In risk management, establishing a clear margin methodology is critical to maintaining financial stability in trading activities. The margin system ensures that Clearing Members maintain sufficient collateral to cover potential risks from their trading positions.
Each Clearing Member is required to furnish margins for the exposure they created through Trading activities. There will be two margin requirement components need to be fulfilled by the Clearing Members.
Each Clearing Member shall at all times maintain collateral to satisfy the base margin requirement determined by the Clearing House from time to time. The base margin requirement applicable to each Clearing Member shall be reviewed by the Clearing House on a quarterly basis on the first (1st) Market Day of each calendar quarter, based on the average daily purchase turnover of each such Clearing Member in the preceding calendar quarter.
If the base margin requirement is insufficient to satisfy the total margin requirement of such Clearing Member in respect of Trades carried out on a particular Trade Day, the Clearing House shall impose additional margin requirements on Clearing Members.
Margin requirements for each Clearing Member is computed based on the net open position of each security each trading day.