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About ICCL

Indian Clearing Corporation Limited ("ICCL") has been promoted by BSE limited ("BSE") as its 100% owned subsidiary company, inter alia, to function as a Clearing Corporation. At present, ICCL undertakes clearing and settlement services for the Mutual Funds Segment and Corporate Debt Segment of BSE. ICCL also undertakes clearing & settlement functions of the Currency Derivatives Segment of United Stock Exchange of India Limited ("USE")

Clearing and Settlement for USEs Currency Derivatives Segment (USE CDX) through ICCL
ICCL also undertakes Clearing and Settlement and Risk Management Activities for USEs Currency Derivatives Segment. The activities, inter alia, include computation and collection of mark to market settlement amount from Clearing Members, Risk Management i.e. computation and collection of various types of margins from its Clearing Members, management of collateral deposits of Clearing Members etc. as may be prescribed by ICCL/USE from time to time.

Process

Daily Mark to Market settlement.

The daily mark-to-market to be settled in cash on T+1 day basis.

Settlement mechanism Cash settled in Indian rupees. Settlement price Last Trading Day Final settlement day The settlement price is the Reserve Bank of India Reference Rate on the date of expiry. The near month contract is discontinued for trading 2 days prior to the expiry day (assuming both the days are trading days). The final settlement day is the contract expiry date which is generally the T+2 day from the last trading day of the contract.

Clearing Members
Types of Clearing Members

Trading-Cum-Clearing Member (TCM) A TCM can trade as well as clear & settle own/cliental trades. In addition, a TCM can also clear & settle trades of his associate Trading Members.

Professional Clearing Member : (PCM) A PCM doesnt have trading rights. A PCM has only clearing & settlement rights i.e. he just clears & settles trades of his associate Trading Members & clients.

Clearing Banks for ICCL USE Currency Derivatives Segment.


ICCL has empanelled following nine Clearing Banks for the purpose of settlement of funds obligations by Clearing Members in ICCL-USE Seg. A Clearing Member needs to open settlement account with any one of the below mentioned designated Clearing Banks for the purpose of settlement of funds obligation.
Sr.No Name of Clearing Bank

1 2 3 4 5 6 7 8 9

Allahabad Bank Andhra Bank Axis Bank Bank of India Federal Bank HDFC Bank Punjab National Bank Central Bank Yes Bank

Risk Management
ICCL has a well designed and robust Comprehensive Risk-Management Framework which, inter alia, includes computation and collection of various types of margins, Collateral Management etc. for the Currency Derivatives Segment of USE. Collateral requirements for ICCL-USE Clearing Members

Minimum Liquid Networth The Clearing Members liquid net worth after adjusting for the initial margin and extreme loss margin requirements must be at least Rs. 50 Lakhs at all points in time. Accordingly, every Clearing Member is required to maintain a minimum liquid networth of Rs. 50 lakhs in the prescribed proportion (i.e. Rs. 25 lakhs in cash and balance Rs.25 lakhs in form of cash, cash equivalent or non-cash equivalent) with ICCL.

Liquid assets The liquid assets for trading in currency futures are to be maintained separately in the Currency Derivatives Segment.

Composition of liquid assets Clearing Members of the Currency Derivatives Segment may deposit liquid assets in the form of cash and cash equivalent i.e. Fixed Deposit Receipts, Bank Guarantees of the Schedule Commercial Banks, approved Government Securities and Treasury Bills and non-cash equivalent i.e. approved securities and in any other form of collateral as may be prescribed by ICCL from time to time. List of approved securities is available on the website (www.bseindia.com). The cash/cash equivalent component should be at least 50% of the total liquid assets. In other words, non-cash component in excess of the total cash component is not considered as part of Total Liquid Assets for trading/exposure purpose. The norms in respect of liquid assets i.e. composition of liquid assets, types of liquid assets, applicable haircuts, single bank and single issuer exposure limits, etc. are mutatis mutandis applicable from the Equity Derivatives Segment.

Procedure for deposit of liquid assets for the Currency Derivatives Segment:

Cash Deposit For depositing cash as liquid assets the Clearing Members need to give instructions to their respective Clearing Banks to transfer the amount to the designated settlement account of ICCL for enhancement of cash collateral.

Fixed Deposit Receipts (FDRs) The FDR(s) of a scheduled commercial bank can be deposited by the Clearing Members towards liquid assets. The FDRs deposited by the Clearing Members should be issued in favour of Indian Clearing Corporation Ltd. a/c Trade Name of the Clearing Member" and should be duly discharged by the Clearing Member himself or an authorized signatory of the member on the reverse of the FDRs. A clearing member needs to submit the FDR alongwith a letter (in the prescribed format) of the concerned bank addressed to ICCL.

Bank Guarantee(s) The bank guarantees towards liquid assets should be of a scheduled commercial bank and should have a minimum validity period of three months. The bank guarantees should be strictly as per the prescribed format as given on BSEs website www.bseindia.com. The bank guarantees need to be submitted alongwith a covering letter as per the prescribed format to ICCL. In case of renewal, the renewed Bank Guarantee should be submitted alongwith the banks renewal letter and a covering letter of the Clearing Member to ICCL in the prescribed format.

Eligible securities by way of pledge:

Clearing Members can deposit approved Government Securities towards liquid assets subject to hair cut. Other eligible securities in dematerialised form can also be deposited towards liquid assets by way of pledge subject to hair cut. The list of such securities is available on BSEs website www.bseindia.com. The format of Deed of Pledge is available on BSEs website www.bseindia.com.

Procedure for withdrawal of collaterals: For withdrawal of collateral deposited towards liquid assets a letter in the prescribed format is to be submitted by the Clearing Members to ICCL on any working day by 04:00 p.m. Margins ICCL has a robust Comprehensive Risk Management Framework. One of the vital components in the risk management framework is computation and collection of various types of margins. The margin norms in the Currency Derivatives Segment are as follows:

Initial Margin The Initial Margin requirements are, inter alia, based on a worst case loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes

are so computed so as to cover a 99% VaR over a one day horizon. The initial margin so computed is subject to a minimum of 1.75% on the first day of currency futures trading and 1 % thereafter. The initial margin is deducted upfront on an on-line real-time basis from the available liquid assets deposited by the Clearing Member with ICCL. Computation of Initial Margin is as per the methodology prescribed by SEBI.

Portfolio based margining system The Standard Portfolio Analysis of Risk (SPAN) methodology is adopted to take an integrated view of the risk involved in the portfolio of each individual client comprising his positions in futures contracts across different maturities. The client-wise margins are grossed across various clients at the Trading /Clearing Member level. The proprietary positions of the Trading / Clearing Member are treated as that of a client for margining purpose.

Real time computation The computation of worst scenario loss has two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract values are applied to the actual portfolio positions to compute the portfolio values and the initial margin. The scenario contract values are updated five times in a day. The latest available scenario contract values are applied to member/client portfolios on a real time basis.

Calendar spread margins A currency futures position at one maturity which is hedged by an offsetting position at a different maturity is treated as a calendar spread. The benefit for a calendar spread continues till expiry of the near month contract. For a calendar spread position, the extreme loss margin is charged on one third of the mark to market value of the far month contract.

The calendar spread margins for different currency pairs are as follows:
Calendar Spread Margin EUR-INR GBP-INR JPY-INR

Contract

USD-INR

1 month 2 months 3 months 4 months or more

Rs. 700

Rs 1500

Rs 600

Rs. 400

Rs. 1000 Rs 1800 Rs. 1500 Rs 2000

Rs. 1000 Rs. 500 Rs. 1500 Rs. 800

Rs. 1500 Rs. 2000 Rs. 1500 Rs. 1000

Extreme Loss margin Extreme loss margin on the mark to market value of the gross open positions deducted upfront from the available liquid assets of the clearing member on an on line, real time basis are as follows:
Contract EUR-INR GBP-INR JPY-INR USD-INR

Extreme Loss Margin

0.30%

0.50%

0.70%

1%

Additional margins As a risk containment measure, ICCL may require clearing members to pay additional margins as may be decided from time to time. This would be in addition to the abovementioned margins.

Collection of margins. Aforesaid margins are computed at a client level and collected/adjusted upfront from the liquid assets of the Clearing Members on an on-line real time basis.

Margin Collection and Enforcement The client margins are to be compulsorily collected and reported to ICCL/USE by the members. Revision of Risk Management norms ICCL may revise the aforesaid risk management norms from time to time.

Specifications

CURRENCY FUTURES READY RECKONER CURRENCY PAIR USD-INR EUR-INR GBP-INR

JPY-INR

Contract Size

1 Contract is for 1000 USD

1 Contract is for 1000 1 Contract is for 1000 1 Contract for Euros Pound Sterling 100,000 Yen Initial Margin computed is subject to minimum of 3.20% on first day of trading and 2% thereafter 0.5% of MTM value of open position Initial Margin computed is subject to minimum of 4.50% on first day of trading and 2.30% thereafter 0.7% of MTM value of open position

Initial Margin

99% VaR subject to Initial Margin minimum of 1.75% computed is subject on the first day of to minimum of 2.80% trading and 1% on first day of trading thereafter and 2% thereafter 1% of MTM value of open position 0.3% of MTM value of open position

ELM

1 Contract is for 1000 USD Calendar Spreads 1 Contract is for 1000 USD 1 Contract is for 1000 USD 1 Contract is for 1000 USD Daily Settlement Final Settlement Last Trading Day Final Settlement Day Daily Settlement Price Final Settlement Price T+1 T+2

1 Contract is for 1000 1 Contract is for 1000 1 Contract for Euros Pound Sterling 100,000 Yen 1 Contract is for 1000 1 Contract is for 1000 1 Contract for Euros Pound Sterling 100,000 Yen 1 Contract is for 1000 1 Contract is for 1000 1 Contract for Euros Pound Sterling 100,000 Yen 1 Contract is for 1000 1 Contract is for 1000 1 Contract for Euros Pound Sterling 100,000 Yen T+1 T+2 T+1 T+2 T+1 T+2

Two working days prior to the last business day of the expiry month.

Last working day (excluding Saturdays) of the expiry month.

Calculated on basis of daily closing price of the Currency Futures Contract.

RBI Reference rate on the date of expiry of the contract.

Date: Aug 06, 2008 Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges
RBI/2008-09/122 A.P. (DIR Series) Circular No. 05 August 06, 2008 To All Madam Category / I Authorised Sir, Dealer banks

Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges Attention of Authorized Dealers Category I (AD Category I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No.FEMA/25/RB-2000 dated May 3, 2000], as amended from time to time. 2. Persons resident in India have a menu of over-the-counter (OTC) products, such as currency forwards, swaps and options for hedging their currency risk. In the context of liberalisation of the capital accounts, as also continued development of the financial markets, it is felt that wider hedging opportunities could enhance the flexibility for the residents to manage their currency risk dynamically. International experiences have also established that the exchange traded currency futures contracts facilitate efficient price discovery, enable better counterparty credit risk management, wider participation, trading of standardized product, reduce transaction costs, etc. Accordingly, as a part of further developing the derivatives market in India and adding to the existing menu of foreign exchange hedging tools available to the residents, it has been decided to introduce currency futures in recognized stock exchanges or new exchanges recognized by the Securities and Exchange Board of India (SEBI) in the country. The currency futures market would function subject to the directions, guidelines, instructions issued by the Reserve Bank and the SEBI, from time to time. 3. Persons resident in India are permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] (Directions) issued by the Reserve Bank of India, a copy of which is annexed (Annex-I). 4. Necessary amendments to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the Official Gazette vide G.S.R. No 577(E) dated August 5, 2008, a copy of which is annexed (Annex-II). 5. The above Directions have been issued under Section 45W of the Reserve Bank of India Act, 1934 and the above Regulations have been issued under clause (h) of sub-Section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999). 6. This circular has been issued under Sections 10 (4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully, (Salim Gangadharan) Chief General Manager-In-Charge

Annex-I [A. P. (DIR Series) Circular No. 05 dated August 06, 2008] Currency Futures (Reserve Bank) Directions, 2008 Notification No. FED.1/DG(SG)-2008 dated August 6, 2008 The Reserve Bank of India having considered necessary in public interest and to regulate the financial system of the country to its advantage, in exercise of its powers conferred by section 45W of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby gives the following directions to all the persons dealing in currency futures. 1. Short title and commencement of the directions

These directions may be called the Currency Futures (Reserve Bank) Directions, 2008 and they shall come into force with effect from August 6, 2008. 2. Definitions

(i) Currency Futures means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract. (ii) Currency Futures market means the market in which currency futures are traded. 3. Permission

(i) Currency futures are permitted in US Dollar - Indian Rupee or any other currency pairs, as may be approved by the Reserve Bank from time to time. (ii) Only persons resident in India may purchase or sell currency futures to hedge an exposure to foreign exchange rate risk or otherwise. 4. Standardized Features currency futures of shall currency have the futures following features:

a. Only USD-INR contracts are allowed to b. The size of each contract shall be c. The contracts shall be quoted and settled in d. The maturity of the contracts shall not exceed e. The settlement price shall be the Reserve Banks Reference Rate on the last trading day. 5.

be traded. USD 1000. Indian Rupees. 12 months.

Participants

(i) No person other than 'a person resident in India' as defined in section 2(v) of the Foreign Exchange Management Act, 1999

(Act

42

of

1999)

shall

participate

in

the

currency

futures

market.

(ii) Notwithstanding sub-paragraph (i), no scheduled bank or such other agency falling under the regulatory purview of the Reserve Bank under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 or any other Act or instrument having the force of law shall participate in the currency futures market without the permission from the respective regulatory Departments of the Reserve Bank. Similarly, for participation by other regulated entities, concurrence from their respective regulators should be obtained. 6. Membership

i. The membership of the currency futures market of a recognised stock exchange shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. Banks authorized by the Reserve Bank of India under section 10 of the Foreign Exchange Management Act, 1999 as AD Category - I bank are permitted to become trading and clearing members of the currency futures market of the recognized stock exchanges, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements: a) Minimum b) Minimum c) Net NPA d) Made net profit for last 3 years. net CRAR should worth of not exceed of 10 3 Rs. 500 per per crores. cent. cent.

The AD Category - I banks which fulfill the prudential requirements should lay down detailed guidelines with the approval of their Boards for trading and clearing of currency futures contracts and management of risks. (iii) AD Category - I banks which do not meet the above minimum prudential requirements and AD Category - I banks which are Urban Co-operative banks or State Co-operative banks can participate in the currency futures market only as clients, subject to approval therefor from the respective regulatory Departments of the Reserve Bank. 7. Position limits

i. The position limits for various classes of participants in the currency futures market shall be subject to the guidelines issued by the SEBI. ii. The AD Category - I banks, shall operate within prudential limits, such as Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of the banks, on their own account, in the currency futures market shall form part of their NOP and AG limits. 8. Risk Management measures The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the Clearing Corporations / Clearing Houses of the exchanges should ensure maintenance of such margins by the participants on the basis of the guidelines issued by the SEBI from time to time. 9. Surveillance and disclosures The surveillance and disclosures of transactions in the currency futures market shall be carried out in accordance with the guidelines issued by the SEBI. 10. Authorisation to Currency Futures Exchanges / Clearing Corporations Recognized stock exchanges and their respective Clearing Corporations / Clearing Houses shall not deal in or otherwise

undertake the business relating to currency futures unless they hold an authorization issued by the Reserve Bank under section 10 (1) of the Foreign Exchange Management Act, 1999. 11. Powers of Reserve Bank The Reserve Bank may from time to time modify the eligibility criteria for the participants, modify participant-wise position limits, prescribe margins and / or impose specific margins for identified participants, fix or modify any other prudential limits, or take such other actions as deemed necessary in public interest, in the interest of financial stability and orderly development and maintenance of foreign exchange market in India. (Shyamala Gopinath) Deputy Governor

[Annex-II [A. P. (DIR Series) Circular No. 05 dated August 06, 2008] Notification No. FEMA 177 /RB-2008 dated August 01, 2008 Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2008 In exercise of the powers conferred by clause (h) of sub-section 2 of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Reserve Bank of India makes the following amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, (Notification No. FEMA 25/RB-2000 dated May 3, 2000) namely:1. Short Title and Commencement: (i) These Regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2008. (ii) They shall come in to force from the date of their publication in the Official Gazette. 2. Amendment of the Regulations In the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB2000 dated May 3, 2000) (hereafter referred to as the principal regulations), (i) in regulation 2, after clause (v), the following clause shall be inserted, namely:"(va) 'Currency Futures means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract." (ii) in regulation 3 of the principal regulations, after the words, "foreign exchange derivative contract", the words, "or currency futures" shall be inserted. (iii) after regulation 5 of the principal regulations, the following regulation shall be inserted, namely :-

"5A. Permission to a person resident in India to enter into currency futures A person resident in India may enter into a currency futures in a stock exchange recognized under section 4 of the Securities Contract (Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to such terms and conditions as may be set forth in the directions issued by the Reserve Bank of India from time to time."

(Salim Gangadharan) Chief General Manager-in-Charge

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