The clearing Mechanism essentially involves working out open positions and obligations of clearing (Self clearing/trading-cum-clearing/professional clearing) members. This position is considered for exposure and daily margin purposes. The open positions of CMs are arrived at by aggregating the open positions of all the TMs and al l custodial participants clearing through him, in contracts in which they have traded. A TMs open position is arrived at as the summation of his proprietary open position and client’s open positions, in the contracts in which he has traded. While entering orders on the trading system, TMs are required to identify the orders, whether proprietary (ifthey are their own trades) or client (if entered on behalf of clients) through ‘pro/cli’ indicator provided in the order entry screen. Proprietary positions are calculated on net basis (buy-sell) for each contract. Client’s positions are arrived at by summing together net (buy-sell) positions of each individual client. A TMs open position is the sum of proprietary open position, client open long position and client open short position.
Consider the following example given from Table 1 to 4. The proprietary open position on day 1 is simple = Buy – sell = 200 – 400 = 200 short. The open position for client A= Buy (O) – Sell (C) = 400 – 200 = 200 long, i.e., he hasa long position of200 units. The open position for client B = Sell (O) – Buy (C) = 600 – 200 = 400 short, i.e., he has a short position of400 units. Now the total open position of the trading member Madanbhai at the end of day 1 is 200 (his proprietary open position on net basis) plus 600 (the client open positions on gross basis) i.e., 800.
The proprietary open position at end of day 1 is200 short. The end of day open position for proprietary trades undertaken on day 2 is 200 short. Hence the net open proprietary position at the end of day 2 is 400 short. Similarly, client A’s open position at the endof day 1 is 200 long. The end of day open position for trades done by client A on day 2 is 200 long. Hence the net open position for Client A at the end of day 2 is 400 long. Client B’s open position at the end of day 1 is 400 short. The end of day open position for trades done by client B on day 2 is 200 short. Hence the n et open position for client B at the end of day 2 is 600 short. The net open position for the trading member at the end of day 2 is sum of the proprietary open position and client open positions. It works out to be 400 + 400 + 600 i.e., 1400.
All futures and options contracts are cash settled, i.e., through exchange of cash. The underlying for index futures/options of the Nifty index cannot be delivered. These contracts, therefore, have to be settled in cash. Futures and options on individual securities can be delivered as in the spot market. However, it has been currently mandated that stock options and futures would also be cash settled. The settlement amount for a CM is netted across all their TMs/clients, with respect to their obligations on MTM, premium and exercise settlement.
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