The overall objective of the DGCX Risk Management System is to financially secure the marketplace and its participants at all times, without increasing the operational cost or compliance overheads of members.
Some of the basic parameters of Risk Management are:
Real Time Margining
The Exposure Limits (Initial Margin) available to any member are monitored on a real time basis. The initial margin limits calculated by SPAN based margining system are utilized/blocked immediately on execution of any trade. The members are alerted at three different levels of utilization, namely reaching 60%, 75% and 90% margin utilization. The initial Margin includes SPAN margins and other such additional margins that are specified by the Exchange from time to time.
Members are placed in "Square-off Mode", upon reaching 100% utilization of their margin limits, at which point, these members can only initiate trades which reduce their open positions.
Mark-to-Market Loss Monitoring - Marking to market (MTM) the positions held by each Member is carried out on a real-time basis by comparing the difference between the previous day's closing price and the last trade price on the DGCX market. As soon as the MTM losses reach 75% of total Clearing Commitment deposited by the Member, the member goes off into "Square-off Mode".
Position Limits
The Exchange may specify and monitor position limits on any or all of the following basis:
- Position limit on Commodity
- Position limit on Contract
- Position limit on Member Level
- Position limit on Client Level
Daily Marking to Market
The Exchange calculates MTM profits or losses to arrive at the net amount payable or receivable as daily Variation Margin at the end of each trading day. Such MTM losses are payable to DCCC on the next working day (T+1 basis) before the market opens for trading.
Non-fulfillment of either the whole or part of the margin obligations will be treated as a violation of the Exchange By-Laws and Clearing Rules. In addition DCCC may at its discretion and without any further notice to the clearing member initiate disciplinary action, inter-alia including, withdrawal of trading facilities and / or clearing facility, close out of outstanding positions, imposing penalties, collecting appropriate deposits, invoking letter of guarantee / term deposit etc.
Daily Price Range
The Daily Price Range is the maximum price movement that is allowed in a particular commodity in any given day. The exchange may decide to change the daily price movements on any commodity from time to time. The various prices limits applicable are as follows:
| 1 |
Precious Metals |
Gold |
US$ 30 per troy ounce* |
| 2 |
Precious Metals |
Silver |
US Cents 75 per troy ounce* |
| 3 |
Currencies |
Euro |
NO PRICE LIMITS** |
| 4 |
Currencies |
Sterling Pound |
NO PRICE LIMITS** |
| 5 |
Currencies |
Japanese Yen |
NO PRICE LIMITS** |
| 6 |
Currencies |
Indian Rupee |
NO PRICE LIMITS** |
| 7 |
Currencies |
Australian Dollar |
NO PRICE LIMITS** |
| 8 |
Currencies |
Canadian Dollar |
NO PRICE LIMITS** |
| 9 |
Currencies |
Swiss Franc |
NO PRICE LIMITS** |
| 10 |
Energy |
Fujairah Fuel Oil |
US$ 25 per metric tonne |
| 11 |
Energy |
WTI Light Sweet Crude Oil |
NO PRICE LIMITS*** |
| 12 |
Energy |
Brent Crude Oil |
NO PRICE LIMITS*** |
| 13 |
Base Metal |
Steel |
US$ 50 per metric tonne |
Note *: If price breaches the daily price movement limit, trading in a particular contract shall continue, with the new trading price range without any cooling period.
Note **: There will be no limits on intra-day price movements, however to restrict data-entry errors; the system will not allow entry of orders having prices higher or lower than 1.5 US cents (150 ticks) as compared to the previous day’s settlement price. The Exchange shall relax the intra-day price range for the prices of the contract approaching the 1.5 US cents (150 ticks) limit.
Note ***: There will be no limits on intra-day price movements, however to restrict data-entry errors; the system will not allow entry of orders having prices higher or lower than 3 US Dollars (300 ticks) as compared to the previous day’s settlement price. The Exchange shall relax the intra-day price range for the prices of the contract approaching the 3 US Dollars (300 ticks) limit.
Risk Management Framework based on SPAN Methodology
Initial margin (IM) - The amount that must be deposited by a customer with the DGCX Member at the time of (or before) entering into a contract is called the initial margin. This margin is meant to cover the potential loss in one day. The margin is a mandatory requirement for parties who are entering into the contract. Upon proper fulfillment of all obligations associated with a trader's contractual position, the initial margin is returned to the trader.
When the clearing commitment deposited with the DCCC falls below a certain level, the clearing member is required to deposit additional funds to replenish the margin so as to bring it back to the initial level. The demand made for depositing of such funds to meet the shortfall in margins is known as margin call. Such margin call may be made by the DCCC on a clearing member or by a clearing member on his client.
Mark-to-Market (MTM) / Variation Margin (VM) - At the end of each trading day, the open positions are adjusted to reflect the client's gain or loss. This is known as marking to market the account of each member.
Special Margin - The Exchange, in case of additional volatility, may decide to impose special margin as deemed fit from time to time. The special margin could even be imposed on all open positions or any particular contract or commodity. Special margin imposed would be over an above other margins applicable (e.g. Initial Margins, MTM Margin etc.).
Payment of Margins
Initial Margin
The initial margin is payable upfront by Clearing Members. Initial margins can be paid by members in the form of Cash, a Letter of Guarantee and Term Deposits.
Minimum Initial Margins prescribed currently (Email sent on 03/04/2009)
| 1 |
Gold |
$ 1,200 |
100% |
$ 6,000 |
| 2 |
Silver |
$ 1,000 |
100% |
$ 5,000 |
| 3 |
Euro |
$ 1,400 |
100% |
No Tender Margin |
| 4 |
Sterling Pound |
$ 1,500 |
100% |
No Tender Margin |
| 5 |
Japanese Yen |
$ 1,100 |
100% |
No Tender Margin |
| 6 |
Indian Rupee |
$ 700 |
100% |
No Tender Margin |
| 7 |
Australian Dollar |
$ 1,250 |
100% |
No Tender Margin |
| 8 |
Canadian Dollar |
$ 1,000 |
100% |
No Tender Margin |
| 9 |
Swiss Franc |
$ 800 |
100% |
No Tender Margin |
| 10 |
Fujairah Fuel Oil |
$ 1,500 |
$ 240 per spread position |
$ 7500 |
| 11 |
WTI Light Sweet Crude Oil |
$ 4,500 |
100% |
No Tender Margin |
| 12 |
Brent Crude Oil |
$ 4,000 |
100% |
No Tender Margin |
| 13 |
Steel |
$ 600 |
100% |
$ 1,200 |
Clearing Member Commitment
A Clearing Member (CM) is required to deposit and maintain a minimum level of Commitment as prescribed by DCCC.
| Membership Category |
Commitment Prescribed |
| Broker Clearing Member |
150,000 |
| Special Clearing Member |
150,000 |
| Trade Clearing Member |
75,000 |
Commitment may be in the form of cash and non-cash instruments as under:
- Minimum 40% of the Commitment shall be maintained in cash at all times
- Part of the Commitment in form of non cash instruments shall not exceed 60% at any time
Non-cash part of Commitment may be in the form:
- Term Deposits (TD) issued by approved banks
- Letter of Guarantee in favour of DCCC from approved banks in the specified format
Any failure on the part of a CM to meet with the Commitment requirements at any point of time, shall be treated as a violation of the Clearing Rules of DCCC.