Gross open position

A clearing member may have one client who is long a bond futures contract and another client who is short the very same contract. Add those two together and, on a net basis, the member looks flat — no exposure at all. But that is not how the exchange sees it, because those are two different clients with two different sets of obligations, and either could default independently.

So for position limits and for a key part of margining, the exchange looks at the gross open position instead: every client's long position and every client's short position, added up without letting one client's position offset another's.

How options positions are folded into long and short. For computing a client's gross open position, the workbook states the mapping directly: Long position = Long Futures + Long Calls + Short Puts, and Short position = Short Futures + Short Calls + Long Puts. A long call and a short put both behave like a long position for this purpose; a short call and a long put both behave like a short position.

Where gross open position is used — position limits. For Corporate Bond Index futures, the gross open positions across all contracts within the same underlying index must not exceed, for institutional participants (trading members, Category I/II FPIs other than individuals, banks, primary dealers, mutual funds at AMC level, insurers, pension funds, housing finance companies): 10% of total open interest or Rs 1,200 crore, whichever is higher. For non-institutional participants (individual/family-office Category II FPIs, mutual funds at scheme level, other clients): 3% of total open interest or Rs 400 crore, whichever is higher. Cash-settled Interest Rate Derivatives on G-Sec carry their own bucketed limits: for the 8-11 year maturity bucket, institutional limits are 10% of open interest or Rs 1,200 crore (60,000 lots), non-institutional 3% or Rs 400 crore (20,000 lots); for the 4-8 and 11-15 year buckets, the corresponding figures are 10%/Rs 600 crore (30,000 lots) and 3%/Rs 200 crore (10,000 lots).

FPI-specific limits. An individual FPI's gross short position in IRD must never exceed its long position in government securities and Interest Rate Futures combined. The aggregate long position of all FPIs with a net long position in any IRF instrument cannot exceed Rs 5,000 crore across all IRF instruments, and no single FPI may hold a net long position exceeding Rs 1,800 crore at any time. Exchanges publish the aggregated FPI position daily; once 90% of a limit is used up, the exchange raises alerts and publishes the remaining headroom daily. A breach requires the offending FPI to square off the excess within 5 trading days or by contract expiry, whichever comes first.

Where gross open position is used — margin. The extreme loss margin on futures is calculated on the mark-to-market value of the gross open position — the gross figure, not the netted one — which is why ELM computed this way is always at least as large as a net-position calculation would give.

A clearing member clears for two trading members in the same 6.10% GOI 2031 futures contract:

TM 1 is long throughout: gross long = 2,000 + 1,000 + 2,000 = 5,000, gross short = 0.

TM 2 mixes signs: proprietary short 1,000, Client 1 long 1,000, Client 2 short 1,000. Client 1's long is never netted against Client 2's short — they are two different people. So gross long = 1,000, gross short = 1,000 + 1,000 = 2,000.

Clearing member total: gross long = 5,000 + 1,000 = 6,000; gross short = 0 + 2,000 = 2,000. Total gross open position = 8,000 lots, even though netting everyone together would suggest only 4,000 lots of exposure (6,000 − 2,000).

If the futures' last traded price is Rs 100 and one lot is 2,000 units of Rs 100 face value bonds, notional value on the gross figure = 8,000 × 2,000 × Rs 100 = Rs 160 crore, and the extreme loss margin is calculated on that Rs 160 crore gross notional — not on the smaller, netted Rs 80 crore figure.

Chapter 7 (Clearing, Settlement and Risk Management of IRD), section 7.6 (Position Limits) and section 7.10.1 (margining), both define gross open position and use it — for position limits at client and market level, and as the base for extreme loss margin. Expect a numeric question building a clearing member's gross long and short totals from several clients, and a recall question on the options-to-position mapping (long call/short put = long; short call/long put = short).

• Gross open position never nets one client against another. Only positions within the same client, in the same contract, are netted first; different clients are always added, never offset.
• The options mapping is easy to get backwards: a short put behaves like a long position, and a long put behaves like a short position — the opposite of what "long" and "short" suggest at first glance.
• Extreme loss margin uses the gross figure, deliberately larger than a netted exposure would be — this is a conservative choice, not an oversight.
• Position limit figures differ by product and by maturity bucket — Corporate Bond Index futures, and each G-Sec maturity bucket, carry their own percentage-or-rupee-crore figures; do not assume one number applies across all of them.
• The FPI aggregate long cap (Rs 5,000 crore) and the single-FPI cap (Rs 1,800 crore) are two different limits — one is market-wide, the other is per FPI.