5.5.3 Margin and capital adequacy calculations on day two

Suppose that on day two, the member does not initiate any new trades, but prices move up so that the situation is as follows:
 
Member’s Liquid Assets Cash equivalent deposits 35,00,000

Securities deposits (net of haircuts) 40,00,000
Member’s Open Position 200 contracts long in the 3 month contract

300 contracts spread position (long in three month contract and short in near month contract)
Futures Prices 3 month contracts is Rs. 1,01,000

1 month contract is Rs. 99,000
Initial Margin 5%
Days to expiry Fourth day before expiry of one month contract

The margins and exposures for the 200 contract long position would be:

  • Open position = 200 * 1,01,000 = 2,02,00,000
  • Initial Margin = 5% * 200 * 1,01,000 = 10,10,000
The spread open position for exposure purposes would be 1,41,40,000 as calculated below since the near contract is four days to expiry:
  • 20% of far month = 20% * 300 * 1,01,000 = 60,60,000
PLUS
  • 80% of far month = 80% * 1/3 * 300 * 1,01,000 = 80,80,000
The initial margin on spread would be 5,45,000 as shown below:
  • 20% of far month = 20% * 5% * 300 * 1,01,000 = 3,03,000
  • 80% of spread = 80% * 1% * 300 * 1,01,000 = 2,42,000
The margin, exposure and liquid networth of the member would be as follows:
  • Total open position = 2,02,00,000 + 1,41,40,000 = 3,43,40,000
  • Total initial margin = 10,10,000 + 5,45,400 = 15,55,400
  • Liquid net worth = 70,00,000 - 15,55,400 = 54,44,600
Both conditions in 4.2 above are satisfied as shown below:

Condition 1. 54,44,600 > 50,00,000

2. 54,44,600 * 331/3 (18,14,86,667) > 3,43,40,000
 
 

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