ICMTM

Ordinary mark to market is computed once a day, on positions still open at the close. But some trades are opened and closed within the very same day, and if that intraday round trip lost money, the loss should not have to wait until the evening MTM run to be collected.

ICMTM is the fix. It measures losses that are already locked in — "crystallized" — from trades squared off within the trading day, and collects the margin for them as the day goes on, not just at the end.

The workbook (Chapter 4, section 4.1.1.1) sets out how ICMTM works:

• ICMTM is computed for all trades subject to upfront margining which are executed and closed out on the same trading day.
• It is calculated using the weighted average prices of the trades.
• It is adjusted against the member's liquid assets in real time — not at end of day.
• Crystallised losses on one security for a client are first set off against crystallised profits on another security for the same client, to arrive at a client-level figure — but there is no set-off across two rolling settlements (such as T+1 and T+0).
• All client-level losses, including on proprietary positions, are grossed up to arrive at the member-level ICMTM. Losses of one client are never netted against another client's profit.
• ICMTM does not apply to securities in the Trade For Trade Surveillance market (TFTS).
• ICMTM is included in the end-of-day MTM computation, so it is not collected twice.
• If crystallised losses exceed the free collateral available with the clearing corporation, the member is put into risk reduction mode.
• Amounts blocked for ICMTM are released on completion of pay-in of the settlement, or early pay-in.

A broker's client, intraday, buys 2,000 shares of a stock at Rs 300 (weighted average) and sells the same 2,000 shares later the same day at Rs 292 (weighted average) — a closed-out intraday position.

Crystallised loss = (Rs 300 − Rs 292) x 2,000 = Rs 16,000

Suppose the same client, in a different security, closed out an intraday position with a crystallised profit of Rs 6,000. The two are for the same client, so they are set off: net client-level crystallised position = Rs 10,000 loss.

If another client of the same broker had an intraday crystallised profit of Rs 25,000 on the same day, that profit is not netted against the first client's Rs 10,000 loss. The broker's ICMTM obligation is grossed up across clients, so the broker must still fund the first client's Rs 10,000 loss in real time, even though the firm as a whole is net positive across its two clients.

Chapter 4 (Risk Management, section 4.1.1.1) introduces ICMTM immediately after the end-of-day MTM rules, and it is the mechanism that closes the gap between an intraday round trip and the once-a-day MTM cycle. Expect a question distinguishing real-time ICMTM collection from end-of-day MTM collection, and the client-level set-off versus member-level gross-up rule.

• ICMTM applies only to trades opened and closed on the same day — an overnight position is covered by ordinary end-of-day MTM instead.
• Losses are set off against profits within the same client and settlement, never across clients, and never across settlement cycles (T+1 vs T+0).
• All client-level losses are grossed up at member level — one client's profit never reduces another client's loss for margin purposes.
• ICMTM is not levied on TFTS securities.
• Breaching free collateral through ICMTM triggers risk reduction mode, the same consequence as breaching the 90% collateral utilisation threshold elsewhere in the risk framework.