BSE changes limit for risk reduction mode in currency futures

November 26
16:16 2017

Top stock exchange BSE has decided to revise the threshold for activation of risk reduction mode for clearing members on its currency derivatives and interest rate derivatives segment, from Monday.

Under the revised norms, the risk reduction mode (RRM) would be activated when 90 per cent of the clearing members’ collateral available for adjustment against margins gets utilised.

This is against the current practice of activating the mode on 100 per cent utilisation of collateral deposited.

“As part of a continuous review of risk processes and in an effort to align risk management practices across segments, it has been decided to revise the risk reduction mode activation threshold in its currency derivatives segment,” BSE said in a circular.

“The circular shall come into effect from Monday, November 27, 2017,” it added.

A similar circular was also issued for interest rate futures segment.

When a member’s collateral falls crosses the threshold, he will be allowed to put only risk reducing orders and will not be allowed to take any fresh positions.

RRM is not essentially a type of order but a mode into which a member is put into when he violates his collateral limit.

A member who has entered the risk-reducing mode will be allowed to put only one risk reducing order at a time.

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