New Norms for Acceptable Collateral of Clearing Corporation (NCL)

In a recent update, the National Clearing Corporation Limited has issued a new circular outlining the revised norms for acceptable collateral and exposure. Here’s a breakdown of the key changes and what they mean for traders.

Eligible Securities: What Qualifies?

Starting August 1, 2024, the Clearing Corporation will only accept certain equity securities as collateral which must meet two criteria:

  1. Impact Cost: The equity shares must have an impact cost of up to 0.1% for an order value of ₹1 lakh.
  2. Trading Frequency: These shares should have been traded for at least 99% of the days over the past six months.

How does it impact the traders?

The securities which are pledged by traders are re-pledged to the Clearing Corporation. In return, the Clearing Corporation gives limit against those securities which can be used as Margin. As the exchange have set up two criteria for acceptable securities, it is likely that some securities might be off the shelf of the Clearing Corporation which intuitively means that those securities cannot be pledged. If a position is already live with such securities as collateral, the haircut would increase gradually until 100% from November 1, 2024.

If a security does not meet these criteria by August 1, 2024, it will no longer be accepted as collateral. To assist in this transition, the Clearing Corporation will continue to provide valuation for these existing unapproved securities repledged with NCL as of July 31, 2024, with the following haircuts applied:

  • From August 1, 2024: 40% or VAR (whichever is higher)
  • From September 1, 2024: 60% or VAR (whichever is higher)
  • From October 1, 2024: 80% or VAR (whichever is higher)
  • From November 1, 2024: 100%

Also note that effective August 1, 2024, the Clearing Corporation has also revised the haircuts for mutual funds:

  • Growth Plans of Overnight Mutual Fund Schemes: The haircut will be 5%.
  • Other Mutual Fund Schemes (excluding overnight, liquid, and government securities mutual funds): The haircut will be based on the Value at Risk (VaR) Margin, calculated on 6σ, with a minimum of 9%.