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 Risk Management

  1. Credit Risk – Default by borrower on Repayment during forward leg settlement & loss in value of collateral (worst case is the default in collateral as well); and Reduction in collateral cover not met by the borrower
  2. Liquidity Risk – Lender’s failure to deliver the contracted fund in ready leg
  3. Clearing Bank Risk – Failure of Clearing Bank to make pay-outs after receipt of Pay-ins
  4. Investment Risk – Failure to reclaim the investments made out of margins received from members and own funds
  5. Operations risk – execution failure, failure to enforce legal contracts, human failure leading to disruption in services and consequent loss, system failure including cyber security incidents.

To guard against these risks causing unacceptable loss to the system, ARCL has put in place robust systems and processes as indicated below:
Order level validation for sufficiency of collateral value to support borrow orders from borrowers
Order level validation for initial margin at the rate of 0.50% of the lend order from lenders
Prudential limits for the members
Prudential limit for collateral acceptance
Security-wise hair-cut rate
Mark-to market of the collateral to ensure adequacy of collateral value to support outstanding borrowing
Auction to liquidate the collateral of participants or to liquidate position of the participants in case of default
Core SGF: ARCL would establish a Core SGF as per SEBI guidelines to meet any loss arising on account of default of participants
Back testing: ARCL would conduct back testing at regular intervals to ensure adequacy of hair-cut and also adequacy of initial margin requirement

Risk Management Document

arrowRisk Management Document