The Clearing Corporation of India Ltd. CCP for Interbank Forex

CCIL- Forex Settlement Operations Members All Authorized Dealers who satisfy membership norms. Currently, 84 active members. Instruments Guaranteed settlement of inter-bank Cash, Tom, Spot & Forward transactions in USD/INR. Forward trades with residual maturity of 13 months or less is taken for CCP clearing. Collateral Collateral contribution in Cash (USD) collected as Initial Margin. G-secs/Rupee cash to take care of all other margin requirement. Trade Processing Online real time status of trades available. Matching and exposure check online. 1

Risk Management Process - Forex I. Limits Member-wise separate USD and INR Net Debit Cap (NDC) based on Credit Rating & Tier I Capital, Member can avail lower limits (exposure limit). Margin factor - derived from the Market risk factor - set at 3 times of the Value-at-Risk for Rupee-US Dollar exchange rate (on higher of selected limits), currently at 8.25%. Stepped up by a step-up factor, on the basis of the member’s Short-term credit ratings. Member with higher credit rating may choose to avail higher limits up to specified ceilings for S-2 & S-1 days. On S-2 day On S-1 day S day For Members with CCIL 1 & 2 ratings 3 * EL 2*EL EL For Members with CCIL 3 & 4 ratings For Members with CCIL 5 & 6 ratings For Members with CCIL 7 & 8 ratings 2

Risk Management Process - AIM Margin obligation for members who have limit utilisations in excess of the EL shall be computed by multiplying the applicable net exposure of the member in the spot window by 1/3rd of the margin factor. The applicable net exposure for this purpose shall be higher of:   the net USD exposure for all the days in the Spot Window and the net USD exposure in the Spot Window excluding such exposure on Cash Date. The margin obligation as above in excess of the Initial Margin for the exposure limits availed by the member above will be treated as Additional Initial Margin. 3

Risk Management Process - AIM Illustration: Assuming a bank has opted for higher EL and bank’s Net-position for three days in spot window is as follows: NDC – USD 250 mio Exposure Limit – USD 200 mio Margin Factor – 8.25% (2.75% market risk per day) Initial Margin/SGF - USD 16.50 mio Illustration 1: (Amt.in USD mio)   The applicable net exposure is higher of: the net USD exposure for all the days in the Spot Window and; the net USD exposure in the Spot Window after excluding such exposure on Cash Date. Day Net-position S Day -150 S-1 Day -200 S-2 Day -450 4

Risk Management Process - AIM Illustration (contd.): The highest net exposure in the above example is USD 800 mio. Thus, the margin requirement for the above position is : USD 800*2.75% (market risk factor for 1 day) = USD 22.00 mio. As the Initial Margin contributed by the bank is USD 16.50 mio, the balance additional margin requirement of USD 5.50 mio is treated as Additional Initial Margin (AIM). AIM can be in the form of USD in case of excess USD SGF available or can be blocked in rupee terms by blocking unutilized portion of Securities Segment SGF. Day Net USD Exposure for 3 days Net USD Exposure for 2 days S Day -150 - S-1 Day -200 S-2 Day -450 Net Exposure -800 -650 5

Risk Management Process - AIM Illustration 2: Day Net-position S Day -200 S-1 Day -400 S-2 Day +600 Net exposure: Day Net USD Exposure for 3 days Net USD Exposure for 2 days S Day -200 - S-1 Day -400 S-2 Day +600 Net Exposure +200 The highest net exposure in the above example is USD 200 mio. Margin requirement = USD 200*2.75% = USD 5.50 mio. As the Initial Margin contributed by the bank is USD 16.50 mio, No additional margin is required. 6

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