Risk Management Policy at Brokerage houses
Brokers are open to risk all the time, let’s say for an
example you buy 100 shares of reliance at the rate of Rs 1000 and Delivery
Brokerage is .3% which is Rs 3 per share. So the risk is Rs 997 with a broker.
Imagine if you went bankrupt or you don’t fulfill your
obligation to the broker, broker is left with 2 options either to call you for
your margin deposit or square off your stocks in real time market with current
market price. All these process is run by risk management software which
continuously monitors the risk in real time environment and at few brokers
place this same risk formulas are used to release payment to the client
Normally there are 12 to 13 parameters for overall
consideration of risk in Stock Broking
·
Financial balances (Clear / Unclear Balance)
·
Power of Attorney Stock (also referred to as
Statement of Holding Stocks) for liquid scrips
·
Power of Attorney Stock (also referred to as
Statement of Holding Stocks) for illiquid scrips
·
Beneficiary Stocks (Stocks Withhold by broker in
case of debits) for liquid scrips
·
Beneficiary Stocks (Stocks Withhold by broker in
case of debits) for illiquid scrips
·
Collateral Stock (Stocks Deposited by you for FO
Trading) for liquid scrips
·
Collateral Stock (Stocks Deposited by you for FO
Trading) for illiquid scrips
·
Mutual Fund units available in Demat form
·
Span Margin
·
Exposure Margin
·
VAR Margin (Hair cut for Cash Market)
·
Exercised/ Assigned Value
·
Option intrinsic value
·
Futures & Options open positions Market to
Market Value
Overall risk at a brokers place revolve around above
parameters
On basis of risk management your next day trading limits
are configured
Financial Balances
T+2 Day Balances: Rs 300000 Cr
Assuming T Day as 11/01/2016 , Payin & Payout of
funds takes place on T+2 i.e 13/01/2016
If you would have sold some shares on T Day and those
shares are lying with broker in POA or Beneficiary or Collateral then you would
get entire credit for the shares sold because it would be the broker who would
be doing Payin on behalf of you and broker would provide you credit for sale
In Stock Market Credit for sale is referred to the
above scenario
Unclear Cheque:-
You gave a cheque to the broker and it is not yet
reflected in the bank books of broker , So broker may not give you the credit
for the funds in Transit . For our example let’s take Rs 50000 as Fund in
transit
Final Balance: Rs 300000 – Rs 50000 = Rs 250000
Power of Attorney Stocks
Scrip Name
|
Quantity
|
Closing Price
|
Var
Margin
|
After Hair Cut Value on Var
|
Broker Hair
Cut
|
After Hair
Cut Value Broker Haircut
|
Liquid
Scrip
|
Liquid Value
|
Asian Paints
|
10
|
873.85
|
12.50
|
7,646.18
|
20.00
|
6,990.8
|
Y
|
7,646.18
|
Hotel Rugby
Limited
|
100000
|
4.05
|
51.51
|
196,384.5
|
100.00
|
0.00
|
N
|
0.00
|
Total Value
|
204,030.68
|
6990.80
|
7646.18
|
We have 3 totals which are
a-> After Hair Cut Value on VAR : 204030.68
b->After hair Cut value as per brokers haircut :-
6990.80
c-> Liquid Value : 7646.18
(Remember Liquid value for Daily Margin Statement and
MG13 Reporting is calculated on basis of VAR and Margin Statement value is your
next day limit value)
Must Read : Best 3 Mid Cap Mutual Fund to Invest via SIP in 2016
Must Read : Best 3 Mid Cap Mutual Fund to Invest via SIP in 2016
Beneficiary Stocks
Scrip Name
|
Quantity
|
Closing Price
|
Var
Margin
|
After Hair Cut Value on Var
|
Broker Hair
Cut
|
After Hair
Cut Value Broker Haircut
|
Liquid
Scrip
|
Liquid Value
|
Asian Paints
|
10
|
873.85
|
12.50
|
7,646.18
|
20.00
|
6,990.8
|
Y
|
7,646.18
|
Hotel Rugby
Limited
|
100000
|
4.05
|
51.51
|
196,384.5
|
100.00
|
0.00
|
N
|
0.00
|
Total Value
|
204,030.68
|
6990.80
|
7646.18
|
We have 3 totals which are
a-> After Hair Cut Value on VAR : 204030.68
b->After hair Cut value as per brokers haircut :-
6990.80
c-> Liquid Value : 7646.18
(Remember Liquid value for Daily Margin Statement and
MG13 Reporting is calculated on basis of VAR and Margin Statement value is your
next day limit value)
Collateral Stocks
Scrip Name
|
Quantity
|
Closing Price
|
Var
Margin
|
After Hair Cut Value on Var
|
Broker Hair
Cut
|
After Hair
Cut Value Broker Haircut
|
Liquid
Scrip
|
Liquid Value
|
Asian Paints
|
10
|
873.85
|
12.50
|
7,646.18
|
20.00
|
6,990.8
|
Y
|
7,646.18
|
Hotel Rugby Limited
|
100000
|
4.05
|
51.51
|
196,384.5
|
100.00
|
0.00
|
N
|
0.00
|
Total Value
|
204,030.68
|
6990.80
|
7646.18
|
We have 3 totals which are
a-> After Hair Cut Value on VAR : 204030.68
b->After hair Cut value as per brokers haircut :-
6990.80
c-> Liquid Value : 7646.18
(Remember Liquid value for Daily Margin Statement and
MG13 Reporting is calculated on basis of VAR and Margin Statement value is your
next day limit value)
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Underlying Name
|
Open Position
|
Futures MTM
|
Initial Margin
|
Exposure Margin
|
Total Margin
|
NIFTY 28JAN FUT
|
75
|
3500
|
28446
|
16904
|
45350
|
NIFTY 7500 CE
|
-75
|
(Premium
Recd) -6000
|
29145
|
16874
|
46019
|
Total
|
-2,500
|
57,591
|
33,778
|
91,369
|
Total Value for Futures position Rs 91369- Rs 2500 = Rs 88,869/-
Final Calculation for Next Day Trading Limits
Finance (Clear Balance)
|
-250000
|
Finance (As Is)
|
-300000
|
POA Stock After Hair Cut Value
|
6990.80
|
POA Stock on Liquid Value
|
7646.18
|
BEN Stock After Hair Cut Value
|
6990.80
|
BEN Stock on Liquid Value
|
7646.18
|
Collateral Stock After Hair Cut Value
|
6990.80
|
Collateral Stock on Liquid Value
|
7646.18
|
Span Margin
|
57,591
|
Span Margin
|
57,591
|
Exposure Margin
|
33,778
|
Exposure Margin
|
33,778
|
Futures MTM
|
-2500
|
Futures MTM
|
-2500
|
Next Day Trading as per Clear balance & Brokers
Hair Cut method
|
182,103.4
|
Next Day Trading limit as per Finance & Liquid
Value method
|
234,069.54
|
Risk management policy is internal to a brokerage house and up to the discretion of the broker
In case if you want more clarifications on RMS then
please post your comment below, I would be happy to assist you
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In case of any further explanation you can reach me on vipuls1979@gmail.com or tweet me @vipuls1979
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