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Foreign Exchange Contracts
Foreign Exchange Contracts
Every eligible foreign exchange contract, entered into between members, will get novated and be
replaced by two new contracts - between CCIL and each of the two parties, respectively. Deal
confirmation files will be transmitted over the INFINET to CCIL, and will form the starting
point for processing by it. Following the multilateral netting procedure, the net amount payable
to, or receivable from, CCIL in each currency will be arrived at, member-wise. The Rupee leg
will be settled through the members' current accounts with RBI and the USD leg through CCIL's
account with the Settlement Bank at New York.
By choosing to settle their trades through CCIL, market participants will gain in the following
ways:
Settlement Procedure
From November 8, 2002, CCIL has commenced live operations for value date November 12,
2002. Currently, CCIL's operations cover only the inter-bank spot and forward US Dollar-Indian
Rupee (USD-INR) trades. Connectivity to the RBI's INFINET network will be a pre-requisite for
members availing of CCIL's services for settlement of their trades.
No settlement will take place on Saturdays, Sundays and such other days as are not business days
in either Mumbai or New York. There will be at the least one settlement per Mumbai business
day.
Members will exchange deal confirmation files, over INFINET, among themselves, as well as
with CCIL. At the CCIL end, the deal confirmation data received from the counter-parties will be
matched, and then processed for netting. The Rupee leg will be settled through the members'
current accounts with RBI and the USD leg through CCIL's account with the Settlement Bank at
New York.
Every eligible foreign exchange contract, entered into between members, will get novated and be
replaced by two new contracts for the same value date - between CCIL and each of the two
parties, respectively.
Following the procedure of multilateral netting, one net payable or receivable amount, in respect
of both USD and INR, will be arrived at.
Notwithstanding anything contained herein, Board shall have the power to amend, alter, vary or
exempt the eligibility criteria for admission to Membership.
Members of CCIL's Forex Segment are required to deposit their margin contribution into CCIL's
Settlement Guarantee Fund (SGF) maintained for this business segment.
Individual member contributions to SGF are a function of the Net Debit Cap allotted to the
concerned member and the margin factor assigned to it.
SGF is received in U S Dollars funds only to CCIL's dedicated USD Nostro Account with its
Settlement Bank at New York, USA.
Composition
Deposits
Members desirous of making SGF contributions are required to intimate CCIL about the same
using a prescribed format within cut-off timings prescribed for the purpose. The relative
contributions are to be remitted directly by the concerned member to the credit of CCIL's USD
Nostro Account with its Settlement Bank in New York, USA. Member balances are updated by
CCIL upon receipt of relative funds into its USD Nostro Account. Transaction Reports and
Holding Reports are electronically delivered to the concerned members along with other daily
business reports.
Withdrawals
Members seeking to withdraw from their SGF contributions are required to send a prior written
notice to CCIL about the same using a prescribed format within cut-off timings prescribed for the
purpose. Withdrawal payments are effected by CCIL by credit of USD funds on relative value
date to concerned members' USD Nostro Accounts with their correspondent banks under advice
to the members, after their SGF balances have been suitably reduced. Transaction Reports and
Holding Reports are electronically delivered to the concerned members along with other daily
business reports.
For covering its liquidity risk, CCIL will have in place the facility of a Line(s) of Credit (LoC)
limit and/ or other credit facilities from its overseas Settlement Bank. CCIL will draw against the
LoC in case a member fails to deliver its currency obligation to CCIL on the value date. Any
collaterals required to be furnished to the Settlement Bank for availing of such credit facilities
will be furnished from out of the contributions made by members to the SGF
In case of Dollar default by any member, CCIL has the recourse to the defaulting bank's rupee
account with RBI in terms of a mandate executed by the members in this regard. In case of a
Rupee default, CCIL does not release Dollar amount payable to the concerned member till the
Rupee amount is received on the next day. Moreover, CCIL has right to sell the available US
Dollars to meet such Rupee shortfall. In case of any residual shortfall, CCIL would appropriate
margin collected from such member and then would allocate the residual loss through Loss
Allocation Mechanism.
As per Loss Allocation Mechanism of CCIL, any loss arising out of a default by a member is to
be apportioned, net of margin amount recovered from the concerned member, to the members
having done trade with the defaulting member for settlement on the day of default and having net
buy position in the currency of default ( loss is apportioned in the ratio of their respective net buy
position in the currency of default). It may be appreciated by the member that due to the
existence of loss allocation mechanism, CCIL's guarantee to the members for their USD/Rupee
trades do not result in CCIL's acceptance of counter-party exposure entirely. In the event of a
default, if the amount recovered from the defaulter members is not adequate, a member may
suffer some loss due to a default by its counterparty. The loss, however, is substantially reduced
and potential maximum loss would be restricted only to the member's net exposure on such
counterparty for the settlement date on which the default has occurred.