NSCCL MANAGING RISK The National Securities Clearing Corporation Ltd.

(NSCCL), a wholly owned subsidiary of NSE, was incorporated in August 1995. It was set up to bring and sustain confidence in clearing and settlement of securities; to promote and maintain, short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. NSCCL commenced clearing operations in April 1996. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. It assumes the counterparty risk of each member and guarantees financial settlement. It also undertakes settlement of transactions on other stock exchanges like, the Over the Counter Exchange of India. NSCCL has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets.
Today NSCCL settles trades under the T+2 rolling settlement. It has the credit of continuously upgrading the clearing and settlement procedures and has also bought Indian financial markets in line with international markets. A sound risk management system is integral to an efficient settlement system. The NSCCL ensures that trading members obligations are commensurate with their deposits. It has put in place a comprehensive risk management system, which is constantly monitored and upgraded to pre-empt market failures. The system monitors the track record and performance of the members and their deposits, undertakes online monitoring of members positions and exposure in the market, collects margins from members and automatically disables members if the limits are breached. As a part of the risk management system, index based market wide circuit breakers have also been put in place which operates at three stages of the index movement either way at 10%, 15% and 20%. As an additional safety measure, individual scrip-wise price bands have also been imposed. The robustness of the risk management system of NSE was amply proved by the timely and default free settlement on highly volatile days like May 14 & 17, 2004, the two days when the market witnessed a fall of nearly 7.87% and 12.24% respectively. It was due to the tight controls of member positions, stringent margining etc. the settlements went through smoothly without any disruptions or disorders in the markets. NSCCL has also developed a comprehensive risk containment mechanism for the F&O segment, and the most critical component is the margining system and on-line position monitoring. The actual position monitoring and margining is carried out on-line through Parallel Risk Management System (PRISM) using SPAN (Standard Portfolio Analysis of Risk) system. The objective of NSE-SPAN is to identify overall risk in a portfolio of all futures and options contracts for each member. This system provides real time information on initial margin value, exposure margins, mark to market profit and loss, collateral amounts, contract wise latest prices, contract wise open interest and limits. This system also tracks online real time client level portfolio based up front margining and monitoring. The SPAN is a registered trademark of the Chicago Mercantile Exchange used here under license.