1. Awareness Presentation RISK MANAGEMENT SYSTEM
Dated
April 19, 2010 at 4:00PM
In KSE Auditorium

2. RISK MANAGEMENT SYSTEM
RISK MITIGATION
A VALUE ADDED
APPROACH

3. RISK MANGEMENT – A VALUE ADDED APPROACH
Client Level Margining Regime
An effective, efficient and self deterrent risk mitigating Margining Regime introduced in October 2009 on Post Trade basis, the same implemented on Pre-Trade basis from Monday April 5, 2010.
Margining regime shifted from Broker level to Client/UIN level where trading exposures capacity aligned either with the margins available from client’s Sub-account or House Account Cash deposits/Bank Guarantee deposited with the Exchange.
MACRO BENEFITS are;
Risk mitigation towards unfair trade practices in terms of Clients’ Assets usage
Segregation of Client Securities at trade level
Transparency in terms of trading Exposures and related Margin requirements
Rehabilitation of Investors trust in the systems and working of Capital Markets

4. RISK MANGEMENT – A VALUE ADDED APPROACH
Cross-Settlement Exposure
Exposure is calculated at the higher of the values determined either by summing-up of all Settlement Day Wise net outstanding buy positions or all net outstanding sale positions for the same client
This facility shall be available from Monday April 5, 2010
CORE BENFITS
Liquidity ease at KSE Broker level
Enhanced trading capacity
Cost effectiveness of doing across settlement squarred up trading approach

5. RISK MANGEMENT – A VALUE ADDED APPROACH
Pre-Settlement Delivery (Ready & DFC Markets)
Net sold deliveries can be deposited on T+0 basis to drop out the related Exposures, MtM losses and margin requirements thereon
For DFC market, a memorandum of loss is maintained which is collected at the close of the contract.
CORE BENFITS
Excluding Margin Requirements against Exposure & MtM Losses on Illiquid sold Securities
Liquidity ease
Cost effectiveness
Enhanced Trading Volume

6. RISK MANGEMENT – A VALUE ADDED APPROACH
Electronic Pledge Release Requests
Considering the increased work load due to implementation of Client Level margining System, the release request for Securities and Cash margins converted into an automated (electronically) module
CORE BENFITS
Fast processing of release of related funds
Operational efficiency
Better fund management
Cost effectiveness because of Automated Module

7. RISK MANGEMENT – A VALUE ADDED APPROACH
Theoretical Price/Fair Price (CSF& DFC Markets)
If no trading takes place in Deliverable/Cash Settled Futures Market, the Theoretical price is determined i.e. Closing Price of underlying security in the Ready Market x {1+(One Month KIBOR+4%) / 365 X DTM}
CORE BENFITS
Adjustment of price of a Future scrip in case of no trade specifically used to avoid price stuck
Synchronized the related Ready/Future spread in case of no trade in Futures market

8. RISK MANGEMENT – A VALUE ADDED APPROACH
Institutional Delivery System (IDS)
IDS module of NCCPL facilitates Broker Clearing Member (BCM) and Non-Broker Clearing Member (NBCM) to settle their Ready and Deliverable Futures Contract and IPO Market Trades directly through the NCSS. Once a transaction is affirmed by NBCM, the margin obligation of the initiating BCM is transferred to such affirming NBCM
This facility is now available on as and when required basis during a day.
CORE BENFITS
Focused money/delivery obligations
An efficient level playing field for the Market participants
Operational efficiency
Liquidity ease for Broker Member on real time basis
Enhanced trading capacity for Member Broker on real time basis
Cost effectiveness
Efficient and effective fund management

9. RISK MANGEMENT – A VALUE ADDED APPROACH
Multiple Exposure Drop-Out
The exposure of the settlement day is dropped of those members who have fulfilled their settlement obligations at NCCPL. This facility is available on an hourly basis each day
CORE BENFITS:
Liquidity ease on real time basis
Enhanced trading capacity on real time basis
Cost effectiveness
Efficient and effective fund management

10. RISK MANGEMENT – A VALUE ADDED APPROACH
UIN-Wise Cash Allocation
Introduced in November 25, 2009, wherein a Member of the Exchange are able to allocate Cash deposited by his clients as collateral against their respective UINs’ Exposures and Mark-to-Market Losses.
Cash once allocated can’t be re-allocated/utilized to/for other UINs until unless it has been withdrawn/released from the respective UIN and than resubmitted to the Exchange.
CORE BENFITS
A very effective Risk Management tool in the hands of Member for their client level risk profiling
Better Cash collateral management with cost benefit analysis

11. RISK MANGEMENT – A VALUE ADDED APPROACH
Collateral Pledge for Inter Exchange Trades
In the context of Client level Margining regime, market participants needed this facility for their Inter Exchange Clients’ trades executed at KSE.
Through this facility, related pledge is engaged directly from the respective Inter Exchange Client’s Sub-Account maintained under LSE or ISE participant umbrella and synchronized for this client’s exposure at KSE.
CORE BENFITS
Focused margin requirement approach
Enhanced Inter-Exchange trading business capacity
Liquidity ease
Cost effectiveness of doing business

12. RISK MANGEMENT – A VALUE ADDED APPROACH
Director’s Shares as Proprietary Collateral
In the context of Client Level Margining regime, another facility in terms of regulations and mechanism has been provided wherein shares in the name of Directors of a Brokerage House lying in related Sub-Account can be pledge as collateral from proprietary account
CORE BENFITS:
Enhanced trading capacity in the context of Client level margin regime
Enhanced trading business capacity
Cost effectiveness of doing business

13. RISK MANGEMENT – A VALUE ADDED APPROACH
CONCENTRATION MARGINS
Effective and focused Concentration Margins regime designed and implemented to replace generic Special Margins in Deliverable Futures Contract Market (DFC).
CORE ESSENCE
An efficient and focused deterrent to manipulative trading concentration in leverage market
Three tier dimension i.e, Market, Member and UIN level
Two technical parameters i.e., Exposure/Open interest and Free Float
Specific towards application on concentrated positions only in contrast of previous Special margin regime
Promotion of transparency and fair trade practices

14. RISK MANGEMENT – A VALUE ADDED APPROACH
CONCENTRATION MARGIN SLABS
%AGE OF DFC/CSF POSITION TO TOTAL DFC/CSF POSITION
AND
%AGE OF DFC/CSF POSITION TO FREE FLOAT OF SCRIP
Concentration Margins
MARKET-WIDE SECURITY CONCENTRATION SLABS AND RATES
Greater than 2
"
5.00
1.00 6
7.50
2.00 8
10.00
3.00 10
15.00
4.00 12
25.00 14
35.00
6.00
MEMBER-WIDE SECURITY CONCENTRATION SLABS AND RATES 5
1.50 20 30
2.50 40 60
3.50
UIN-WIDE SECURITY CONCENTRATION SLABS AND RATES 1
0.50
0.75 4
1.25 16

15. RISK MANGEMENT – A VALUE ADDED APPROACH
LIQUIDITY MARGINS
Effective and focused Liquidity Margins regime designed and implemented to cater the liquidity risk and default in Ready Market.
These margins are charged on incremental basis as per the Liquidity Margin slab.
CORE ESSENCE
An efficient and focused deterrent to manipulative/over limit trading
No margins required if exposure is up to Rs.50 million
Payable from Proprietary Account in the form of Cash and/or Margin Eligible Securities and/or Bank Guarantee

16. RISK MANGEMENT – A VALUE ADDED APPROACH
Exposure Value as per New Regime
Liquidity Margins %
From To
Rs. 50 million No
Above Rs. 50 million
Rs. 100 million
0.50%
Above Rs. 100 million
Rs. 150 million
1.00%
Above Rs. 150 million
Rs. 200 million
1.50%
Above Rs. 200 million
Rs. 250 million
2.00%
Above Rs. 250 million
Rs. 300 million
2.75%
Above Rs. 300 million
Rs. 350 million
4.00%
Above Rs. 350 million
Rs. 400 million
5.50%
Above Rs. 400 million
Rs. 450 million
7.25%
Above Rs. 450 million
9.25%

17. RISK MANGEMENT – A VALUE ADDED APPROACH
NET CAPITAL BALANCE CERTIFICATE (NCB)
An effective and efficient effort has been made to discipline this primary and critical risk management tier in terms of following;
Condition of an approved panel of Auditors to submit an NCB certificate, has been introduced
A penalty framework has been implemented to penalize the non-compliant element in terms of meeting submission deadlines
CORE OBJECTIVES are;
Disciplined submission practices of the crucial NCB Certificate
Create deterrence to unfair practices towards NCB certificate requirements
Curb the habitual non-compliance practices to this requirement

18. RISK MANGEMENT – A VALUE ADDED APPROACH
Trade Modification
An automated module/session will be available after the market to the members for corrections / rectifications and split of quantities may be executed in shape of a reversal trade
For trade executed on wrong KATS Code/UIN, Member will be required to enter one Client-to-Client transactions to offset the earlier mistaken trade and generate a new transaction in correct KATS Code/UIN of either for another Client or for the Member himself.
For trade executed with incorrect Quantity, Member will be required to enter one Client-to-Client transaction to shift excessive quantity from existing KATS Code/UIN to Proprietary KATS Code/UIN of the Member.
Additional Commission (LAGA) shall be charged on one side (beneficiary UIN)for such transactions
CORE BENFITS
Automated hassle free process to rectify the errors in UIN, split of trade and client codes
Availability of record for Audit/inquiry/investigation purposes with respect to Trade Modification

19. Mechanism for Trade Modification
RISK MANGEMENT – A VALUE ADDED APPROACH
Mechanism for Trade Modification
To modify trade, following steps should be taken.
Open Trade Modification Form available in VIEW menu of NCHS terminal
Enter the Ticket Number
Select Buyer/Seller option as per the trade modification need
Click on Execute button, the system will show the complete detail of trade
Enter the correct Quantity and Client Code to modify the trade.

20. RISK MANGEMENT – A VALUE ADDED APPROACH
KEY STATISTICS
DESCRIPTION
AMOUNT
(Rs. in Million)
Pre-Settlement Delivery Value (1ST March – April 14, 2010)
868.90
Average daily IDS (F.I. Margin) Drop Out Facility (January 01 – April 14, 2010
Concentration Margin (highest in March & April Contract)
311.56

21. RISK MANGEMENT – A VALUE ADDED APPROACH
REPORTS AVAILABLE FOR DOWNLOAD
Ready brief Report
Future Brief Report
Ready Exposure Notice
Pledge by UIN
Future Exposure Notice
Payment Order
UIN Net Demand
Cash UIN Net Demand
Cash Release Request
Cash Allocation/Balance Report
VaR Value and Hair Cut
Percentage of Acceptable Quantity of Shares as Collateral
Various Download/Upload files on CDS relating to Pledge & Release

22. Thank You