Margin SPAN ELM VAR

Exchange margin types (SPAN, ELM, Adhoc, VAR)

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Indian exchanges (NSE, BSE, MCX) use several margin types in combination to manage participant risk. The four main types are SPAN (Standard Portfolio Analysis of Risk), ELM (Extreme Loss Margin), Adhoc margin, and VAR (Value at Risk). Each addresses a different aspect of margin calculation.

SPAN

SPAN is the portfolio-level worst-case loss calculation used primarily for F&O margins. The exchange’s SPAN engine:

  • Runs 16 stress scenarios (price up, price down, volatility up, volatility down, combinations).
  • Computes worst-case portfolio loss across scenarios.
  • This worst case becomes the SPAN margin.

SPAN is portfolio-aware: hedged positions get reduced SPAN; isolated short positions get full SPAN.

ELM (Extreme Loss Margin)

ELM is an additional buffer on top of SPAN, scaled to the worst-case scenarios beyond SPAN’s range. Set by the exchange at:

  • 3-5% of notional value for index F&O.
  • Higher for stock F&O.
  • Varies by contract.

ELM is per-contract, not portfolio-adjusted.

VAR (Value at Risk)

VAR is the volatility-based margin for equity intraday (cash segment, not F&O). Computed as:

  • Scrip-specific historical volatility.
  • Confidence interval (typically 99% or higher).
  • Time horizon (typically 1-day).

VAR margin = price level x scrip beta x volatility factor.

For an Rs 100 large-cap scrip, VAR might be 10-15% of notional.

Adhoc margin

Adhoc margin is an additional, occasional margin layer applied by the exchange:

  • During periods of elevated volatility.
  • On specific scrips with surveillance concerns.
  • As a system-wide risk management overlay.

Adhoc is usually time-limited and discretionary; not a permanent component.

How they combine

For different segments:

Equity intraday

VAR + ELM + Adhoc (if applicable) = Total margin.

For Rs 1 lakh of a large-cap intraday:

  • VAR: ~Rs 10-15K.
  • ELM: ~Rs 2-3K.
  • Adhoc: 0 (normal market).
  • Total: ~Rs 12-18K (12-18% margin; ~5-8x leverage).

F&O

SPAN + Exposure margin + Adhoc (if applicable) = Total initial margin.

For an index option:

  • SPAN: 10-12% of notional.
  • Exposure: 3-5% of notional.
  • Total: 13-17% of notional.

Commodity (MCX)

SPAN + Exposure + Adhoc per MCX framework. Similar logic to F&O but with commodity-specific parameters.

Margin authority

AuthorityDefines
SEBIFramework, ratios, hedge benefit caps, peak margin reporting
NSE ClearingSPAN methodology, parameter file (updated daily)
BSE clearingSame for BSE listings
MCX ClearingCommodity SPAN
Broker (Zerodha)Implements per exchange instructions; cannot offer below-margin trades

The exchange determines the margin; the broker enforces.

Recent changes affecting these

  • Peak margin (2020-2021): Tightened how SPAN + Exposure must be maintained during the day.
  • Upfront margin (2020): Cannot place order without full margin.
  • 50:50 cash collateral: At least 50% of margin in cash / cash-equivalent.

These haven’t changed the margin types but have changed how they must be held.

Practical implications

For retail F&O traders:

  • SPAN + Exposure is what shows on the Zerodha margin calculator .
  • ELM is part of “Exposure” in the calculator display.
  • VAR doesn’t apply to F&O.

For retail equity intraday:

  • VAR + ELM is the relevant calculation.
  • Brokers like Zerodha compute and apply per exchange.

See also

External references

References

  1. NSE Clearing, SPAN methodology, nseclearing.com.
  2. SEBI, Margin framework circulars, sebi.gov.in.
  3. Zerodha, Margin types and policies, zerodha.com.

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The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

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