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CONSOLIDATED POLICY OF LSE SECURITIES LIMITED WITH REGARD TO RISK MANAGEMENT SYSTEM
It is for information of sub brokers/ clients/ APs /Employees of LSE Securities Limited that various Circulars have been issued by the Company from time to time on Risk Management Policies. A master policy on risk management is reproduced as below for the smooth functioning of the operational activities of the Company:
1) CAPITAL ADEQUACY

Sub brokers are required to maintain separate security deposit with LSE Securities Limited for each Exchange/ segment, quantum and composition which will be prescribed by the Board of Directors from time to time. This separate security deposit is non refundable but transferable and is to be maintained in cash only.
2) ADDITIONAL DEPOSIT

In Cash segment, a sub broker will have to give an additional deposit in form of Cash and FDRs only and trading limit shall be allowed on the basis of this additional deposit only. The sub brokers are required to deposit this additional amount separately for different principal exchanges.
3) TOTAL TRADING EXPOSURE

In Cash Segments exposure limits of branches and users will be set by the Company from time to time on the basis of deposits available and sub brokers set the exposure limits of their clients in the Trading Software.
In F&O and Currency Segments, exposure available to Clients will be based on applicable Upfront Margins and deposits available with LSE Securities Limited.
Trading and exposure limits as above said shall be with in the limit prescribed by the Stock Exchanges from time to time.
4) GROSS EXPOSURE TRADING LIMITS

LSE Securities Limited shall allow its sub brokers a gross exposure trading limit up to such times of Security Deposit and Additional Security Deposit as may be decided by the Board of Directors / risk Management Committee from time to time. Presently trading limit is 7 times in NEAT.XS and 4 times in BOLT of the credit balance available in the account of the respective client/ sub broker and additional deposit, if any given by the client/ sub broker. The Board of Directors/ Committee or CEO along with Directors authorized for this purpose may reduce / increase the trading limits as a Risk Management measure.
In case of increase in trading limits sought during the market hours, either the sub broker or their clients shall transfer funds to the accounts of LSE Securities on line and requests for such increase, in writing either through logic, e-mail, fax or letter.
Additional capital deposited by the sub broker / client will be refunded only on request from the respective sub broker/ client. Presently the Company can release up to Rs. 2 lacs on the same day and beyond two lacs on the next day of the request.
On reaching 100% of the permissible limits, the trading terminal of the concerned sub brokers shall be automatically be put in the square off mode. Only on the additional Security Deposit in the form and proportion prescribed by LSE Securities Limited, the concerned sub broker will be allowed to trade.
5) MARGIN OBLIGATIONS

A) CASH SEGMENT
The sub brokers are required to pay margins as per the rules and regulations of respective Principal Stock Exchanges. The obligations of margins, after adjusting effect of Early Pay-In, if any, will be computed on the basis gross positions at sub broker level but net positions at client level i.e. gross of all net positions of all clients. The VAR Margin, MTM and Extreme Loss Margins as applicable are to be collected from the sub brokers on T+1 day and within prescribed time. Action will be taken against erring sub brokers who defaults in payment of margins. The sub brokers can deposit cash, FDRs, other cash equivalent against these margins obligations.

B) F&O AND CURRENCY SEGMENTS
The Authorized person and clients will have to pay initial exposure margins, span margins and any other margin as specified by the relevant authority from time to time on real time basis. If at any point of time applicable margins in account of any applicant reaches 100% of limit allowed in F&O/ Currency Derivative segments, system will not accepts fresh orders from that user and terminal will be in squaring off mode. Under these circumstances AP/Client will have to square off his positions or deposit additional margins. Margins in F&O / Currency Segments can be deposited in the shape of cash, FDR and approved securities and that deposit is to be made in prescribed ratio of cash and non cash components. At present it is 40:60 for sub brokers, i.e. 40% cash and 60% non cash component and 75:25 for clients in F&O segment i.e. 75% cash and 25% non cash component, it is 50:50 for sub brokers and 75:25 for clients in Currency Derivatives. Here FDR will be considered as Cash equivalent for calculating the above said ratio.
6) CONTROL OVER MTM IN F&O

The Company will keep Real time check on unrealized MTM Loss in F & O segment and if unrealized MTM Loss of any AP/Client at any point of time reaches at 60% of total margins available in account of that AP/Client then terminal of that client/ AP will be put to square off mode and 50% of loss is to be deposited immediately else positions will have to be squared off.
7) PAY-IN OF FUNDS & SECURITIES

The pay-in obligations of funds are to be met on T+2day in Cash Segment and T+1 day in F&O and Currency Derivative Segments and that also with in the time specified by the Company. So sub brokers/ APs/ Clients having pay-in obligations are required to maintain balance against their pay-in obligations with in prescribed time failing of which their terminals are put to squaring mode followed by suspension of trading till the time pay-in obligations are met out. Positions can also be squared off depending upon the circumstances.
Similarly for Pay-in obligations of securities clients shall be required to meet their obligations on T+2 day latest by 10:30 a.m. and in case of short fall, their obligations will be procured through auctions and difference charged by respective Principal Stock Exchanges will be debited to respective client account.
8) FOR INTERNAL NETTING OF TRADE

If shortages arise out of Internal netting of trades then local auction will be done and in case shares are not bought in auction then, internal closing will be done at highest price of the share from trading day till auction day or closing price of the share on the Auction day plus 10% which ever is higher in case of shortage of obligations
9) ACTIONS FOR DEFAULT IN PAY-IN AND MARGIN OBLIGATIONS

1. The payment of Margins must be completed by 10:30 a.m.
2. The pay-in obligations must be met out by 11:55 a.m.
3. If there is delay in payment of margins/ pay-in i.e. obligations are not met within specified time terminals of erring sub-brokers/ clients will be first put in squaring mode and if continuing delay they will be put to suspension mode after waiting for reasonable time and suspension will continue till the time full obligations are met. If there is no chance of recovery of funds then deals will be squared off as per procedure laid down in above said meetings.
Further, following action will be taken for major/ unreasonable delays as under:
Instances of delay during a quarter of a calendar year Action
(in addition to squaring off/ suspension mode )
For 1st Instance No action
For 2nd Instance Warning Letter
For 3rd Instance 10% reduction in Exposure Limits in relevant segment for a period of one month
For 4th Instance 15% reduction in Exposure Limits in relevant segment for a period of one month
For 5th Instance 20% reduction in Exposure Limits in relevant segment for a period of one month
For more than 5 instances 25% reduction in Exposure Limits in relevant segment for a period of one month and in addition to Rs.1 lakh special margin in the form of Cash/ FDR/ Scrips (30% hair-cut)
The delay will be considered as major/ unreasonable for above said action if payment of margin is not received till 12:30 p.m. and pay-in obligations are not met by 02:00 p.m.
Also if margins/ pay-in are not paid for whole day on the day of obligation then 5% reduction will be there in Exposure Limit immediately in relevant segment for one month. For such repetitive instances 5% penalty of outstanding amount can also be imposed.
10) FOR LOSS TO CLIENTS DUE TO SQUARE OFF/ SUSPENSION OF TERMINALS OF THE SUB BROKERS

If terminals of any sub brokers are put to square off/ suspension mode because of the policy of the Company or default at sub brokers’ end and client(s) of that sub broker suffer any loss, in that case LSE Securities Limited will not be responsible for such loss or claim. Erring sub broker will be responsible for the loss/ claim, if any.
11) DEBIT BALANCES IN CLIENTS’ ACCOUNT

The Company will scrutinize the debit balances in clients’ accounts on regular basis. The debit balances amount of clients (more than 30 days) shall be debited and blocked in pro account of the respective sub brokers. The amount so collected will be credited to pro-account in back office. The amount debited will be released on clearance of debit balances only.
The shares of clients lying in the pool account of the Company will be released to their DP accounts on clearance of debit balance and other dues.
Aging more than 90 days and 180 days will be viewed seriously. In additional to blocking of funds and shares trading limits of respective sub brokers will be reduced by 10% on first instances which can go up to 20% or 30% and further till old balances are not cleared.
For LSE Securities Limited
-sd-
Rajesh K. Sharma
Chief Executive Officer

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