4.1 Definition of Liquid Net Worth

Even an accurate 99% "value at risk" model would give rise to end of day mark to market losses exceeding the margin approximately once every six months. Obviously, the futures market should not be subject to a payments crisis every six months, and this means that there must be a second level of defence in the form of the broker’s net worth. The group is of the view that that given the reality of the Indian situation, liquid net worth is a far more meaningful defence against market risk than book net worth.

Liquid net worth means:

1. total liquid assets deposited with the exchange/clearing corporation towards initial margin and capital adequacy, LESS
2. initial margin applicable to the total gross open positions at any given point of time of all trades cleared through the clearing member.