Risk Management

Importance

 Any debit is “Risk”

 Any extra limit is “Risk”
 Any uncleared cheque is “Risk”
 5paisa vs Rs.100

WHY
“BECAUSE OUR MONEY IS AT STAKE
&
NOT CLIENTS MONEY”
Tasks of the risk department

 Limits set up
 Follow up for block & sell clients
 Surveillance
 Stock payout approval
 Branch support
Client category

Category NBFC – NBFC Funded

Category NFDC – Non Funded
Category BTOB – Bill to Bill Client
Category NRIC – Non Resident Indian Client
Concepts

 Ledger Balance (LB)

 Adjusted Ledger Balance (ALB)

Ledger balance minus
 NBFC Debit
 1.5 times value of undelivered
stock
 Billing amount of stock purchased
in ND period
 MTM Loss on short options
Concepts
 Gross Holding Value (GHV)
Value of total funded stocks

 Adjusted Holding Value (AHV)

Value of total funded stocks after
haircut

 Zero Holding Value (ZHV)

Value of Non funded stock

 Total Holding Value (THV)

Total value of GHV + ZHV
Concepts

 SPAN Margin and Exposure Margin

As applicable by Exchange. You can view the approximate margin
charged by exchange from the below link
http://www.5paisa.com\5pit\spma.asp

 Networth
ALB + GHV + Span Margin
Concepts

 Gross Holding Value Cover % (GHVC)

ALB + GHV / GHV * 100

 Adjusted Holding Value Cover % (AHVC)

ALB + AHV / AHV * 100

 Total Holding Value Cover % (THVC)

ALB + THV / THV * 100
Lets take an example

ALB = (1,00,000) GHV = 1,60,000 AHV = 1,36,000 ZHV = 2,00,000

Calculate GHVC % 37.50 %

AHVC % 26.47 %
THVC % 72.22 %
Category NBFC clients : (NBFC agreement)    

4 Haircuts viz. 15%, 30%, 45% & 100%  

GHV % Cover = 25% and above - Normal trading limits  
  < 25% - Risk Manager will sell stock to bring client above 40%cover

Category NFDC/BTOB/NRIC clients : (Pure credit)  

4 Haircuts viz. 15%, 30%, 45% & 100%  

 
GHV % Cover = 100% and above - Normal trading limits

50% to 100%- Normal trading limits  
      (Remember this is only for 5 trading session from last trade)
       
<50% Risk Selling to bring in cover of 100%

 
Investor terminal

Margin Deposit for NBFC/ NFDC/NRIC/BTOB Customers = (AHV +ALB)

Exposure Cash: ( Margin Deposit) X 6 times

Exposure F & O: Margin Deposit

TTADV

Margin Deposit for NBFC/ NFDC/BTOB/NRIC Customers = (AHV

+ALB)

Exposure Cash:
A Cat: Margin Deposit x 6.67 times
B Cat: Margin Deposit x 3.33 times
C Cat: Margin Deposit x 2.25 times
Z Cat: Margin Deposit x 1 time

Exposure F&O: Margin Deposit

Example
ALB (40,000), GHV 1,00,000, AHV 85,000
Margin = (-40,000 + 85,000 )= 45,000
If client buy or short ‘A’ category stock then client can take the position
up to Rs. 300150
If client buy or short ‘B’ category stock then client can take the position
up to Rs. 149850
If client buy or short ‘C’ category stock then client can take the position
up to Rs. 101250
If client buy or short ‘Z’ category stock then client can take the position
up to Rs. 45,000 only
OR
In F&O client can take position up to 45,000 margin or premium
Problem

 A NBFC client has ‘A’ category stocks Rs 10

lakhs, ‘B’ category stocks worth Rs 25 lakhs, ‘C’
category stocks Rs 8 lakhs and ‘Z’ category Rs
45 lakhs. He has ALB of Rs -12 Lakhs. He is using
Trader Terminal and he wants to buy a ‘B’
category stock. How much exposure will he get?

Rs.61,27,200
Problem

 A NBFC client using investor terminal has ‘B’

category stock of Rs 30 lakhs, ‘C’ category
stock Rs 10 lakhs and ‘Z’ category stock Rs 8
lakhs. His ALB is Rs -10 lakhs. He wants to
buy a ‘C’ category stock. How much
exposure will he get?

Rs.99,00,000
NEAT & BOLT

 Do not take any position on the basis of unclear

cheques or stock transfer.
 Do not take any position in block & sell clients without
squaring off old position. After squaring off old position
client should be in cover
 Take the position as per limits shown in WIRE
Block & Sell
 ‘NBFC’ Category ( Below 25%GHV) – Sell to bring into 40% GHV
 ‘NFDC’ Category ( Below 50% GHV) – Sell to bring into 100%
GHV
 NFDC GHVC 50-100% if not trading for 5 days or more than
Risk will sell
 BTOB & NRIC Compliance is must & sole responsibility is on RM
/ Branch. In the event of client outstanding beyond 5 days, Risk
will take discretionary action
RM’S duty for block & sell

 Update Remarks for All Risky Clients Daily Before 9:30 whether
selected for “Sold by HO or not” is irrelevant
 Cheque Collected – CMS updated
 Cheque is on the way – CMS will be updated by 12:30
 BTST( Buy Today Sell Tomorrow) Customer
 Client Changing to NBFC
 Shares Received as additional margin
 Cheque Cleared but credit not given

 No Remarks – 99% Chances that Stocks will get Sold

Remember it is RISK DEPARTMENT’s discretion to sell or not to sell

once client comes in Block and Sell, so ensure your client does not
comes under same or remarks are updated sensibly & logically.
To reiterate

 Risk Management is rule based – what is written can be read by all

 Assume funds will not come from a customer who is out of money
 Stock is not adequate cover
 Risk Management is Dynamic
 To be a good Risk Manager, it is not necessary to have market
view
 Not get influenced by emotional blackmail
Most importantly

Risk Management is not only sticking to

set procedures,but to find the solution
by application of logic & human touch to
the situation at hand.
Thank You