Unit ko samjho · NISM Series VII

Risk Management

29 questions is unit mein

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A Group I share has EWMA daily volatility of 1.2%. Under NSE Clearing's base VaR rule, what security VaR rate applies before any additional margin?
A clearing member has a gross open position of ₹8,00,000 in an ordinary equity share in NSE Clearing's cash segment. What is the Extreme Loss Margin, excluding additional margins?
An ordinary retail client has a cash-market buy position of ₹6,00,000. Assume VaR is 11% and ELM is 3.5%, with no exemption or additional margin. Under NSE's minimum upfront client-collection requirement, how much must the trading member collect?
A client buys 1,000 shares at ₹640. The closing price is ₹628, and the position remains unsettled. With no offsetting trade or other position, what is the mark-to-market loss?
What is the principal purpose of a clearing corporation's Core Settlement Guarantee Fund?
Under NSE Clearing's Trade-for-Trade Surveillance provisions, what is the combined upfront VaR and ELM rate?
A risk team compares its previously estimated margin cover with the losses that actually followed, and counts how often cover was insufficient. Which exercise is it performing?
A client pledges shares worth ₹1,50,000 as margin collateral. The broker applies a 20% haircut. What collateral value is accepted for these shares?
A client has ₹80,000 cash and pledged shares worth ₹1,20,000 after haircut. Existing positions already block ₹1,20,000 of margin. The client wants to buy 600 shares at ₹500. The broker needs margin of 30% of order value. How much more cash does the client need?
Client R is short of margin. Client S has ₹50,000 of unused cash collateral with the same broker. May the broker use S's collateral to cover R's shortfall?
A client has ₹80,000 of free margin. The broker needs margin of 30% of order value and caps any single order at ₹2,50,000. What is the largest whole-share buy order at ₹500 the client can place?
The best bid is ₹199 and the best offer is ₹201. A 1,000-share market buy fills 500 shares at ₹201 and 500 at ₹205. What is its impact cost relative to the pre-trade midpoint, rounded to two decimals?
A pledged share is discontinued from NSE Clearing’s approved collateral list. It remains exchange-listed. What follows for a member using it as recognised collateral?
A model reports a one-day 99% VaR of ₹2 lakh. Under that model’s assumptions, which interpretation is most appropriate?
A clearing corporation starts with a failure condition: available margins, Core SGF and other resources are insufficient. It then searches for market scenarios that could cause that condition. Which exercise is this?
An example margin model takes 10% of the total absolute net position value, netting within each account and each share first. Alpha is valued at ₹400 and Beta at ₹100. Client R is net long 200 Alpha. Client S is net short 150 Alpha and net long 200 Beta. The own account is net long 50 Alpha and net short 50 Beta. What margin follows?
A clearing member has effective deposits of ₹4.80 crore, initial margin payable of ₹2.60 crore and Extreme Loss Margin payable of ₹0.70 crore. Under NSE Clearing’s equity-derivatives definition, what is its liquid net worth?
A clearing member has ₹30 lakh eligible cash-component collateral and ₹50 lakh eligible non-cash collateral after haircuts. With cash required to be at least 50% of effective deposits and no other limits, what is the maximum effective deposit supported?
A client's option trades need ₹16,000 initial margin and ₹6,000 ELM in cash. The client must also pay a net option premium of ₹5,200, which the margin does not include. The client has ₹25,000 of cash. How much more cash is needed?
Two seasoned listed shares have the following six-month data. P traded on 90% of days with mean impact cost of 1.2%. Q traded on 70% of days with mean impact cost of 0.4%. With no new-listing exception, which NSE Clearing groups apply?
Under SEBI’s risk-reduction-mode framework, which combination is required for a fresh margined order while the broker is in that mode?
A broker considers appointing a professionally qualified auditor who also owns and operates the controls being reviewed. Which concern most directly conflicts with the internal-audit safeguard?
A client's short allocation of collateral is ₹6,000 at end of day. At two intraday snapshots it was ₹10,000 and ₹8,000. Which amount does NSE Clearing take as the short allocation for the penalty?
A client started with ₹80,000 cash and is long 3 futures contracts. The broker blocks ₹20,000 cash margin for each open contract. A ₹6,000 mark-to-market loss has just been settled. How much more cash would the client need to buy one more contract?
For this exercise, a broker caps one issuer’s collateral at 25% of a fixed ₹12 lakh recognised collateral total. Issuer X contributes ₹4.2 lakh after haircuts. How much X collateral must be replaced by an equal recognised value of cash?
A simplified, already-weighted scenario array shows portfolio results of +₹8,000, −₹14,000, −₹23,000 and −₹9,000. What scanning-risk loss amount is selected before adding any other margin component?
A trading system rejects limit orders priced outside an applicable ₹475–₹525 band. The band remains unchanged and no exception applies. What happens to a new buy limit order entered at ₹528?
A clearing member has SPAN requirement ₹72,000, delivery margins ₹18,000, margins on consolidated crystallized obligations ₹10,000 and ELM ₹6,000. Under NSE Clearing’s equity-derivatives definition, what is the initial margin requirement?
A member is short of shares for its clients' net sales. Instead of delivering them to the clearing corporation, it sends the missing shares directly to the buying clients. How is that quantity treated?

Zaroori ideas

Practice bank se · 1

A Group I share has EWMA daily volatility of 1.2%. Under NSE Clearing's base VaR rule, what security VaR rate applies before any additional margin?

The minimum exceeds the calculated component, so it determines the rate. The base rate is the higher of six times EWMA daily volatility and 9%. Volatility component = 6 × 1.2% = 7.2%. Base VaR = max(7.2%, 9%) = 9%. This result is a rate, not a rupee amount. Remember: Apply the maximum test after the volatility calculation.

Hint Common mistake: Stopping at 7.2% without checking the minimum.

VII-016

Practice bank se · 2

A clearing member has a gross open position of ₹8,00,000 in an ordinary equity share in NSE Clearing's cash segment. What is the Extreme Loss Margin, excluding additional margins?

₹28,000 is 3.5% of the stated gross open position. The ELM rate for an ordinary share is 3.5%. ELM = position value × rate = ₹8,00,000 × 0.035 = ₹28,000. The result is the ELM component, not VaR plus ELM or the client's entire upfront collection. Remember: Identify the margin component before selecting its percentage.

Hint Common mistake: Applying an ETF rate or a VaR rate to an ordinary-share ELM question.

VII-017

Practice bank se · 3

An ordinary retail client has a cash-market buy position of ₹6,00,000. Assume VaR is 11% and ELM is 3.5%, with no exemption or additional margin. Under NSE's minimum upfront client-collection requirement, how much must the trading member collect?

₹1,20,000 applies the 20% client-collection requirement to ₹6,00,000. VaR plus ELM under the stated hypothetical rates = 11% + 3.5% = 14.5%. That component is ₹6,00,000 × 0.145 = ₹87,000. The client-collection requirement being tested is a minimum of 20% in lieu of VaR and ELM. Required upfront client collection = ₹6,00,000 × 0.20 = ₹1,20,000. It is not ₹87,000 plus ₹1,20,000. Remember: First identify who collects the margin and which requirement the question asks you to calculate.

Hint Common mistake: Answering every upfront-margin question by adding VaR and ELM, regardless of the client-collection rule.

VII-018

Practice bank se · 4

A client buys 1,000 shares at ₹640. The closing price is ₹628, and the position remains unsettled. With no offsetting trade or other position, what is the mark-to-market loss?

This multiplies the ₹12 adverse movement by all 1,000 shares. Loss per share = purchase price − closing price = ₹640 − ₹628 = ₹12. Total MTM loss = ₹12 × 1,000 = ₹12,000. The direction is a loss because the buyer's shares are marked at a lower price. This is not the full purchase consideration. Remember: Calculate the per-unit movement and then apply the position quantity.

Hint Common mistake: Confusing the value of the position with the change in its value.

VII-019

Practice bank se · 5

What is the principal purpose of a clearing corporation's Core Settlement Guarantee Fund?

Supporting settlement during member default is the relevant function. A default can leave a settlement obligation unfulfilled. The Core SGF is part of the resources supporting completion of settlement. It is not a return-enhancement facility or a fund for normal adverse market movements. Remember: Connect Core SGF with settlement default, not with a promise about investment performance.

Hint Common mistake: Confusing protection of settlement with reimbursement of every investor loss.

VII-020

Practice bank se · 6

Under NSE Clearing's Trade-for-Trade Surveillance provisions, what is the combined upfront VaR and ELM rate?

This is the combined VaR-and-ELM rate for the named surveillance segment. First identify the explicitly named surveillance segment. Its combined VaR and ELM is 100%. The question asks for this combined component, not whether MTM or another separate requirement can also arise. Remember: Read the segment label before applying a familiar margin percentage.

Hint Common mistake: Using ordinary-share margin rules despite an explicit surveillance classification.

VII-021

Practice bank se · 7

A risk team compares its previously estimated margin cover with the losses that actually followed, and counts how often cover was insufficient. Which exercise is it performing?

This answer tests earlier margin estimates against subsequent actual outcomes. The team is comparing past estimates with actual market experience, rather than collecting a payment or balancing accounts. That comparison is backtesting. An exercise that instead imposes assumed extreme shocks would be a stress scenario, not the observed-outcome check described here. Remember: Past estimate versus realised result is a backtesting comparison.

Hint Common mistake: Calling every risk-model evaluation stress testing.

VII-044

Practice bank se · 8

A client pledges shares worth ₹1,50,000 as margin collateral. The broker applies a 20% haircut. What collateral value is accepted for these shares?

The haircut is taken off the market value. Haircut = ₹1,50,000 × 20% = ₹30,000. Accepted value = ₹1,50,000 − ₹30,000 = ₹1,20,000. Remember: Accepted collateral equals market value multiplied by one minus the haircut rate.

Hint Common mistake: Reporting the haircut deduction instead of the adjusted value.

VII-046

Practice bank se · 9

A client has ₹80,000 cash and pledged shares worth ₹1,20,000 after haircut. Existing positions already block ₹1,20,000 of margin. The client wants to buy 600 shares at ₹500. The broker needs margin of 30% of order value. How much more cash does the client need?

Free margin is ₹80,000 + ₹1,20,000 − ₹1,20,000 = ₹80,000. The order needs 600 × ₹500 × 30% = ₹90,000. Extra cash needed = ₹90,000 − ₹80,000 = ₹10,000. Remember: Calculate available capacity and new margin separately, then compare them.

Hint Common mistake: Using gross collateral before subtracting existing blocks.

VII-047

Practice bank se · 10

Client R is short of margin. Client S has ₹50,000 of unused cash collateral with the same broker. May the broker use S's collateral to cover R's shortfall?

One client's money or securities can never cover another client's margin. The ₹50,000 belongs to S. Using the same broker does not make it R's collateral. Remember: Available collateral must belong to the correct client or other permitted resource category.

Hint Common mistake: Assuming that idle collateral can be borrowed between client accounts.

VII-048

Practice bank se · 11

A client has ₹80,000 of free margin. The broker needs margin of 30% of order value and caps any single order at ₹2,50,000. What is the largest whole-share buy order at ₹500 the client can place?

Both limits must be met, so the smaller one decides. Margin allows ₹80,000 ÷ (₹500 × 30%) = 533 shares. The order cap allows ₹2,50,000 ÷ ₹500 = 500 shares. The answer is 500 shares. Remember: Convert each limit into a maximum quantity, round down, then take the smaller result.

Hint Common mistake: Passing one pre-trade check and assuming the order therefore passes every check.

VII-050

Practice bank se · 12

The best bid is ₹199 and the best offer is ₹201. A 1,000-share market buy fills 500 shares at ₹201 and 500 at ₹205. What is its impact cost relative to the pre-trade midpoint, rounded to two decimals?

This answer uses the ₹200 midpoint and the ₹203 actual average execution price. Ideal price = (best bid + best offer) ÷ 2 = (₹199 + ₹201) ÷ 2 = ₹200. Actual average buy price = [(500 × ₹201) + (500 × ₹205)] ÷ 1,000 = ₹203. Buy = (actual average − ideal price) ÷ ideal price × 100 = (₹203 − ₹200) ÷ ₹200 × 100 = 1.50%. Remember: Find the midpoint and actual weighted fill before calculating impact cost.

Hint Common mistake: Using the best offer, best bid or quoted spread instead of the specified ideal-price benchmark.

VII-059

Practice bank se · 13

A pledged share is discontinued from NSE Clearing’s approved collateral list. It remains exchange-listed. What follows for a member using it as recognised collateral?

Discontinued securities must be replaced with eligible collateral under the applicable requirements. Recognised collateral must satisfy the clearing corporation’s eligible-asset requirements. A member cannot preserve recognition merely because the security can still be traded. Follow the applicable discontinuation and replacement notice. Remember: Check the approved collateral list independently of trading eligibility.

Hint Common mistake: Assuming that any listed share must be accepted as margin collateral.

VII-060

Practice bank se · 14

A model reports a one-day 99% VaR of ₹2 lakh. Under that model’s assumptions, which interpretation is most appropriate?

This answer states the model-based tail interpretation without claiming a guaranteed ceiling. The horizon is one day and the confidence level is 99%. The remaining tail probability is approximately 1%. Losses can exceed the threshold. The measure does not specify an average daily loss or schedule exactly when exceptions occur. Remember: Always retain the horizon, confidence level and possibility of losses beyond VaR.

Hint Common mistake: Reading a modelled threshold as the worst loss that could ever occur.

VII-061

Practice bank se · 15

A clearing corporation starts with a failure condition: available margins, Core SGF and other resources are insufficient. It then searches for market scenarios that could cause that condition. Which exercise is this?

This answer searches for the conditions under which resources would be insufficient. The starting point is insufficiency of resources, not a chosen market shock. The exercise identifies combinations of market conditions that would produce that failure. Remember: Reverse stress testing asks what would make the resources fail.

Hint Common mistake: Confusing a search for failure conditions with testing one already chosen shock.

VII-062

Practice bank se · 16

An example margin model takes 10% of the total absolute net position value, netting within each account and each share first. Alpha is valued at ₹400 and Beta at ₹100. Client R is net long 200 Alpha. Client S is net short 150 Alpha and net long 200 Beta. The own account is net long 50 Alpha and net short 50 Beta. What margin follows?

Add the absolute values account by account. R: 200 × ₹400 = ₹80,000. S: ₹60,000 + ₹20,000 = ₹80,000. Own account: ₹20,000 + ₹5,000 = ₹25,000. Total ₹1,85,000 × 10% = ₹18,500. Remember: Keep the level of netting consistent with the margin model being tested.

Hint Common mistake: Using the smaller member-level settlement net as though it were every client’s gross margin exposure.

VII-073

Practice bank se · 17

A clearing member has effective deposits of ₹4.80 crore, initial margin payable of ₹2.60 crore and Extreme Loss Margin payable of ₹0.70 crore. Under NSE Clearing’s equity-derivatives definition, what is its liquid net worth?

This answer deducts both initial margin and Extreme Loss Margin from effective deposits. Liquid net worth = effective deposits − initial margin payable − Extreme Loss Margin payable. Substitute: ₹4.80 crore − ₹2.60 crore − ₹0.70 crore = ₹1.50 crore. All amounts are in crore. The question asks for the calculated balance, not a minimum-capital compliance conclusion. Remember: For this definition, deduct both initial margin and ELM.

Hint Common mistake: Remembering an initial-margin-only formula from a different context.

VII-084

Practice bank se · 18

A clearing member has ₹30 lakh eligible cash-component collateral and ₹50 lakh eligible non-cash collateral after haircuts. With cash required to be at least 50% of effective deposits and no other limits, what is the maximum effective deposit supported?

The ₹30 lakh cash component can support at most ₹30 lakh recognised non-cash collateral. Let recognised non-cash collateral be N. The requirement is ₹30 lakh ÷ (₹30 lakh + N) ≥ 50%. Therefore N cannot exceed ₹30 lakh, even though ₹50 lakh is available after haircuts. Maximum effective deposit = ₹30 lakh cash + ₹30 lakh non-cash = ₹60 lakh. The remaining ₹20 lakh of non-cash value is not supported by the present cash component. Remember: With a 50% minimum cash component, recognised non-cash cannot exceed the available cash component.

Hint Common mistake: Adding all haircut-adjusted assets without checking the cash proportion.

VII-085

Practice bank se · 19

A client's option trades need ₹16,000 initial margin and ₹6,000 ELM in cash. The client must also pay a net option premium of ₹5,200, which the margin does not include. The client has ₹25,000 of cash. How much more cash is needed?

Total cash needed = ₹16,000 + ₹6,000 + ₹5,200 = ₹27,200. The client has ₹25,000. Extra cash needed = ₹2,200. Remember: Check what a quoted margin already includes before adding a separately payable amount.

Hint Common mistake: Ignoring the net premium or adding gross purchase premium without its offsetting receipts.

VII-099

Practice bank se · 20

Two seasoned listed shares have the following six-month data. P traded on 90% of days with mean impact cost of 1.2%. Q traded on 70% of days with mean impact cost of 0.4%. With no new-listing exception, which NSE Clearing groups apply?

P is Group II and Q is Group III. P meets the requirement of trading on at least 80% of days. Its impact cost exceeds 1%, so it is in Group II. Q fails the 80% trading-frequency condition. Its low impact cost does not overcome that failure, so it is in Group III. Remember: First test trading frequency, then use impact cost to separate Group I from Group II.

Hint Common mistake: Classifying every low-impact-cost share as Group I without checking trading frequency.

VII-108

Practice bank se · 21

Under SEBI’s risk-reduction-mode framework, which combination is required for a fresh margined order while the broker is in that mode?

This answer includes both requirements. Paragraph 7 of the referenced framework permits fresh orders only with Immediate or Cancel validity. New orders must also pass the margin-sufficiency check. IOC validity alone is not a waiver of margin control. Remember: Check both time validity and margin sufficiency in the specified RRM framework.

Hint Common mistake: Treating IOC as a substitute for margin control.

VII-109

Practice bank se · 22

A broker considers appointing a professionally qualified auditor who also owns and operates the controls being reviewed. Which concern most directly conflicts with the internal-audit safeguard?

Reviewing controls that the auditor operates creates the relevant conflict. The inspected SEBI provision calls for an independent qualified internal auditor without a conflict of interest. Operating the controls and auditing the same controls creates a self-review conflict. Remember: Check independence as well as professional qualification.

Hint Common mistake: Assuming that qualification alone makes a person an appropriate independent auditor.

VII-110

Practice bank se · 23

A client's short allocation of collateral is ₹6,000 at end of day. At two intraday snapshots it was ₹10,000 and ₹8,000. Which amount does NSE Clearing take as the short allocation for the penalty?

NSE Clearing takes the highest short allocation across the intraday snapshots and the end of day. Here that is ₹10,000. The amounts are not added together. Remember: Distinguish the shortfall base from the penalty amount.

Hint Common mistake: Adding EOD, peak and allocation shortfalls together.

VII-111

Practice bank se · 24

A client started with ₹80,000 cash and is long 3 futures contracts. The broker blocks ₹20,000 cash margin for each open contract. A ₹6,000 mark-to-market loss has just been settled. How much more cash would the client need to buy one more contract?

Cash after the loss is ₹74,000. Three contracts block ₹60,000, so ₹14,000 is free. One more contract needs ₹20,000. Extra cash needed = ₹6,000. Remember: Update cash for settled MTM before calculating capacity for another trade.

Hint Common mistake: Using the original collateral amount after a cash-settled loss.

VII-124

Practice bank se · 25

For this exercise, a broker caps one issuer’s collateral at 25% of a fixed ₹12 lakh recognised collateral total. Issuer X contributes ₹4.2 lakh after haircuts. How much X collateral must be replaced by an equal recognised value of cash?

This answer replaces only the ₹1,20,000 excess while preserving the denominator. Maximum recognised amount from X = ₹12,00,000 × 25% = ₹3,00,000. Current X contribution = ₹4,20,000. Excess = ₹4,20,000 − ₹3,00,000 = ₹1,20,000. Replacing ₹1,20,000 of X with equal recognised cash leaves total collateral at ₹12 lakh and X at exactly 25%. The 25% cap is an internal hypothetical condition, not a regulatory rate. All securities values are already after haircuts. Remember: Concentration excess equals current issuer exposure minus the permitted share of the specified total.

Hint Common mistake: Changing the denominator by removing collateral when the question requires equal-value replacement.

VII-133

Practice bank se · 26

A simplified, already-weighted scenario array shows portfolio results of +₹8,000, −₹14,000, −₹23,000 and −₹9,000. What scanning-risk loss amount is selected before adding any other margin component?

₹23,000 is the largest scenario loss. The negative outcomes are losses of ₹14,000, ₹23,000 and ₹9,000. The largest loss is ₹23,000. The positive ₹8,000 outcome is a gain and is not the selected loss. These are alternative scenarios, so their losses are not accumulated as if they all occurred together. This four-row exercise illustrates the selection rule only. It is not the full production SPAN risk array or a complete margin calculation. Remember: Select the largest scenario loss when determining the scanning-risk component.

Hint Common mistake: Adding mutually exclusive scenario losses instead of choosing the worst one.

VII-134

Practice bank se · 27

A trading system rejects limit orders priced outside an applicable ₹475–₹525 band. The band remains unchanged and no exception applies. What happens to a new buy limit order entered at ₹528?

₹528 exceeds the unchanged upper bound. The submitted limit is ₹528, above the allowed upper bound of ₹525. The question expressly states that out-of-band limit orders are rejected and that the band does not change. The order therefore fails validation. The possibility of a cheaper execution does not alter the submitted limit or the specified validation test. Remember: Check the entered limit against the permitted band before treating it as an executable order.

Hint Common mistake: Assuming an invalid limit will automatically be repaired by the trading system.

VII-135

Practice bank se · 28

A clearing member has SPAN requirement ₹72,000, delivery margins ₹18,000, margins on consolidated crystallized obligations ₹10,000 and ELM ₹6,000. Under NSE Clearing’s equity-derivatives definition, what is the initial margin requirement?

This answer includes all three components of the specified initial-margin subtotal. Initial margin requirement = total SPAN requirement + delivery margins + margins on consolidated crystallized obligations. Substitute the stated components: ₹72,000 + ₹18,000 + ₹10,000 = ₹1,00,000. ELM is separately stated and is not added when answering this initial-margin-definition question. That does not make ELM unnecessary for other total-margin calculations. Remember: Identify the defined subtotal before adding every line of a margin statement.

Hint Common mistake: Confusing initial margin with the aggregate of initial margin and ELM.

VII-136

Practice bank se · 29

A member is short of shares for its clients' net sales. Instead of delivering them to the clearing corporation, it sends the missing shares directly to the buying clients. How is that quantity treated?

Pay-in obligations are met only by delivery to the clearing corporation. Shares sent outside clearing do not count, so the quantity stays a short delivery. Remember: Verify completion through the required settlement route, not only the intended beneficiary’s receipt.

Hint Common mistake: Assuming a direct transfer outside clearing automatically removes a clearing-system shortage.

VII-150

Margin

Margin is the money a participant must keep in place to carry a leveraged position.

Aage padho

Impact Cost (Slippage)

Impact cost is the difference between the price shown on screen and the price a trade is actually filled at.

Aage padho