Risk Management at NSE

NSE risk management systems are designed to support a spot market infrastructure, and manage risks at all times to protect its:

NSE risk management strategy does not only focus on risk avoidance but also the identification and management of an acceptable level of risk. NSE accepts risk in almost every activity it undertakes in pursuit of its business objectives, from membership acquisition to final delivery of commodities, and so senior management periodically defines its risk appetite against key drivers of success.

Some of the risks managed within NSE domain are:

At NSE, operational risk is the category with the widest diversity in terms of sophistication of practices and risk management effort. These are risk associated with NSE activities, processes and systems, and include deal entry errors, breakdown in trading processes, documentation failures, physical production and delivery of commodities. NSE has a specific approach for operational risk which includes assessing the likelihood and impact of the risk and mitigating.

Market Risk

NSE ensures that clearing members have daily allowable trade limits and they can only trade within these limits. NSE has software in place to ensure that all clearing members’ transactions are assessed against their relevant limit and reporting processes for limit breaches. NSE operates at a daily price limit to limit losses to investors from significant market movements.

Credit Risk

Credit risk arises when a clearing member fails to meet their payment obligation. NSE has policies requiring members to be approved before they trade; ensuring that they have pre-paid into their trading accounts. Credit risk due to shortfall in members account is mitigated by netting agreements and cash deposits in the form of settlement guarantee fund.

Liquidity Risk

NSE has strategy to measure and monitor the liquidity of settlement guarantee fund and to ensure that there are sufficient funds to meet clearing members transaction exposures. This is done by preparing scenario analysis over an appropriate timeframe of likely inflows and outflows of funds.

Reputation and image risk

NSE has a policy of openness, transparency and fairness to all stakeholders to ensure that its reputation or standing in the community is not diminished. NSE has strong communication and media team seeing to that. The selection of an appropriate risk management strategy to address each of its domains is based on sound understanding of the underlying risk after a comprehensive assessment of the risk and a good sense of NSE’s appetite for risk. NSE’s risk appetite is periodically reviewed, defined and ratified by senior management.