Margining Systems — VaR, SPAN, Exposure
India uses VaR (Value at Risk) margining for cash-segment trades and SPAN (Standard Portfolio Analysis of Risk) for F&O. Both aim to cover adverse price moves. ...
Margin Types + Computation
India uses VaR (Value at Risk) margining for cash-segment trades and SPAN (Standard Portfolio Analysis of Risk) for F&O. Both aim to cover adverse price moves. On top, Extreme Loss Margin (ELM), Mark-to-Market (MTM), and special margins are charged as per volatility / concentration profiles.
CASH SEGMENT: VaR margin = 99% 1-day VaR (at minimum 9% for Group I liquid stocks). ELM = minimum 5%. Total upfront = VaR + ELM. Additional margins for volatile stocks, stocks in F&O ban, etc. F&O SEGMENT: SPAN computes worst-case 1-day loss across 16 price/vol scenarios. Exposure Margin adds 3-5% of contract notional. Peak Margin Reporting: exchange randomly snapshots positions 4 times/day; broker must have ≥ 100% required margin at each snapshot. Shortfall = penalty. Liquid assets (cash, G-Sec, FDs, liquid MFs) pledged are accepted as margin.
99% confidence daily-loss estimate
Price shift × vol shift matrix
Extra cushion beyond VaR
4 random snapshots/day — must be compliant at each
A Practical Example
| Margin Component | Cash Segment | F&O Segment |
|---|---|---|
| Risk-based | VaR (≥9%) | SPAN (16 scenarios) |
| Additional | ELM (≥5%) | Exposure margin (3-5% of notional) |
| Intraday | — | Peak margin (random snapshot) |
| Daily | MTM on positions | MTM on positions |
| Special | Ad-hoc for high volatility | Ad-hoc for event risk |
What Makes This Important
Frequently Asked Questions
Since Sept 2021, brokers must collect and report margin at 4 random intraday snapshots taken by exchanges. The broker must have at least 100% of required margin from client at each snapshot. Shortfall attracts 0.5%-5% penalty per day of shortfall.
🧠 Quick Quiz
2 questions to check your understanding