RISK MANAGEMENT POLICY

Sapphire Broking ("Sapphire") is committed to providing a secure and reliable trading environment for its clients. This Risk Management Policy outlines the principles, procedures, and measures implemented by Sapphire to identify, assess, monitor, and mitigate various risks associated with securities trading.

The objective of this policy is to:

• Protect the interests of clients and stakeholders
• Ensure compliance with regulatory requirements
• Maintain market integrity
• Minimize operational, financial, and systemic risks
• Establish a framework for consistent risk management practices

This policy applies to all trading activities facilitated by Sapphire across various segments including Equity, Futures & Options, Currency Derivatives, and Commodity Derivatives.

Sapphire adheres to the rules, regulations, circulars, and guidelines prescribed by:

• Securities and Exchange Board of India (SEBI)
• National Stock Exchange of India Limited (NSE)
• BSE Limited (BSE)
• Multi Commodity Exchange of India Limited (MCX)
• National Commodity & Derivatives Exchange Limited (NCDEX)
• Insurance Regulatory and Development Authority of India (IRDAI)
• Other regulatory authorities as applicable

Sapphire's risk management practices are aligned with the regulatory framework and are reviewed periodically to incorporate any regulatory changes.

3.1 Initial Margin Requirements

Sapphire collects margins from clients as stipulated by the respective exchanges and regulatory authorities. These include:

• Value at Risk (VaR) Margin
• Extreme Loss Margin (ELM)
• SPAN Margin
• Exposure Margin
• Additional Margins as specified by the exchanges from time to time

3.2 Margin Collection Process

• Margins are collected upfront from clients before order execution.
• Margins can be provided in the form of cash, approved securities (with appropriate haircuts), bank guarantees, or fixed deposit receipts.
• The value of non-cash collateral is subject to haircuts as prescribed by the exchanges.
• For F&O and Currency segments, the full SPAN margin is collected upfront before executing any trade.

3.3 Margin Monitoring

• Client margins are monitored on a real-time basis.
• Automated systems generate alerts when client margins approach predefined thresholds.
• Clients are notified through SMS, email, or other communication channels when additional margin is required.

3.4 Exposure Limits

Sapphire defines exposure limits for clients based on:

• Available margin (cash and collateral)
• Trading history and pattern
• Financial capability
• Risk profile

The exposure limits may vary across market segments and products based on their volatility and liquidity.

4.1 Client Level Position Limits

Sapphire enforces position limits for clients as mandated by the exchanges and regulatory authorities for various segments:

• Market-wide position limits for F&O contracts
• Client-level position limits for currency derivatives
• Open interest limits for commodity derivatives
• Concentration margins for significant positions

4.2 Monitoring of Position Limits

• Positions are monitored on an intraday and end-of-day basis.
• Automated systems generate alerts when client positions approach the prescribed limits.
• Clients are required to reduce their positions if they exceed the permissible limits.

5.1 Risk-Based Surveillance

Sapphire has implemented a comprehensive surveillance system to monitor:

• Unusual trading patterns
• Concentrated positions
• Price manipulation attempts
• Unauthorized trading activities
• Other suspicious transactions

5.2 Price Range Checks

• Orders that fall outside the daily price range or circuit limits set by the exchanges are rejected.
• Orders with abnormal price deviations from the last traded price may be reviewed before processing.

5.3 Order Value Checks

• Maximum order value limits are set for clients based on their trading history and risk profile.
• Orders exceeding these limits require additional authorization.

5.4 Order Quantity Checks

• Maximum order quantity limits are defined for various securities and derivatives contracts.
• Orders with quantities exceeding these limits may be rejected or require additional verification.

5.5 Trade Execution Confirmation

• Trade execution confirmations are sent to clients through SMS, email, or other communication channels.
• Clients can access their trade details through the Sapphire Terminal and other platforms.

6.1 Derivatives Risk Assessment

Enhanced risk assessment procedures are implemented for derivatives trading. Client suitability for derivatives trading is evaluated based on:

• Financial capability
• Trading experience
• Risk appetite
• Investment objectives

6.2 Stress Testing

• Sapphire conducts regular stress tests to assess the impact of extreme market conditions on client portfolios.
• Margin requirements may be increased based on the results of stress tests.

6.3 Option Risk Management

• Additional margin requirements may be imposed for option writing positions.
• Limits on the number of option contracts that can be written by a client may be enforced.
• Monitoring of deep out-of-the-money options and illiquid options.

7.1 Margin Shortfall

In case of margin shortfall:

• Clients are notified and given a reasonable time to fulfill the margin requirement.
• If the margin shortfall is not addressed within the specified timeframe, Sapphire reserves the right to liquidate client positions to the extent necessary to cover the shortfall.
• Liquidation will be carried out in accordance with the regulatory guidelines and client agreements.

7.2 Liquidation Priority

The liquidation of positions follows a predetermined priority to minimize client losses:

• Positions with the highest losses or margin requirements
• Illiquid positions
• Positions in the most liquid contracts or securities

7.3 Auto Square-Off

Sapphire may implement auto square-off of client positions in the following scenarios:

• Failure to meet margin calls
• Technical issues preventing regular margin calls
• Extreme market volatility
• Regulatory directives
• Any other circumstances deemed necessary to protect client and firm interests

7.4 Auction and Close-Out

• In case of delivery defaults, positions may be subject to auction or close-out as per exchange rules.
• Any financial implications arising from auction or close-out will be borne by the defaulting client.

8.1 System Security Measures

• Multi-factor authentication for logging into trading platforms
• Encryption of sensitive data
• Regular security audits and penetration testing
• Firewall protection and intrusion detection systems

8.2 System Capacity and Reliability

• Regular assessment of system capacity to handle peak volumes
• Implementation of redundancy measures to ensure continuous service
• Backup systems and disaster recovery procedures

8.3 Order Validation Checks

• Order value limits
• Order quantity limits
• Price range validation
• Order type restrictions based on market conditions

9.1 Client Risk Profiling

Clients are categorized based on various risk parameters:

• Trading pattern and volume
• Financial strength
• Default history
• Compliance with margin requirements
• Segment-wise exposure

9.2 High-Risk Client Monitoring

• Enhanced due diligence for high-risk clients
• Higher margin requirements
• Reduced exposure limits
• More frequent monitoring of positions

9.3 Suspicious Transaction Monitoring

• Monitoring of unusual trading patterns
• Identification of potential market abuse
• Reporting of suspicious transactions to regulatory authorities

10.1 Volatility Assessment

• Continuous monitoring of market volatility
• Adjustment of margin requirements during high volatility periods
• Implementation of additional risk controls during extreme market conditions

10.2 Concentration Risk Management

• Monitoring of concentrated positions in specific securities or derivatives
• Implementation of concentration margins for significant positions
• Diversification requirements for large portfolios

10.3 Liquidity Risk Management

• Assessment of liquidity in different market segments
• Restricted exposure to illiquid securities
• Increased margins for illiquid positions

11.1 System Risk Management

• Implementation of robust trading and back-office systems
• Regular system audits and upgrades
• Disaster recovery and business continuity plans
• Periodic testing of backup systems

11.2 Process Risk Management

• Documented and standardized operating procedures
• Segregation of duties to prevent conflicts of interest
• Regular training of staff on risk management procedures
• Internal control mechanisms and audit trails

11.3 Human Error Risk Management

• Automated validation checks to minimize manual errors
• Four-eye principle for critical operations
• Regular training and awareness programs for staff
• Performance monitoring and feedback mechanisms

12.1 Client Reporting

• Regular margin statements to clients
• Position and risk reports
• Alerts for margin shortfalls and position limits
• Trade confirmation and contract notes

12.2 Regulatory Reporting

• Compliance with all regulatory reporting requirements
• Timely submission of reports to exchanges and regulators
• Maintenance of records as prescribed by regulatory authorities

12.3 Internal Reporting

• Daily risk reports to management
• Periodic review of risk parameters and controls
• Exception reports for unusual transactions or breaches

13.1 Periodic Review

This Risk Management Policy shall be reviewed at least annually to ensure its effectiveness and relevance.

13.2 Regulatory Updates

The policy shall be updated promptly to incorporate any changes in regulatory requirements or industry best practices.

13.3 Approval Process

Any modifications to this policy shall be approved by the designated authority within Sapphire.

14.1 Risk Disclosure

• Comprehensive risk disclosure documents provided to clients
• Clear communication of margin requirements and liquidation procedures
• Regular updates on changes in risk management practices

14.2 Client Education

• Educational materials on risk management principles
• Webinars and seminars on prudent trading practices
• Tools and resources for understanding market risks

15.1 Client Grievances

• Established procedures for addressing client grievances related to risk management actions
• Transparency in communication regarding risk-based decisions
• Timely resolution of client complaints

15.2 Internal Escalation

• Clear escalation matrix for risk-related decisions
• Documentation of rationale for risk management actions
• Review of disputed actions by senior management

This Risk Management Policy aims to establish a robust framework for identifying, assessing, and mitigating risks associated with securities trading. By implementing these measures, Sapphire strives to provide a secure trading environment for its clients while maintaining compliance with regulatory requirements.

Sapphire reserves the right to modify this policy as deemed necessary to address emerging risks, regulatory changes, or business requirements. Clients are encouraged to review this policy periodically and contact Sapphire for any clarifications.

For any queries regarding this Risk Management Policy, please contact:

• Sapphire Broking
• Email: risk@sapphirebroking.com
• Phone: [Risk Management Department Contact Number]