Intraday Margin Call After a Nine Percent Gap
A clearing member holds a client's short position of 200 energy futures lots. Each lot has a contract value of PKR 1.2 million at the current price, so notional is PKR 240 million. Initial margin is 10% and maintenance is 7.5%. The client has deposited PKR 26 million cash. At 11:20 the contract price gaps up 9% against the short. The member's risk system shows a loss of PKR 21.6 million and equity of PKR 4.4 million. The client emails that a wire will arrive 'tomorrow morning' and asks the member not to close because 'the market will come back.' The exchange's intraday margin call must be met by 13:00; failure allows the member to close positions. The member's policy says close enough to restore equity above initial margin, not necessarily the whole position.
1. Assess the client's margin status, the deadline and whether the client's request can be accommodated.
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The 9% adverse move on PKR 240 million notional produces a loss of PKR 21.6 million. Equity is PKR 26 million minus PKR 21.6 million, or PKR 4.4 million. Maintenance margin is 7.5% of PKR 240 million, or PKR 18 million; initial margin is 10%, or PKR 24 million. The account is therefore below maintenance and far below initial margin, with a shortfall to initial margin of PKR 19.6 million. The member must issue an intraday call immediately and state the 13:00 deadline. The client's request to wait until tomorrow does not extend the exchange deadline or the member's risk controls. The member should not accept new orders, should monitor the position continuously, and should document the call, the client's response and the risk calculation. If funds are not received by 13:00, the member must act under its policy and exchange rules.
2. What should the member do at 13:00 if no funds arrive, and how does a partial PKR 10 million wire change the calculation?
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With no funds, equity remains PKR 4.4 million. To restore equity above initial margin, remaining lots can carry at most PKR 4.4 million / PKR 120,000 initial margin per lot, or 36 lots. The member must close at least 164 lots, using an orderly execution process and documenting best execution. If PKR 10 million arrives by 13:00, equity becomes PKR 14.4 million. Remaining lots can be at most PKR 14.4 million / PKR 120,000, or 120 lots, so the member must close at least 80 lots. The member should not close the entire position automatically if the policy requires only enough to restore initial margin, but it must consider execution risk and further adverse moves. It should notify the client of the closes, record the calculations, and escalate any operational or reporting obligation under exchange rules.