose for issuing the pre-funded instrument.
2. In case client makes a payment through pre-funded instrument having amount equivalent or more than Rs 50,000/- in a day, same shall be accompanied with certificate from the issuing bank containing details of the Bank Account holder name and Bank Account Number and purpose for issuing the pre-funded instrument. 

The Manager approving the receipt of the pre-funded instruments, shall maintain the complete audit trail and ensure that the payment is received from the Bank Account of the investor only.

Client Code Modification

Genuine errors in client codes occurred while punching the orders may be modified subject to the approval from exchanges. The timeline fixed by exchanges have to be met and the other guidelines also need to be followed.

Every request for client code modification is to be sent to surveillance department in the predefined format and proper care shall be taken in filling the Exchange order number, trade number and the reasons for wrong Punching. On evaluation of the trades and the clients’ financial position with ACL, surveillance team will decide whether to accept the Modification Request or not. All the cases which seem not to be genuine are put forward to the notice of Compliance Officer & Head of Operations and the processing of the client code modification request will be solely upon the decision of the Compliance Officer & Head of Operations. Physical Contract notes will be sent to such clients on the next day.