RISK MANAGEMENT AND SURVEILLANCE POLICY Padmakshi Financial Services Ltd. (PFSL) Introduction: We present below our revised Risk Management Policy, which is built, with a database that learns from our experience. Following, the string of recent financial disasters around the globe, regulators are now insisting on new regimes of compliance measures to make sure that risks are recognized and something is done about them. Risk Management is the answer and the policy below is the key to effective compliance and comprehensive management of risks. A number of professionals and User Groups have contributed towards the development of the practical methods for risk compliance, and internal audit processes and procedures that have been built into the current policy. This is a centrally designed and functional system for all the Franchisees and Branches which intelligently takes a decision based on various logic and parameters whether the company is exposed to Risk or not. In case it finds there is a risk it takes pre-defined actions To curtail/reduce the risk or take the company out of that Risk Zone Please refer the parameters below for Cash & Derivatives markets as mentioned below: Cash Segment Exposure: Exposure constitutes both a purchase and a sale. A sale involves a share delivery obligation to the Exchange and it remains an Exposure till the client delivers the shares. Exposure will mean the aggregate of the outstanding purchases and sales. Risk Management System is based on End of Day and not Real Time: Currently we are working on End of the day basis wherein the positions at the end of the day are taken into consideration and are valued at previous day’s closing prices. This leaves us exposed to current days volatility and hence to overcome the same we are aggressively working towards building a robust Real time Risk Management System on user defined business logic. Clients Exposure:   Offline Online Exposure 4 times 5 Times In offline Segment, the Exposure would be set on the basis of client profile which is made as per the DP holding and Margins with us. The Exposure in Offline Segment will be as under :- Base Capital (Rs. lakhs) Normal Market Limit (No. of times) Panic Market Limit (No. of times) 0-2 4 Times 2 Times 2-10 5 Times 2 Times 10-15 6 Times 3 Times Above 15 8 times 3 Times Base Capital constitutes of Margin Ledger Credit +/- Ledger + Collateral Stocks + Debit Stock + Today Payout + Future Payout – Shortages + DP Stocks ( All stocks are valued after VAR hair cut ) Exposure would be available on the basis of available Margins prior to RMS selling Day and there would not be any restriction for buying on the basis of Ageing Debit ( The debit is which is due more than 4 Days + High value Debit ( Any debit which is more than 3 Lakhs ) . In case the Exchange increases the Margin, PFSL can reduce the Exposure in that particular scrip as per the Exchange Margin requirement i.e. Say Exchange has increased the Margin in Scrip XYZ Ltd by 100%, PFSL may reduce the Exposure to half in XYZ Ltd. Apart from this scrip, client will be having Normal Exposure in total. Default Exposure Limits without Margins: Default limit will be set as under (Applicable only for Normal Market condition ) Franchisee Deposit Exposure 0-2 Lakhs Nil 2-3 Lakhs 10000- This limit will be given for all clients having debit unto Rs. 1000 3-5 Lakhs 25000- This limit will be given for all clients having debit unto Rs.. 5000 5+ 50000 - this limit will be given for all clients having debit unto Rs. 10000 In case the Franchisee Deposit goes below 1 Lakhs then Limits will be reduced to 50% as per the above slabs. Further , in case the Deposit goes negative the limit will be reduced to 1 time of POA (after Hair cut ) +/- Actual Ledger Balance. The deposit needs to be restored to normal with in 2 Months of Negative Deposit, in case of failure of the above, it will be done Cash and Carry. However RMS can decide suitable action subject to their discretion apart from the set parameters. Communication Even though the client has to be aware about his position and Risk, the Franchisee is also responsible to communicate to the client about his shortfalls. PFSL are under no legal obligation to send any formal communication but as a customer centric company we take those extra efforts generally to ensure that client is informed about the Risk and the actions, which may follow. The communication would generally be through Telephone / Email subject the to the correctness and availability of the data in the system Action from HO In case of Offline/Online Clients action will be taken on T+5 basis for the Ledger debit irrespective whether we are in Risk zone or not. For example, if the position has been taken on Monday then the selling will happen on Monday of the next week. However the following exception has been given in selling where in the selling would be done on T + 9 Days in case the POA DP value is more than or equal to 10 Lakhs and debit amount is less then or equal to 10% of actual DP value. This condition would not be applicable in PANIC Market Selling Further Client will be suspended from Trading on RMS selling day and suspension would be removed after selling. The selling confirmations will be made available on compliance software. The selling will be done for Ledger Due Debit. Exceptions Incase stock margin falls below 20% of the total ledger debit, sq. off can be done even before T+5 with prior information on compliance s/ w or during online surveillance Calls from HO. F & O Segment Margin: Derivative Segment is Margin driven segment. Margin will be collected under normal/panic conditions as per the requirement of the Exchange. i.e SPAN + Exposure Margin + Additional Margin ( if any made applicable by the Exchange ) For common limit in both Cash and Derivative segments based on actual ledger credit, cash credit will be updated for limits in derivatives also subject to the following conditions:- • Client should have traded in derivatives segment in last one year • Client should have PoA • Cash ledger amount will be credited in derivatives to the extent of PoA or cash ledger balance whichever is lower. If ledger credit required in cash segment then request needs to be placed online Combination of margins is acceptable in FNO Segment Typically as per exchange margin can be accepted in cash and shares equally. But as a Business call we have taken the following decisions   Offline Online Cash NOT MANDATORY NOT MANDATORY Shares Upto 100% after appropriate haircut Upto 100% after appropriate haircut Scrips acceptable as collateral Only liquid stocks are accepted F&O Margin which will be accepted after a haircut applicable as per Exchange Communication Though client has to be aware about his position and Risk, franchisee is responsible to communicate to its clients, PFSL are under no obligation legally to send any formal communication but as a customer centric company we do wish to take those extra efforts generally to ensure that client is informed about the Risk and the actions, which will follow. The communication would generally be through Compliance Software, SMS-Email. Subject To The Correctness And Availability Of Data In The System. Action From HO In case of Offline action will be taken on T+2 basis for the MTM debit / Margin Shortfall. In case of Online General Clients action will be taken on T+3 basis for the MTM debit / Margin Shortfall Selling sequence when HO takes action • First the primary Position in F&O Segment will be squared off towards margin shortage . In case of MTM debit, collateral will be sold first to clear the ledger debit and then to the extent of Margin shortage, the position will be sold. • Finally Cash Position both lying in debit stock and in DP Account with POA will be sold to clear the Debit. Process for clients who are in Risk due to market conditions Offline:When the Mark to Market reaches 80% of the deposit action can be taken even before the above stipulated datesOffline: When the Mark to Market reaches 80% of the deposit action can be taken even before the above stipulated dates Offline:Online: MTM is 85% of Deposit, position will be squared off • Those clients will be allowed to take exposure on span margin strictly for intraday only. Any particular day the client is unable to sq off intraday he will be only on sq off mode on T+1 day and will not be allowed to create fresh positions on T+1 day. F & O Market In case of F & O segment, all the far Month Option contracts and third Month Option Contract (Except Nifty ) will not have buy and sell limit due to its illiquid nature , however in all above cases if your client still wish to trade then you will need to speak to your RM in Mumbai or you may call to RMS to set the limit on a case to case basis.