A. The pre-requisites for seeking Forex Forward Segment ( FFS) membership are : i. The applicant has to be a member of the CCIL’s Forex Settlement Segment. ii. Need to have adequate risk management systems and policies in place and qualified personnel in its employment.
B. Process: i. The applicant has to seek membership to the Forex Forward Segment on a specified membership form (To be Franked with applicable Stamp Duty) and; ii. Submit Power of Attorney - one for blocking of SGF and another towards Default Fund to be executed on a Non-Judicial Stamp Paper (for value as applicable).
There are two types of members in the FFS segment: i. Self Clearing Members (SCM) – SCMs are Direct Members of the Forex Forward Segment who is permitted to clear and settle its own proprietary trades and are termed as Self Clearing Member. ii. Clearing Members (CM)– CM is a member of Forex Forward Segment of Clearing Corporation who is permitted to clear its own proprietary trades as well as trades of its Constituents.
Members with strong financials Short Term rating of upto CCIL 3 and above with a Tier capital of atleast 10,000/- crores and above would be eligible to act as Clearing Member (CM). Members desirous of becoming a CM under the FFS segment are required to submit an undertaking stating that CM shall be undertake full responsibility for clearing of all trades’ of its Constituents in Forex Forward Segment and also undertake to fulfill the required margin contribution of its constituents in the Forex Forward Segment who are either already registered with CCIL or are going to be registered with CCIL by us. The undertaking has to be duly stamped in the format as prescribed by CCIL.
Constituents are an entities or a person on whose instructions and on whose account the Clearing Member clears Trades in the Forex Forwards Segment. Thus, CCIL has extended the services of CCP clearing in Forex Forward segments to residents such as Corporate and non-resident users such as Foreign Portfolio Investors (FPI).
Constituents can avail the services of CCIL’s CCP Clearing through a single or multiple Clearing Members of the CCIL’s Forex Forward Segment.
No, CCIL does not have any contractual relationship with any Constituents. It is the duty of the Clearing Member(s) to carry out due diligence towards all its constituents. Clearing Corporation shall be entitled to rely on information received from a Clearing Member in relation to its constituents.
Collaterals to meet the margin requirements in Forex Forward segment should be in the form of eligible Government of India Securities (as notified by CCIL) and INR cash. Collateral to cover 5% of the margin requirements shall be in the form of cash. The available balances in the Member Common Collateral is blocked towards margin requirement in this segment. Interest on Cash contribution is payable based on actual Cash utilised (in excess of Rs.1 crore) to meet margin requirements.
US Dollar Collateral contributed towards USD/INR segment will NOT be used for margin requirement in Forex Forward Segment.
Further, Clearing Member would be required to contribute Cash and Securities towards Member Common Collateral, separately for its own Proprietary trades and for its Constituent trades. For constituent trades, Clearing Member has the option for contributing Collateral either as Group of constituents or for Individual constituents.
i. Matched forward trades, of Clearing Members and Self Clearing Members, with residual maturity up to 13 months are eligible for CCP clearing under the Forex Forward Segment. Trades with maturity of more than 13 months would be taken up for CCP Clearing once the residual maturity comes within the 13 months window. ii. Both the members to the trade should be the members of the Forex Forward segment. iii. The Member should not be a defaulter in the Forex (USD/INR) Segment.
a. All Spot and Forward trades with residual maturity up to 13 months are eligible for clearing under Forex Forward Segment. b. Cash and Tom trades of Constituents are currently not accepted by CCIL for CCP Clearing. c. Trades concluded by the Constituent bilaterally, either with its Clearing Member or with any other market maker shall be cleared by CCIL under the Forex Forward Segment. d. Trades between two constituents will NOT be eligible for CCP Clearing through CCIL’s Forex Forward Segment. Trades between two constituents shall stand rejected.
The cut-off for reporting Forward proprietary trades is up to S day. However, Constituent Spot and Forward trades can be reported upto S day.
CCIL provides for an option for either the CM to report trades on behalf of the constituent or constituent to report the trades directly through MFT server in excel template file, which will be converted to IFN300 file format at CCIL. The format for reporting the trades is same as the current IFN300 format. However, field F57A of the IFN 300 format shall be used for identifying the CM who will settle the trade on behalf of the constituent (Format Enclosed)
CCIL will perform the following validation checks: 1. Cash and Tom Constituent trades not allowed. 2. Clearing Member not active 3. Constituent deal sent beyond prescribed cut-off 4. Constituent pending trade rejected at Spot Cut-off 5. Counterparty Clearing Member not active 6. Deal between two Constituents is not allowed 7. Member and Clearing Member pair is not active 8. Counterparty and Counterparty Clearing Member Pair is not active
Currently, all matched Swaps/Forward trades reported by members are clearing, a copy of matched trade is forwarded to Trade Repository. Members need not re-report those trades again in TR.
Eligible Matched Forward trades are subjected to exposure check online for adequacy of margins for both the counterparties to the trades. Online exposure checks are carried out online during the business hours notified by CCIL on all business days. Trades are accepted for guaranteed settlement if there are adequate margins in the account of both counterparties to the trade.
Constituent Trades will be accepted by debiting the margin requirements from their respective Clearing Members collateral account.
All Trades shall continue to remain with Status as “pending acceptance for CCP clearing” if the margin made available in the account is not sufficient to support the trades.Trades that fail to pass the exposure check shall stands rejected in the Forex Forward Segment on S-2 day.
Please refer to FAQs on Forex Forward under Risk Management for Margins, Default Fund and Default Management.
Margins that are made available by the Clearing Member in the Member Common Collateral shall be used to meet constituent margin obligations in Forex Forward segment. The CM would have the following two options of segregating the collaterals of the constituents.
a) Legally Separated, Operationally commingled (LSOC) omnibus account: - It is a single client account. However the CM has to indicate the value of margin allocated for each client. The Margin Posted by the CM for all the clients” in the group to be equal to or greater than the “Cumulative Margin reported as allocated by CM for all the clients” in the group. Margin posted by the CM shall be in the form of eligible securities and cash. For each client, Margin to be blocked will be higher of (margin computed on that client’s portfolio, Margin reported as allocated by CM for such client). The cumulative value of such margin to be blocked for each client in a group will be charged against the Margin Posted by CM for the client group. Clearing members to be responsible for any margin deficit or any settlement shortfall in the account of any of the clients which access clearing services through them. Customer collateral would be commingled in an omnibus account. Margins would be deposited in the CSGL account of CCIL but the same will be segregated in the books and records of CCIL as reported by CM.
b) Individual client segregated (ICS) account:- It is one single account for each client operated by the CM Margin Required for client’s trades needs to be deposited by the Clearing Member. Margin to be blocked from the Margin Posted by CM for the client.ICS structure will ensure that the client’s margin posted with CCIL is protected at all times from being used by other constituents / Clearing Member. Clearing members will be responsible for any margin deficit or any settlement shortfall in the account of the clients which access clearing services through them.
Final settlement of the trades happens through the USD/INR segment. On S-2 day, the net position of each member is computed for all underlying trades accepted for guaranteed settlement for the relevant settlement date. Interbank leg of transactions done by Constituents with the market maker / Clearing Member would be netted with the position of the Clearing Members. Such net position arising out of guaranteed trades is subjected to exposure check in the USD-INR segment. The netted position has CCIL as the Counterparty (Forex Forwards) and is accepted for settlement to the extent it passes the exposure check in USD-INR segment. Settlement between CCIL and its Clearing members would be as per the extant process in the Forex Settlement Segment.
All obligations arising between the Clearing Member and its constituents shall be settled bilaterally between the constituent and Clearing Members.
The net sale position (in USD or INR) of a member that fails to pass the exposure check in the USD-INR segment till 1:00 p.m. on the Settlement (S) day is liable for Cash Settlement (as per process notified).
CCIL accepts Forward trades for Guaranteed Settlement. Members can view it as a reduction in their bilateral exposure to the original counterparty to the trade and treat the same as an exposure on CCIL. However, the members may maintain individual trades in the names of the counterparty for reference and reconciliation purposes.
Trades accepted for guaranteed settlement can be cancelled provided the cancellation is reported by both counterparties to the trade and subject to availability of sufficient margins. Amendment to matched trades is possible. Except counterparty and value date, all other details can be amended. However, the Amendment has to be received from both the counterparties.
Yes, each Member’s trades with CCIL that are accepted for guaranteed settlement are netted, as of the relevant acceptance date for the purpose of exposure monitoring, margining and settlement in the Forex Settlement Segment. Accordingly, each member will only have a net long or short forward position with CCIL for each settlement date.
Novation in Forex Forward Segment takes place when the trade passes the exposure check and is accepted for guaranteed settlement i.e., the original bilateral forward trade between the two parties (say Member A buys USD/sells INR with Member B) is terminated and replaced by two trades, one between Member A and CCIL where Member A buys USD/sells INR, and the other between Member B and CCIL where Member B sells USD/buys INR.
The margin call occurs in the Forex Forward Segment under the following circumstances: 1. Increase in margin requirement on account of mark-to-market changes in a member’s netted position. 2. Increase in Initial Margin requirement. 3. Increase in margin requirement on account of increase in volatility or concentration risks. 4. Margin requirements going up on account of reduction of MTM gain available to the members.
The defaulting member’s positions in each Segment will be dealt with in accordance with the default rules of the respective Segment in which the positions are in.
Yes, it is mandatory for all Authorised Dealer’s in India to clear all inter-bank forward trades through a CCP. This is in terms of FEDAI circular no. SPL-5/CCIL-FFGS/2014 dated 9th May, 2014. However, clearing constituent trades through CCP is not mandatory.
1. Guarantee from the point of Acceptance. 2. Increase in effective capacity, volume and liquidity of the marketplace due to guaranteed settlement by CCIL. 3. Reduction in Counterparty risk through settlement guarantee and multilateral netting of exposures, freeing bilateral limits. 4. Significant reduction in capital requirement 5. Transparent and reliable valuation of outstanding positions for the market participants – centralized mark-to-market and collateralization reduces back office and legal effort and costs.
The various reports available to individual constituents are as under:- 1. Rejected Deals Report: This report gives details of those unmatched deals of constituents rejected by CCIL on account of Holiday declaration. 2. Net Position Report: This report gives details of all the deals of a constituent accepted and netted. This report indicates the net position in USD & INR that the constituent will have to settle with his CM for a particular value date. 3. Forward Deal Status Report: This Report indicates all the forward and spot deals that are outstanding for the constituents as on a particular value date. 4. Alleged Deals Report for Forward deals: This report indicates all the deals that are alleged in the name of the constituent. Deals reported by the counterparty and not reported by the constituent are displayed in this report. 5. Shifting of settlement dates in Forex: This report gives details of all the deals whose value date is changed by CCIL on account of Holiday declaration using the modified business day logic adopted by FEDAI.
The various reports available to Clearing Members are as under:- 1. Combined Rejected Deals Report: This report indicates all the unmatched deals rejected across all the constituents of a clearing member due to declaration of a holiday. 2. Combined Forward Deal Status Report: This is a consolidated report for the CM indicating all the forward and spot deals reported by all the constituents as on a particular date. 3. Combined Shifting of settlement dates in FRX:This consolidated report is given to the CM indicating all he constituents deals whose value date is changed by CCIL on account of Holiday declaration using the modified business day logic adopted by FEDAI. 4. Combined Net Position Report: This report gives a consolidated net position indicating USD & INR payable and receivable across all the constituents of the CM. This is a comprehensive report which indicates all the underlying trades accepted to arrive at the net positions.
The advantages to the CM are as under. 1. Risk mitigation of the their customer portfolio 2. Direct reporting to Settlement from where the trades will be sent to TR. No dual reporting required. 3. Same format of IFN 300 as the current USDINR trades reported 4. The interbank leg of the customer transactions are settled in CCIL
The advantages to the Constituents are as under:- 1. CCP guarantee to spot and forward customer trades. 2. Netting of the obligations leading to liquidity benefits 3. In the event of CM becoming insolvent the customer portfolio along with the margins can be ported to another CM. Thus providing the required protection to the customers. 4. Transparency of margins and margining process.
A clearing fee of Rs. 20/- per USD million on the average gross outstanding forward trades cleared by CCIL until S-3 day is levied to all members in the Forex Forward Segment. The same charge is applicable on Constituent trades as well.