These are risk management measures by stock exchanges to protect investors and the market from excessive losses.

Value at Risk (VaR):

VaR is a statistical measure that estimates the potential loss in value of a portfolio over a specific period under normal market conditions. It is calculated using historical data and statistical models. It helps investors and brokers assess potential risks and set appropriate margin requirements.

Extreme Loss Margin (ELM):

ELM is an additional margin charged by exchanges in case of extreme market events exceeding the predictions of VaR (like crashes or black swan events).

A fixed percentage is charged on open positions in addition to VaR margin. This provides the exchange a buffer against unforeseen losses and protects the system from cascading failures in case of extreme market turmoil.

Adhoc Margins:

It is additional margins imposed by exchanges at their discretion on specific securities or market participants during periods of high volatility or perceived risk.

It varies depending on the situation but could be a percentage increase on existing margins or restrictions on new positions.

Adhoc margins mitigate risks arising from specific events or concerns (e.g., sudden spike in volatility of a particular stock).

Important:

• The three margins (VaR, ELM, Adhoc) are collected upfront from trading participants in the F&O segment, ensuring they have sufficient funds to cover potential losses.
• They complement each other, providing layered protection against different levels of risk.
• VaR and ELM are calculated and applied automatically, while Adhoc margins are imposed based on the exchange’s assessment.