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Financial Institutions, Banking & Market Infrastructure
1The Financial System
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9Market Plumbing
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12System Stability
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13Financial Inclusion
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Haircut and Margin: What a Clearing Member Puts Up

Margin is money or securities placed with the clearing corporation while an obligation has not yet settled, and it returns to the member who placed it when that obligation goes. A haircut is the discount struck on collateral offered, so a parcel worth a stated amount is counted for less. The margin says how much must be there; the haircut says how much of what was offered counts.

Work it out

One obligation, one parcel of collateral, and every figure computed as the fields change

The calculator takes the seven figures that would be read off the documents. The panel strikes the margin on the value of the trade and the haircut on the value of the collateral offered, keeps the two apart at every setting, and shows the whole build-up so the working can be run again with a pen. Move one field at a time: holding the margin still while the haircut moves, and then the reverse, is the fastest way to see that the two rates are answering different questions.

The obligation

The confirmation of the trade, the quantity line.

The same confirmation, the price it was matched at.

The price list for the day of the comparison, set against the matched price. A minus sign is a fall.

The conditions published by the clearing corporation.

The collateral

The statement of what the member has lodged, at the prices used for that comparison.

The same statement dated later, set against the lodged value. A minus sign is a fall.

The same published conditions, the row for this kind of collateral.

StepHow the panel works itAmount
Value of the trade, at the price it was matched at8,000 shares at Rs 105.00/- a shareRs 8,40,000/-
Value of the same parcel nowthe price is unmoved since the tradeRs 8,40,000/-
Margin required18.00 per cent of the value of the trade nowRs 1,51,200/-
Collateral, at what it is worth nowthe lodged value is unmovedRs 2,10,000/-
Haircut deducted28.00 per cent of the value of the collateral offeredRs 58,800/-
Counted value of the collateralRs 2,10,000/- less Rs 58,800/-Rs 1,51,200/-
Counted value less margin requiredRs 1,51,200/- less Rs 1,51,200/-Rs 0/-
The largest obligation this counted value stands behindRs 1,51,200/- at a margin of 18.00 per cent of the value of the tradeRs 8,40,000/-
One parcel, drawn twice, at the settings in the fields above WORTH NOW Worth now, Rs 2,10,000/- COUNTS FOR Counts for, Rs 1,51,200/- The upright line is the margin required, Rs 1,51,200/-. The counted value meets the margin exactly, with nothing spare. Both bars are drawn to one scale, and that scale is set by whichever of the three amounts is largest. Every rate above is a setting entered here. None of them is a level anybody requires.

At a haircut of 28.00 per cent of the value of the collateral offered, a parcel worth Rs 2,10,000/- counts for Rs 1,51,200/-, against a margin required of Rs 1,51,200/-. That is exact cover, to the rupee, so nothing is called for and nothing is spare.

Nothing has been changed yet. Alter one field and this line will say which way the change moved the cover.

The collateral cannot fall at all from here before the cover is gone.

Read on market value alone: Rs 2,10,000/- of collateral against a margin of Rs 1,51,200/- looks like Rs 58,800/- of room.

Read on what it counts for: Rs 1,51,200/- against the same margin is exact cover, with nothing spare.

The whole of the difference between those two readings is the haircut, Rs 58,800/-.

Educational illustration, and not a margin calculator for use. Every rate entered above is a chosen setting and none of them is a level anybody requires. How margins are arrived at and when they are called, the haircut applied to each kind of collateral, what may be given as collateral at all and how often it is revalued are set by the Securities and Exchange Board of India (SEBI), at sebi.gov.in, and every one of them moves. A mix of collateral would need a haircut for each kind of thing in it and figures nobody here has, so the collateral is treated as one parcel. Nothing entered here is stored anywhere: it lives in the browser and goes when the tab does.

The calculator opens on one obligation, followed from here to the end: 8,000 shares of Suvarna Commercial Bank Limited, an invented bank, at that bank's own reported Rs 105.00/- a share. The trade is worth Rs 8,40,000/-. At a margin of 18.00 per cent of the value of the trade it returns Rs 1,51,200/-. Collateral of Rs 2,10,000/- is lodged, a haircut of 28.00 per cent of the value of the collateral offered takes Rs 58,800/- off it, and Rs 1,51,200/- is what counts, so the counted value less the margin required is Rs 0/-. Divide that counted value back by the same 18.00 per cent and Rs 8,40,000/- comes back, the trade it is standing behind. The arithmetic proves itself rather than asserting it. A rate whose base has gone missing is a rate nobody can check, so every rate there arrived with its base attached.

Two orders met on Kaveri Stock Exchange Limited, an invented exchange. The clearing corporation that settles trades matched on Kaveri Stock Exchange Limited stepped in between them. From that instant the buyer faces the clearing corporation and the seller faces the clearing corporation, and the two sides no longer face each other at all. The substitution, the step called novationThe step in which one matched agreement is replaced by two, each against a party that was not in the original bargain. How it is done is worked separately., is covered separately and is taken as finished here. The clearing corporation has promised to deliver to whichever of the two is still there, and it has to hold something while it waits.

Two rates arrive together and they look so similar in a sentence that most people file them in the same drawer. The two rates do not belong in the same drawer. One settles how much has to be sitting there, and the other settles how much of what was handed over is allowed to count, and a member who cannot keep those two apart will never be able to say why it has been asked for more when nothing whatever about its position has changed.

What is margin, and whose money is it?

Margin is money, or securities, lodged with the clearing corporation while one of a member's obligations is still waiting to settle. The definition just given is the easy half. The hard half, and the half most readers get wrong on first meeting, is the second one: whose money it is once it has been placed.

The margin still belongs to the member who placed it. A clearing memberThe firm admitted to place obligations with a clearing corporation and answerable to it for them. Who may become one, and on what conditions, is settled separately. that lodges margin has not paid anybody. The member has not bought anything, it has not been charged anything, and nobody has earned anything. The margin sits where the clearing corporation can reach it, and when the obligation it was placed against goes away, it comes back. Margin leaves the member's control without leaving its ownership, and those are two entirely different events that happen to look alike from a bank statement.

The deposit a household leaves with a landlord before moving into a rented flat works the same way. The deposit is not rent. Nobody has spent it and nobody has earned it. The deposit sits with the landlord for as long as the arrangement runs, it is not available to the household for anything else during that time, and it comes back at the end unless something has gone wrong. A household asked whether it has paid the deposit will say yes; asked whether the money is gone, it will say no. Both answers are correct, and the gap between them is exactly the gap between money placed and money spent.

One consequence follows immediately. Because margin is not revenue, no institution holding it gets richer by asking for more of it. The clearing corporation that settles trades matched on Kaveri Stock Exchange Limited earns from other things entirely, and the margins it holds are not among them.

Try it out

Margin has been placed with the clearing corporation and is sitting there against an obligation that has not settled. Whose money is it now?

Why does margin exist at all?

Two facts about this arrangement are true at the same moment, and margin is what sits in the space between them.

The first is that the clearing corporation that settles trades matched on Kaveri Stock Exchange Limited became the counterpartyWhoever stands opposite a party in an agreement and has to deliver their half of it. Which entity ends up opposite whom is settled separately. to both sides. If the seller vanishes, the buyer still gets what was promised. The clearing corporation promised it. The clearing corporation's promise is not conditional on anybody else keeping theirs.

The second is that time passes between the match and the settlement. The length of that interval is covered separately. SEBI, at sebi.gov.in, decides it, and it changes. The interval matters for one reason only: it is not zero. During the interval, the price of Suvarna Commercial Bank Limited can move in either direction by any amount, and nobody has to do anything for that to happen.

Margin is what covers the price moving between the promise and the performance, and it exists only because both of those facts hold at once. Take either one away and it would not be needed. If the two sides still faced each other directly, a price move would be their problem to sort out between themselves. If settlement happened in the same instant as the match, there would be no interval for the price to move in. Neither of those is the world, so margin is placed.

So margin is not a precaution somebody added because they were nervous. Margin is the direct consequence of a promise made across an interval, and its size is a question about how far a price might move before the promise has to be kept.

Try it out

Before reading on, commit to an answer. A member owes a margin of Rs 1,51,200/- and hands over securities worth Rs 2,10,000/-. Does that cover it?

What is a haircut, and what is it applied to?

A haircut is a discount applied to the value of collateral offered. Securities worth a stated amount are counted for less than that amount. The words that matter most in it are the ones naming what the discount lands on.

The discount lands on the collateral. Not on the obligation, not on the margin, not on anything the member owes. Nothing is taken away from anybody at all. A haircut is not a reduction in what has to be there, it is not a discount on the trade, and it is not a charge that anybody collects. The member still has every rupee of the parcel it lodged. A single thing changed: how much of what was handed over is permitted to count against the margin.

Work it on the parcel. The member offers securities worth Rs 2,10,000/-. A haircut is struck at 28.00 per cent of the value of the collateral offered, a setting chosen so the arithmetic has something to run on. Twenty eight per cent of Rs 2,10,000/- is Rs 58,800/-, and Rs 2,10,000/- less Rs 58,800/- is Rs 1,51,200/-. The parcel is worth Rs 2,10,000/-. The same parcel counts for Rs 1,51,200/-. Both statements are true at the same time and only the second one enters the comparison.

One parcel of collateral, and the only number that gets compared WHAT IT IS WORTH Rs 2,10,000/- LESS A HAIRCUT OF 28.00 PER CENT OF THE VALUE OF THE COLLATERAL OFFERED WHAT IT COUNTS FOR Rs 1,51,200/- THE SECOND NUMBER IS THE ONE COMPARED WITH THE MARGIN The first never touches the comparison. It is only ever the starting point of the arithmetic. Rs 2,10,000/- less 28.00 per cent of Rs 2,10,000/-, which is Rs 58,800/-, leaves Rs 1,51,200/-.
A parcel worth Rs 2,10,000/- given against a haircut of 28.00 per cent of the value of the collateral offered counts for Rs 1,51,200/-, and it is the counted figure rather than the worth that is set beside the margin.

Why is collateral counted at less than it is worth?

The question answers itself the moment a different one is asked. When would this collateral ever actually be sold?

Not while the member is performing. A member that settles its obligations gets its collateral back untouched, and the parcel is never sold at all. The only circumstance in which anybody reaches for it is the one where the member who gave it has failed to do what it promised. Failure is a narrow circumstance, and it has a habit.

The habit is this. A member most often fails on a day when prices are moving hard against positions. On that same day, liquidityHow readily something can be sold without shifting its own price much. Liquidity is not a fixed property: the same holding can be easy to sell one week and hard the next. in the very securities lodged as collateral has very often thinned out and buyers have become scarce. So the parcel would be sold on the worst available day rather than on a quiet one. Collateral is therefore valued for the day it might have to be used rather than for the day it was given, and the haircut is the difference between those two days written as a discount.

The everyday version is a pawnbroker. An ornament handed over brings a loan of less than the ornament is worth today. The reason is not that the pawnbroker thinks the ornament is worth less today. The reason is that the only future in which the pawnbroker has to sell it is the future in which the borrower did not come back, and the pawnbroker has to be whole in that future rather than in the pleasant one. Every haircut anywhere is that same sentence in a different costume.

The only circumstance in which the collateral is ever sold Is the member still performing? IF THE MEMBER PERFORMS The parcel goes back untouched. IF THE MEMBER FAILS The parcel has to be sold. AND THAT IS OFTEN THE DAY THE PRICE IS FALLING AND BUYERS ARE SCARCE So the parcel is valued for the day it might be used, and not for the day it was handed over.
Collateral is only ever sold in the circumstance where the member who gave it has failed, which is often the circumstance in which its price is falling, so it is valued for that day rather than for the quiet day on which it was lodged.
Try it out

Why is collateral counted at less than its value on the day it is handed over?

How do margin and haircut work together on one obligation?

Two rates and two amounts, and every one of the four has to be named with its base attached or the whole thing falls apart.

The margin rate answers how much has to be there, and the haircut answers how much of what was given counts, and those are two questions about two different things struck on two different bases. Swapping the bases even once makes both answers come out wrong together, which is the worst kind of error because it looks internally consistent. The calculator above therefore takes the two rates in separate fields: with one held still and the other moved, what happens is attributable to the one that moved.

Two rates, two bases, two different questions THE MARGIN RATE STRUCK ON The value of the trade, Rs 8,40,000/- ANSWERS How much has to be there 18.00 per cent gives Rs 1,51,200/- THE HAIRCUT STRUCK ON The value of the collateral offered, Rs 2,10,000/- ANSWERS How much of what was given counts 28.00 per cent leaves Rs 1,51,200/- MIX THE TWO BASES AND BOTH ANSWERS COME OUT WRONG TOGETHER
The margin rate is a percentage of the value of the trade and answers how much has to be there, while the haircut is a percentage of the value of the collateral offered and answers how much of what was given counts.

The whole obligation, built up on the parcel followed throughout, so the working can be run again with a pen.

StepHow it is workedAmount
Value of the trade8,000 shares at Rs 105.00/- a shareRs 8,40,000/-
Margin required18.00 per cent of the value of the tradeRs 1,51,200/-
Collateral offeredWhat the parcel of securities is worthRs 2,10,000/-
Haircut deducted28.00 per cent of the value of the collateral offeredRs 58,800/-
Counted value of the collateralRs 2,10,000/- less Rs 58,800/-Rs 1,51,200/-
Counted value less marginExact cover, with nothing spareRs 0/-

The last two rows carry the result everything below turns on. The parcel is worth Rs 58,800/- more than the margin it stands against, which reads like room to spare, and after the haircut it covers that margin to the rupee with nothing left over.

Where the numbers going into the panel are found

Where a figure is found matters as much as what is done with it. Not one of the four below is chosen by the member; each is read off a document.

InputWhere the figure is found
The value of the tradeThe confirmation of the trade itself, which carries the quantity and the price it was matched at
The value of the collateral offeredThe statement of what the member has lodged, valued at the prices used for that comparison
The margin rate and its baseThe conditions published by the clearing corporation, which are themselves set within what SEBI at sebi.gov.in requires
The haircut on each kind of collateralThe same published conditions, again inside what SEBI at sebi.gov.in requires
Try it out

Which of these names both bases correctly, in the same sentence?

What happens when the collateral no longer covers the margin?

Two numbers in that comparison move on their own, without anybody deciding anything. The value of the collateral moves because the securities in the parcel have prices. The value of the obligation moves because the security underlying the trade has a price too, and the margin is struck on it. So the comparison is not made once and filed; it is made again and again while the obligation stands.

The repeated comparison is the ordinary business of marking to marketRestating something at the price it would fetch now rather than at the price recorded when it was taken on. Restating a value that way is a measurement step, not a decision by anybody., which appears again in securities lending, where a lent security is compared with the collateral standing behind it over and over rather than at the start alone.

When the counted value falls below the margin, the difference is called for. Nothing has gone wrong when that happens, and the same arithmetic run on a different day simply gives a different answer. No rule was broken, nobody misbehaved, and the member was not careless. A price moved.

How often the comparison is made, and what follows when the difference is not provided, sit with SEBI, at sebi.gov.in. Both of them move, so the working figure is the one standing at that address on the day it is needed.

Try it out

The haircut on the collateral rises and nothing else changes at all. What happens to the cover?

Play with it

Move the haircut and watch the counted value slide through the margin

Only the haircut moves. The value of the trade stays at Rs 8,40,000/-, the margin rate stays at 18.00 per cent of the value of the trade, and the parcel offered stays worth Rs 2,10,000/-. Holding the margin still is what makes everything that follows attributable to the haircut and to nothing else.

28.00 per cent of the value of the collateral offered

One parcel, drawn twice: what it is worth and what it counts for MARGIN Rs 1,51,200/- WORTH Rs 2,10,000/- COUNTS Rs 1,51,200/- Exact cover, with nothing spare. The dashed outline is what the parcel is worth. The solid bar is what it counts for after the haircut. The upright line is the margin, held at Rs 1,51,200/- at every setting of the control. Where the control is sitting on the range of haircuts CROSSING AT 28.00 PER CENT 11.00 22.00 33.00 44.00 Every setting on this scale is one entered here, and none of them is a level anybody requires.

At a haircut of 28.00 per cent of the value of the collateral offered, a parcel worth Rs 2,10,000/- counts for Rs 1,51,200/-, against a margin of Rs 1,51,200/- struck at 18.00 per cent of the value of the trade of Rs 8,40,000/-. That is exact cover, with nothing spare. The counted value comes to 100.00 per cent of the margin.

Educational illustration. Every rate on this control is a chosen setting and not a level anybody requires. How margins are arrived at, the haircut applied to each kind of collateral, what may be given as collateral at all and how often it is revalued come from SEBI, at sebi.gov.in, and every one of them moves. A mix of collateral would need figures nobody here has, so the collateral is treated as one parcel.

The counted value of one parcel, drawn against the haircut applied to it What it is worth, Rs 2,10,000/-, unchanged at every haircut 0 60,000 1,20,000 1,80,000 MARGIN Rs 1,51,200/- EXACT COVER AT 28.00 PER CENT Both come to Rs 1,51,200/- 11.00 22.00 33.00 44.00 Haircut, per cent of the value of the collateral offered Above the margin line the counted value leaves a surplus. Below it, a shortfall. At 11.00 per cent the parcel counts for Rs 1,86,900/-, and at 44.00 per cent it counts for Rs 1,17,600/-.
Draw the counted value of Rs 2,10,000/- of collateral against the haircut applied to it and it falls in a straight line, crossing the Rs 1,51,200/- of margin it stands against and turning a surplus into a shortfall.

The ends of that line are worth reading. At a haircut of 11.00 per cent of the value of the collateral offered the parcel counts for Rs 1,86,900/-, a surplus of Rs 35,700/- over the margin of Rs 1,51,200/-. At 44.00 per cent it counts for Rs 1,17,600/-, a shortfall of Rs 33,600/-. Between them sits 28.00 per cent, where the two numbers are the same to the rupee. The crossing therefore sits in the middle of the range rather than tucked away at an edge.

Is a margin call a loss?

The quiet assumption is that it is, and the assumption is worth pulling out and looking at. Almost everything that goes wrong after a call goes wrong because of that assumption.

A call for more margin is a call for more of the member's own money to sit somewhere it cannot be used. Nobody has charged the member. Nothing has been deducted. The amount called for still belongs to the member, it is still on the member's side of the ledger, and it comes back when the obligation goes away. A call is not a charge and it is not a loss, and treating it as either one makes it impossible to plan for either one.

None of that means a call costs nothing. A call does cost something quite real. Money sitting as margin cannot be used for anything else while it sits there, and that is a genuine cost and a completely different one from a loss. The name for what is given up by tying money down that way is opportunity costWhat is given up by using something one way rather than another. The cost is real even when no payment changes hands: the thing forgone had a value too., and having the word stops the cost being written down as zero.

And there is a second cost that lands harder than the first. A call has to be met when it is made, so the difficulty in practice is rarely the amount and is usually the timing. Being asked for a further Rs 33,600/- is not difficult in itself for anybody carrying an obligation of Rs 8,40,000/-. Being asked for it on a morning when everything that might be sold to raise it is also moving the wrong way is a different problem entirely, and it is the problem that actually hurts people.

A call and a loss are two different events A CALL FOR MORE MARGIN The member's money moves. It sits where it cannot be used. It comes back when the obligation goes. WHAT IT COSTS The use of the money while it sits. A LOSS The member's money is gone. Nothing comes back later. The obligation settling changes nothing. WHAT IT COSTS The money itself. THE DIFFICULTY IN A CALL IS USUALLY THE TIMING, NOT THE AMOUNT A call has to be met when it is made, which is rarely a convenient moment to find money.
A call for more margin is a call for more of the member's own money to sit somewhere it cannot be used, which costs the use of that money and is not the same event as losing it.
Try it out

A member is called for a further Rs 33,600/- of margin. Has it lost money?

What does the same idea look like at the scale of the institution?

Everything above was one member and one parcel. Step back and the clearing corporation that settles trades matched on Kaveri Stock Exchange Limited is holding many such parcels at once. The corporation reports margins held of Rs 11,000 crore. Behind them sits a settlement guarantee fundResources pooled in reserve, so that when one participant fails the bill does not land on participants who had no part in it. The contributions to the fund, and the order in which it is drawn on, are settled separately. of Rs 2,750 crore. Divide Rs 11,000 crore by Rs 2,750 crore and the margins come to 4.00 times the fund.

The margins and the fund are doing two entirely different jobs, and neither of them belongs to the institution holding it in the way revenue would. The margins are members' money held against their own obligations, member by member, and each member's share goes back when its own obligations settle. The fund is there so that when one member fails, the bill does not land on the members who had no part in what went wrong. One pool is about a member and its own obligation; the other is about everybody else and that member's.

The sequence in which the resources of a member that has failed get drawn on is a real and carefully fixed one, and the sequence rather than the total is where the protection lives. Where it begins, where it goes next and what sits at each stage are all with SEBI, at sebi.gov.in, and all of them move. The reason an order has to be fixed in advance is worth one line: a rule decided while a failure is unfolding is a rule decided by whoever is loudest in the room.

Two pools at the clearing corporation, doing two different jobs MARGINS HELD Rs 11,000 crore SETTLEMENT GUARANTEE FUND Rs 2,750 crore Rs 11,000 crore over Rs 2,750 crore is 4.00 times the fund WHOSE MONEY, AND FOR WHAT Members' money, held against their own obligations. It goes back when they settle. WHOSE MONEY, AND FOR WHAT Resources held so that a failure by one member does not land on the members who had no part.
The Rs 11,000 crore of margins is members' money lodged against obligations of their own, while the Rs 2,750 crore fund sits behind all of it so a failure by one member does not land on the rest, putting margins at 4.00 times the fund.
Try it out

A settlement guarantee fund of Rs 2,750 crore sits at the clearing corporation alongside margins of Rs 11,000 crore. What is the relationship between the two?

The failure: counting collateral at what it is worth today

A member looks at the parcel it has lodged, sees Rs 2,10,000/- of securities standing against a margin of Rs 1,51,200/-, and concludes that it has comfortable cover with Rs 58,800/- of room. The reading is wrong, and it is not a careless one. Anybody would produce it from the two numbers they were shown.

At a haircut of 28.00 per cent of the value of the collateral offered, that parcel counts for Rs 1,51,200/-. Not comfortable cover. Exact cover, to the rupee, with nothing spare at all. The first movement against the member produces a call: the collateral slipping in value produces one, the haircut being struck higher produces one, and the value of the trade rising produces one by lifting the margin the collateral has to reach.

Who makes this reading: anybody who has never had the haircut put in front of them as a separate number, which is most people. Collateral is almost always described by what it is worth rather than by what it counts for. The first cost is the surprise of being asked for more when nothing about the position has changed. The second is worse, and it is better produced than described.

Produce it in the panel at the top rather than taking it on trust. Leave the parcel at Rs 2,10,000/- and set three fields for one bad morning: the traded price up 10.00 per cent, the collateral down 12.00 per cent, the haircut out to 40.00 per cent. On market value the parcel still looks like Rs 18,480/- of room. The panel actually returns a call for Rs 55,440/-, and the whole of the difference between those two readings, Rs 73,920/-, is the haircut. The call arrives on the morning the prices moved, and that is precisely the morning it is hardest to find more collateral. The member ends up selling something to meet the call rather than choosing its own moment to sell.

Nobody involved has been careless. The member was shown a market value and asked to draw a conclusion that needed a second number it was never given. The fix is one habit: the question is never what the collateral is worth, but what it counts for.

The reading that turns exact cover into comfortable cover WHAT THE MEMBER SEES Collateral Rs 2,10,000/- Margin Rs 1,51,200/- Room to spare, Rs 58,800/- WHAT THE HAIRCUT LEAVES Counted value Rs 1,51,200/- Margin Rs 1,51,200/- Nothing spare, Rs 0/- EXACT COVER IS THE MOST FRAGILE PLACE TO STAND A fall in the value of the parcel, or a haircut struck higher, produces a call at once. A rise in the value of the trade lifts the margin and produces the same call. Neither of those is anybody's mistake, and both arrive without warning.
A parcel worth Rs 2,10,000/- against a margin of Rs 1,51,200/- reads like Rs 58,800/- of room, and after a haircut of 28.00 per cent it covers that margin exactly with nothing spare.

How does a clearing member plan around a number that moves on its own?

The two questions somebody running a clearing member's cash asks every morning

The routine is arithmetic and a habit rather than a judgement, and nothing in it says which position anybody should be in.

The first question is what the lodged collateral counts for today rather than what it is worth today. Answering it means taking the parcel, applying the haircut that currently applies to each kind of thing in it, and writing down one figure. A member that watches the wrong number will be surprised by every call it ever gets, so the number that belongs on the whiteboard is the counted value and the market value belongs nowhere near it.

The second question is how far the counted value can fall before it reaches the margin, expressed as a distance rather than as a ratio. On the parcel worked above that distance is zero, and a member with a distance of zero has to find money on the day something moves. At a haircut of 11.00 per cent of the value of the collateral offered the same parcel counts for Rs 1,86,900/- and the distance is Rs 35,700/-, a very different morning.

An analyst reading a member from the outside asks the same two questions of the whole book rather than of one parcel, and a household with a broker's account meets a small version of it whenever a broker asks for funds against a position. The question is the same in all three: how much of what has been given counts, and how far is that from what has to be there.

Margin is what has to be sitting with the clearing corporation before an unsettled obligation is allowed to stand, and a haircut settles how much of what was handed over actually counts. How the clearing corporation becomes the counterparty to each side is covered separately. The interval between the trade and the settlement is covered separately. How the two legs of a settlement are made to depend on each other is covered separately. Lending a security out of a holding, where the same comparison between collateral and what it covers appears again, is covered separately, and so is the work of the depositoryWhere the record of who holds which securities is kept, and where that record is changed when a holding moves. It is a different entity from the one that matches trades and from the one that stands between the two sides. in keeping the record of who holds what. How margins are arrived at and when they are called, the haircut on each kind of collateral, what may be given as collateral and how often it is revalued are questions for SEBI, at sebi.gov.in.

Who sets the rates this calculator leaves open?

Four settings decide every figure above, and not one of them belongs to the clearing corporation on its own. An authority decides each one, each one gets revised, and each appears in the sheet below as a labelled line carrying an address and no figure.

The four rows are set out below. One of them, which securities and which instruments may be given as collateral at all, is a question about what may be pledgedGiven as security for an obligation without being sold, so it goes back when the obligation is met. What may be given this way is settled separately. and by whom.

Every rate in this calculator is a setting entered into it, and not one of them is a level anybody requires. A required level printed beside an instrument would not be merely out of date on the morning it changed, it would simply be false. A stale explanation is annoying. A stale number inside a calculator is worse: the output is trusted precisely because a machine produced it, and the wrong figure gets carried away without the rate that made it ever being seen.

India

Four settings behind the figures above, each set elsewhere

What is setThe value hereWho sets it
How margins are arrived at, on what base they are struck, and when they are calledNot stated hereSEBI at sebi.gov.in
The haircut applied to each kind of collateral offeredNot stated hereSEBI at sebi.gov.in
Which securities and which instruments may be given as collateral at allNot stated hereSEBI at sebi.gov.in
How often collateral is revalued, and what follows when what is counted falls shortNot stated hereSEBI at sebi.gov.in

The sheet is meant to be taken to the site printed inside it and its middle column filled in by hand. The sheet stays useful while empty: the arithmetic does not change when those four settings move, so a sheet filled in today keeps working with the numbers found tomorrow.

Four settings this guide names, each set elsewhere WHAT IS SET THE VALUE HERE WHO SETS IT How margins are arrived at, on what base they are struck, and when they are called not stated SEBI, sebi.gov.in The haircut applied to each kind of collateral offered not stated SEBI, sebi.gov.in Which securities and which instruments may be given as collateral at all not stated SEBI, sebi.gov.in How often collateral is revalued, and what follows when it falls short not stated SEBI, sebi.gov.in EVERY RATE HERE IS ONE ENTERED INTO THE CALCULATOR, NOT A LEVEL ANYBODY REQUIRES
How margins are arrived at, the haircut on each kind of collateral, what may be given as collateral at all and how often it is revalued are drawn as a sheet with SEBI at sebi.gov.in inside every row and every value left empty.
Try it out

The closing question, and it carries the habit worth taking away. Every rate in this calculator was entered into it. Where do the real ones come from?

Where the four settings are published

What would be looked upWho holds itWhere it livesConfirmed
How margins are arrived at, on what base they are struck, and when they are calledSecurities and Exchange Board of Indiasebi.gov.in25 August 2026
The haircut applied to each kind of collateral offeredSecurities and Exchange Board of Indiasebi.gov.in25 August 2026
Which securities and which instruments may be given as collateral at allSecurities and Exchange Board of Indiasebi.gov.in25 August 2026
How often collateral is revalued, and what follows when what is counted falls shortSecurities and Exchange Board of Indiasebi.gov.in25 August 2026
The accounts and transfer arrangements the money side of a settlement runs overReserve Bank of Indiarbi.org.in25 August 2026

Kaveri Stock Exchange Limited, its clearing corporation and Suvarna Commercial Bank Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.

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