Risk Management Policy

1. Introduction & Regulatory Framework

This document sets out the Risk Management Policy of Choice Equity Broking Private Limited (“CEBPL”), a member of NSE, BSE, MCX and NCDEX. It consolidates the principles, controls and operating rules through which CEBPL identifies, measures, monitors and mitigates the risks arising from its broking operations — client credit and margin risk, collateral risk, settlement risk, concentration risk, operational and technology risk, and the risk of fraud or market abuse.

The policy is framed under the SEBI (Stock Brokers) Regulations, 2026 (notified 07.01.2026) — including the obligation to maintain robust internal controls and risk management systems, to keep client funds and securities segregated and used only for permitted purposes, to execute client orders promptly in accordance with instructions, and to maintain an institutional mechanism for the prevention, detection and reporting of fraud or market abuse — read with the SEBI Master Circular for Stock Brokers dated 17.06.2025 and the circulars listed in the Document Control table. This version supersedes the policy reviewed by the Board on 22.04.2026 and reflects the regulatory position as at the date of Board approval.

2. Objective & Scope

The objective of this policy is to ensure that CEBPL’s exposure to its clients and to the market remains at all times within regulatory limits and within CEBPL’s own risk appetite; that margins are collected and reported as prescribed; that client assets are protected; and that trading, technology and operational risks are controlled. This policy applies to all clients, all segments of NSE, BSE, MCX and NCDEX in which CEBPL operates, all order-entry channels (dealer terminals, internet-based trading, mobile applications and APIs), and all products offered by CEBPL, and binds all RMS, dealing, operations, technology and compliance personnel.

3. Governance of the RMS Function

  • The Board owns this policy and reviews it at least annually. Day-to-day risk management is carried out by the RMS function, headed by Mr. Kamal Gupta (Deputy Vice President).
  • Matters requiring escalation — limit breaches, large or unusual exposures, repeated margin defaults, suspected fraud or market abuse — are escalated to the Compliance Officer, Mr. Prashant Salian, and, where material, to the Designated Directors, Mr. Sunil Bagaria and Mr. Vijay Kejriwal.
  • The RMS function operates independently of the sales and dealing functions; RMS parameters (limits, haircuts, square-off rules) are set and modified only under the authority of this policy, and overrides require documented approval at the level specified in the internal RMS matrix.
  • This policy operates alongside the institutional mechanism for the prevention and detection of fraud or market abuse maintained under the SEBI (Stock Brokers) Regulations, 2026, whose surveillance and escalation components are detailed in CEBPL’s Surveillance Policy and Whistle Blower Policy (Vigil Mechanism).

4. Client Onboarding, Limits & Exposure Setting

  • Trading limits are extended only to clients whose KYC is complete and current and whose Unique Client Code (UCC) is registered with the exchange, in accordance with CEBPL’s Client Onboarding Policy.
  • Exposure limits are set client-wise with reference to the client’s financial capability, margin placed, trading history and risk profile, and are reviewed periodically and on trigger events (margin defaults, surveillance alerts, cheque returns).
  • Exposure is permitted against upfront margin available with CEBPL in permitted forms. Exposure may also be granted against a cheque deposited but not yet cleared, for a period of up to 5 days from the date of the cheque, provided the cheque is not returned unpaid; if the cheque is returned, the exposure is withdrawn forthwith and positions taken against it may be squared off. No exposure is granted against expected receipts or third-party funds.
  • Accounts flagged inactive are re-activated only per the Policy on Treatment of Inactive / Dormant Client Accounts, with fresh due diligence before limits are restored, and pending GTT orders of an account are cancelled on the day the account becomes inactive, per the Policy on Handling of Good Till Triggered (GTT) Orders.

5. Margin Framework — General (All Segments)

  • Margins are accepted only in the permitted forms per the exchange guidelines on margin collection and reporting: (a) free credit balance in the client’s ledger; (b) a cheque received and deposited (counted as margin collected unless returned unpaid); (c) securities of the client provided by way of margin pledge / re-pledge only, valued at the closing price on T-1 day less a haircut not lower than the VaR margin rate of the security; and (d) early pay-in of funds or securities within the prescribed time.
  • Collateral composition requirements prescribed from time to time — including the requirement, under the framework, that at least 50 per cent of margin collateral be maintained in cash or cash equivalents at the applicable level — are enforced in client-level collateral acceptance across all segments and reported as prescribed.
  • Unpaid securities pledged in favour of CEBPL’s Client Unpaid Securities Pledgee Account (CUSPA) may be taken into account in reporting the collection of client margin to the Clearing Corporation; however, no exposure is granted to the client on the strength of such unpaid securities. The handling of unpaid securities is governed by Section 10.
  • CEBPL may levy margins over and above the exchange-prescribed margins, including additional margin on specified securities or categories of securities, as per the internal RMS matrix; such additional margins are applied uniformly within the affected category and reflected in the limits made available to clients.
  • Peak margin obligations are monitored against the intraday snapshots taken by the Clearing Corporations, and client-level margin availability is verified so that peak margin shortfalls do not arise.
  • Short-collection or non-collection of upfront margins attracts the penalty framework prescribed by the Clearing Corporations and is reported in the margin files as prescribed, in terms of the Guidelines on Margin Collection and Reporting (BSE Notice 20241001-48 dated 01.10.2024 and the corresponding NSE guidelines). Penalties levied by the Clearing Corporations on account of short / non-collection of upfront margins may be passed on to the client only in the circumstances specified in the said Guidelines, namely: (i) where a cheque issued by the client to CEBPL is dishonoured; and (ii) where there is an increase in margins on account of a change in hedge position by the client or the expiry of some leg(s) of the hedge positions of the client. In all other cases, the penalty is borne by CEBPL and is not passed on to the client. RMS accordingly ensures upfront margin availability before exposure is granted, monitors shortfall instances client-wise, and restricts the exposure of clients with repeated shortfalls. Penalties in respect of margins other than upfront margins are dealt with in accordance with the applicable exchange norms.

6. Margin Framework — Capital Market Segment

  • Margins (VaR + ELM and other applicable margins) are collected upfront from clients in respect of purchases and sales, except where early pay-in of funds or securities is made within the prescribed time.
  • Settlement follows the T+1 cycle (and any shorter settlement cycle adopted by the exchanges for specified securities); pay-in obligations are monitored client-wise on trade date and margins are restricted or positions reduced where pay-in risk is identified.

7. Margin Framework — Derivatives Segments

  • Initial margin (SPAN / CC-prescribed), ELM and all other applicable margins are collected upfront and reported as prescribed. In terms of the SEBI circular dated 01.10.2024, the net options premium payable by a buyer is also collected upfront at client level (effective 01.02.2025).
  • An additional ELM of 2 per cent applies on short options contracts on their expiry day (effective 20.11.2024), and the offsetting (calendar spread) benefit is not available on expiry day for contracts expiring that day (effective 01.02.2025); RMS factors both into client margin computation and expiry-day exposure control.
  • Position limits (client-level and trading-member-level, including MWPL for single-stock derivatives) are monitored on an ongoing basis; the exchanges monitor position limits intraday through a minimum of four random snapshots (effective 01.04.2025), and RMS maintains intraday monitoring so that client and proprietary positions remain within permissible limits at all times during the trading day.
  • For stock derivatives subject to physical settlement, RMS applies enhanced margins and position reduction in the run-up to expiry where the client’s ability to give or take delivery is not established.
  • In the commodity derivatives segments, tender-period and delivery-period margins, additional / special margins imposed by the exchanges, and option devolvement obligations are applied and monitored, and positions are reduced ahead of the tender period where delivery intent and capability are not confirmed. In terms of the SEBI circular dated 19.06.2026 (effective 21.09.2026), the early pay-in facility is available in respect of all commodity derivatives contracts, including options contracts, and is administered by the Clearing Corporations, which may, based on their risk perception, exempt the imposition of all types of margins on positions against which early pay-in has been made while continuing to collect mark-to-market margins; RMS gives effect to the resulting margin relief at client level.

8. Collateral Management

  • Securities collateral is accepted only by way of margin pledge / re-pledge created in the depository system in terms of the SEBI circular dated 25.02.2020, with haircuts at least equal to the applicable VaR margin; title-transfer collateral is not accepted.
  • In terms of SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/82 dated 03.06.2025 (effective 10.10.2025), on invocation of margin-pledged securities the invoked securities are blocked for early pay-in in the client’s demat account with the prescribed trail; where the client’s account is frozen or the code is not permitted to trade, invoked securities are transferred to CEBPL’s demat account, sold under the proprietary code and paid in on the same day as invocation; and the ‘pledge release for pay-in’ mechanism is used where a client sells pledged securities.
  • Third-party collateral is not accepted: securities and funds placed as margin must belong to the client, and collateral received from one client is never used for the obligations of another client or of CEBPL.
  • Collateral is valued daily at applicable haircuts; illiquid securities are not accepted as collateral; and concentration of collateral in a single scrip or group is monitored and may be capped by RMS.

9. Client Funds — Segregation, Upstreaming & Settlement

  • Client funds are kept segregated from CEBPL’s own funds in designated client bank accounts and are used only for the purposes permitted by SEBI; client funds are not used for CEBPL’s proprietary obligations, for other clients’ obligations, or for the creation of bank guarantees.
  • Client funds are up-streamed to the Clearing Corporations on a daily basis in the manner prescribed under the SEBI circulars dated 08.06.2023 and 12.12.2023 (as consolidated in the Master Circular), in cash or the other permitted forms.
  • Running accounts of client funds are settled on the first Friday (or the prescribed alternate day) of the applicable month / quarter per the client’s preference, and otherwise in the manner and within the timelines prescribed; funds are released to the client on demand within the prescribed period.
  • Dealings in cash with clients are not permitted; funds are accepted and paid only through banking channels from and to the client’s registered bank account, and third-party receipts and payments are refused, consistent with CEBPL’s Policy on Prevention of Money Laundering (AML / CFT) and the Pre-Funded Instrument Policy (Pre-funded Instruments and Electronic Fund Transfers).

10. Client Securities — Handling & Unpaid Securities

  • Securities received in pay-out are transferred to the client’s demat account within the prescribed time; client securities are never retained in CEBPL’s own accounts except through the accounts and mechanisms specifically permitted by SEBI.
  • Unpaid securities — framework: securities not fully paid for by the client in respect of trades not covered by the Margin Trading Facility are dealt with in terms of Paragraph 46 of the SEBI Master Circular for Stock Brokers as amended by SEBI Circular HO/38/11/(9)2026-MIRSD-POD/I/15382/2026 dated 03.07.2026 and the operational guidelines issued by the stock exchanges thereunder. This Section constitutes CEBPL’s policy on the handling of unpaid securities for the purposes of that circular, and is communicated to clients before implementation.
  • Pay-out and auto-pledge: the pay-out of unpaid securities is made directly to the client’s demat account, immediately followed by the creation of an auto-pledge, without any specific instruction from the client, marked with the reason “unpaid”, in favour of CEBPL’s Client Unpaid Securities Pledgee Account (CUSPA). On creation of the pledge, the client is informed by e-mail or SMS of the outstanding funds obligation and of CEBPL’s right to sell the pledged securities if the obligation is not met.
  • Payment period: the client is required to meet the funds obligation within the period specified in the internal RMS matrix, which shall not in any case exceed five trading days from the pay-out date.
  • Daily determination of maximum pledge value: while the funds obligation remains outstanding, RMS determines daily the maximum value of securities that may remain pledged, by reference to the client’s ledger balance, overall margin obligations and such other factors as the exchange operational guidelines specify. Where the value of pledged securities exceeds that maximum, the pledge on the excess quantity is released on or before the next trading day.
  • Invocation and disposal: where the client fails to meet the funds obligation within the prescribed period, CEBPL invokes the pledge and liquidates the unpaid securities after giving reasonable notice to the client. On invocation, the securities are blocked for early pay-in in the client’s demat account with the trail maintained in CEBPL’s CUSPA, the block details are verified by the depository against the client-level obligation, and the securities are sold in the market under the client’s own Unique Client Code. Any disposal is effected transparently, the contract / ledger effect is passed to the client, and any surplus remaining after settlement of the obligation is credited to the client’s ledger.
  • Auto-release: where a pledge on unpaid securities is neither invoked nor released within five trading days after the pay-out, the depository releases the pledge at the end of the sixth trading day after pay-out and the securities become available to the client as free balance without encumbrance. CEBPL may request release of the pledge at any time before such auto-release.
  • Extension in exceptional circumstances: where unpaid pledged securities cannot be liquidated within five trading days after pay-out on account of the security being in lower circuit with only sellers, suspension or halt of trading, or any other valid reason recognised by the Market Infrastructure Institutions, including unforeseen circumstances beyond CEBPL’s control, an extension of the pledge is sought by 6.00 p.m. on the fifth trading day after pay-out, for a period of up to one additional calendar week. Further extensions of similar duration may be sought while the qualifying circumstances persist, and no extension is sought once they cease. A fresh communication is sent to the client on each extension. Failure to request an extension within the stipulated time results in automatic system-based release of the pledged securities.
  • Restriction on further pledge: securities pledged in favour of CEBPL’s CUSPA are not further pledged or transferred to banks or non-banking financial companies for raising funds.
  • DDPI / PoA accounts: where the client has furnished a Demat Debit and Pledge Instruction (DDPI) / Power of Attorney in respect of the demat account, unpaid securities are not held through CUSPA and may be released to the client’s own demat account at the discretion of CEBPL, having regard to the outstanding dues and the risk assessment of the client.
  • Commencement: the provisions of this Section giving effect to the circular dated 03.07.2026 take effect in accordance with the timelines prescribed thereunder, the auto-pledge, policy, invocation and related provisions applying three months from the issue of the stock exchanges’ operational guidelines and the extension provisions applying from 03.01.2027; until the respective commencement dates, the corresponding provisions of the previously applicable framework continue to apply.
  • Client securities are never used to meet proprietary obligations or the obligations of any other client, and Depository Participant operations follow maker-checker controls with user rights administered per the Consolidated Internal Control Policy framework.

11. Debit Balances, Margin Calls & Square-Off

  • Margin shortfalls — including shortfalls arising from mark-to-market (MTM) losses — and ledger debits give rise to a margin call communicated to the client on the registered mobile number and/or e-mail ID, stating the amount and the time by which it must be made good; square-off for margin calls or shortfalls under this Section accordingly extends to shortfalls on account of MTM losses.
  • Where a shortfall or debit continues unremedied, RMS restricts fresh exposure and may square off positions and/or dispose of collateral / unpaid securities to the extent required, after reasonable notice, per this policy and the applicable product terms; for positions funded under the Margin Trading Facility, the liquidation timelines in the Policy on Margin Trading Facility (MTF) apply.
  • In conditions of severe market volatility or rapid erosion in collateral value (including erosion on account of mark-to-market losses on open positions), RMS may effect risk-reduction (including square-off of positions and disposal of collateral) with such shorter notice as is reasonable in the circumstances and, where the time available does not permit prior communication, without prior communication to the client — in exercise of the right to close out positions and sell securities for non-payment of dues disclosed in the Policies and Procedures document accepted by the client in terms of SEBI Circular MIRSD/SE/Cir-19/2009 dated 03.08.2009. The client is intimated promptly after any such action, and all such actions are documented and reported to the Compliance Officer.
  • Ageing of debit balances is monitored daily and reported in the RMS MIS. Where an ageing debit (other than a debit arising under the Margin Trading Facility) is not cleared within T+5 days, the client’s positions and/or collateral may be squared off to the extent of the debit on T+6 day, after intimation to the client; recovery action and, where warranted, restriction or closure of the account follow the internal matrix.

12. Order Management & Pre-Trade Controls

  • All order-entry channels are subject to pre-trade controls: client-level margin availability checks, order price reasonability against applicable price bands (including dynamic price bands), order quantity and value limits, and restrictions on scrips placed under exchange surveillance frameworks.
  • Orders in securities under Graded Surveillance Measure (GSM), Additional Surveillance Measure (ASM) and other exchange surveillance lists, and in illiquid securities, are subject to the enhanced margins, restrictions or blocks set out in CEBPL’s Surveillance Policy.
  • Internet-based trading and wireless platforms enforce two-factor authentication at login; dealer terminals are mapped to authorised users; and terminal / CTCL details are reported to the exchanges as prescribed.
  • Order-level rejection occurs automatically where margin is insufficient, where the order breaches a limit, or where the scrip is blocked; kill-switch and emergency risk-reduction capabilities are maintained and tested.
  • Market orders placed by clients may be converted into limit orders as per the internal RMS matrix — for instance, in illiquid securities or securities with wide bid-ask spreads — to protect clients and CEBPL against aberrant execution prices; the conversion parameters are applied uniformly and disclosed on the trading platform.
  • Client instructions are executed promptly and in accordance with the client’s instructions, and clients are kept informed of execution status, per the execution obligations under the SEBI (Stock Brokers) Regulations, 2026.

13. Intraday Products & Leverage

Intraday products are offered only within the peak margin framework — no leverage is extended beyond what the prescribed upfront margins permit. Auto square-off of intraday positions not closed or converted by the client is effected as follows: (a) 15 minutes before the market / contract closing time in the respective segment; (b) in the equity capital market, where a closing auction session is in operation, 10 minutes before the start of the closing auction session; and (c) in the equity derivatives segment, where a closing auction session is in operation, 10 minutes before the market closing time — in each case subject to market conditions. These timings are disclosed to clients in advance. Any conversion of an intraday position to delivery is permitted only where the requisite margin / funds are available.

14. Algorithmic Trading & API Access

  • API-based and algorithmic trading by clients is permitted only under the framework of the SEBI circular dated 04.02.2025 and the implementing exchange standards (phased from 01.08.2025, with full compliance for API-based strategies by 01.04.2026): algos are registered with the exchange with unique identifiers, orders above the prescribed rate are treated as algo orders, and CEBPL remains the principal responsible for all orders emanating from its APIs.
  • API access is granted only with the prescribed authentication (including two-factor authentication and static IP whitelisting where applicable); unregistered or unidentified algo activity is blocked and reported; and agreements with empanelled algo providers follow the exchange-prescribed terms.
  • RMS monitors algo / API order flows for runaway behaviour, order-to-trade ratios and limit breaches, and maintains the ability to disable an API session or algo immediately.

15. Technology Risk, Technical Glitches & Business Continuity

  • CEBPL maintains the capacity, monitoring and governance requirements of the SEBI framework on technical glitches in stock brokers’ electronic trading systems effective 09.01.2026 (superseding the earlier 2022 framework), including capacity planning with adequate headroom over observed peak load, real-time monitoring and alerting of critical systems, and software-change and testing discipline.
  • Technical glitches are reported to the exchanges within the prescribed timelines, followed by root cause analysis and corrective action within the prescribed periods; recurring or material incidents are escalated to senior management and the Board.
  • Business continuity and disaster recovery arrangements, with defined recovery time and recovery point objectives — including seamless switching between the primary and alternate sites — are maintained and tested through periodic drills, so that clients retain access to trading and risk-reduction facilities during any disruption of CEBPL’s systems. The Investor Risk Reduction Access (IRRA) platform stands discontinued with effect from 07.05.2026 in terms of the SEBI circular of that date; the Contingency Pool Trading facility of the exchanges continues to be available as the alternative mechanism during a disruption, and CEBPL follows and publicises the arrangements prescribed by the exchanges in that regard.

16. Voluntary Freezing / Blocking of Online Access

The facility for clients to voluntarily freeze / block online access to their trading accounts, and the associated timelines and re-enablement due diligence, form part of this risk management framework and are governed by CEBPL’s Policy on Voluntary Freezing / Blocking of Online Access of Trading Accounts by Clients.

17. Extreme Market Events

On the triggering of market-wide circuit breakers, exchange-imposed trading halts, or events of extreme volatility, RMS may raise margins, reduce or withdraw limits, restrict fresh exposure in affected securities or segments, and effect risk-reduction in accordance with this policy. Material actions taken under this Section are communicated to affected clients as soon as practicable and reported to the Compliance Officer and senior management.

18. Records, MIS & Reporting

  • Margin collection and short-collection reporting, client funds and securities submissions, and all other periodic risk-related submissions are made to the exchanges within the prescribed timelines and formats.
  • RMS maintains records of limits set, margin calls made, square-offs effected, penalty recoveries, incidents and escalations; records are retained for the periods prescribed under the SEBI (Stock Brokers) Regulations, 2026.
  • A monthly RMS MIS — covering exposure, concentration, margin shortfalls, ageing debits, square-offs, penalties, algo / API incidents and technology events — is placed before senior management, and a consolidated risk report is placed before the Board at least annually.

19. Related Policies

This policy is read together with, and is supplemented by, CEBPL’s Internal Control Policy (Broking Operations and Research Analyst Functions), Surveillance Policy, Policy on Margin Trading Facility (MTF), Policy on Handling of Good Till Triggered (GTT) Orders, Policy on Voluntary Freezing / Blocking of Online Access of Trading Accounts by Clients, Policy on Treatment of Inactive / Dormant Client Accounts, Policy on Prevention of Money Laundering (AML / CFT), Pre-Funded Instrument Policy (Pre-funded Instruments and Electronic Fund Transfers), Error Account Policy / Client Code Modification Policy and Investor Grievance Policy. Where a specific product or process policy prescribes a stricter or more specific control, that control prevails for that product or process.

20. Review & Amendment

This policy shall be reviewed at least annually, and additionally whenever SEBI or the exchanges issue an updated circular or guidance affecting risk management. Risk Management and Compliance are jointly responsible for keeping this policy current and for placing material changes before the Board for approval. Where a regulatory provision prescribes a stricter requirement than this policy, the regulatory provision prevails.