Portfolio Margin
Margin on a portfolio should reflect what the portfolio can lose, not the sum of what each leg could lose alone. In India that principle lives in SPAN and in NSE Clearing’s cross-margining rules.
In short: Portfolio margin means charging margin on the net risk of a set of positions instead of on each position separately. In Indian equity derivatives this happens in two places: inside SPAN, which scans all positions in one underlying together and so gives spreads and hedges a lower margin, and through NSE Clearing’s cross-margining facility, which recognises offsets between index futures and a basket of constituent stock futures or cash holdings, and between correlated indices. Options do not qualify for cross-margining, and a spread margin is retained on the offset.
The intuition
Hold one lot of NIFTY futures long and the full replicating basket of its constituent stocks short, and the combined position barely moves when the market moves. Charging full margin on both sides would tie up capital against a risk that does not exist. Portfolio margining recognises the offset and charges margin on what remains: the tracking difference, the basis, and the risk that the two legs are closed at different times. The clearing corporation keeps a slice of the saving, called the spread margin, to cover those residual risks.
The same idea applies inside a single underlying. A short call hedged by a long call at a higher strike has a known maximum loss, and SPAN charges roughly that maximum rather than the naked-call margin, because it scans both legs together.
What qualifies in India
NSE Clearing’s cross-margining facility, built on SEBI’s December 2008 framework and later extensions, recognises these offsetting positions:
- Index futures against futures in the constituent stocks, where the stock basket completely replicates the index in the units NSE Clearing publishes.
- Index futures against cash-segment holdings of the constituent basket.
- Stock futures against cash-segment holdings of the same stock.
- Futures on correlated equity indices, under the correlation conditions SEBI specified in 2019.
Under the 2008 rules the offsetting futures had to share an expiry month. SEBI’s April 2024 circular extended the benefit to offsetting positions with different expiry dates, with a higher spread margin for those pairs. Positions in option contracts are not eligible, and a position is counted only once for an offset.
Formula
Cross-margin benefit = margin on the total portfolio − margin on the portfolio excluding the offsetting positions − spread margin
NSE Clearing’s page states the spread margin as 25% of the applicable upfront margin on the offsetting positions, or such other rate as it specifies; a January 2025 circular on index-future pairs quoted 30% for same-expiry offsets and a higher rate otherwise. The exact rate in force is in the clearing corporation’s current circulars.
Worked example (illustrative margin rates)
Suppose NIFTY is at 24,000, a trader is long one lot (65 units) of NIFTY futures and holds the full replicating basket of constituent shares short through stock futures of the same expiry. Suppose the upfront margin is 12% on the index future and averages 18% on the stock futures.
| Leg | Contract value | Stand-alone margin |
|---|---|---|
| Long NIFTY futures, 1 lot | ₹15,60,000 | ₹1,87,200 |
| Short constituent basket (stock futures) | about ₹15,60,000 | about ₹2,80,800 |
| Sum without offset | ₹4,68,000 | |
| Spread margin retained at 25% | ₹1,17,000 | |
| Margin after cross-margining | ₹1,17,000 |
The benefit here is ₹3,51,000, three quarters of the stand-alone total. If the trader had hedged with NIFTY options instead of stock futures, there would be no cross-margin benefit, although SPAN would still give an offset within the NIFTY underlying for a futures-plus-option combination.
Why it matters
- Capital efficiency for arbitrage and hedged books. Index arbitrage, basket hedging and stock-versus-futures positions are only viable at scale because the offset is recognised.
- It shapes which hedge you choose. A futures hedge against a basket earns cross-margin benefit; an option hedge earns only the SPAN offset within the same underlying, and nothing across underlyings.
- Basket completeness is strict. A partial basket earns no cross-margin benefit at all; the published unit counts must be matched.
- The benefit is withdrawn when one leg goes. Close the stock leg and the index future is margined in full from the next computation, which can produce a shortfall if the account was sized to the offset.
Common mistakes
- Expecting cross-margin benefit on option spreads or on options against futures; options are outside the facility, although SPAN handles them within one underlying.
- Expecting an offset between NIFTY and BANKNIFTY positions. Only correlated index pairs that meet SEBI’s criteria qualify, and the facility must be offered by the clearing corporation for that pair.
- Confusing portfolio margin with the US-style risk-based margin for retail accounts. In India the retail benefit comes through SPAN offsets and broker margin calculators, not through a separate account type.
- Assuming the spread margin is negligible. At 25% or 30% of the upfront margin on the offsetting positions it is still a meaningful block of capital.
Indian specifics
The facility was introduced by SEBI in December 2008 for the equity cash and derivatives segments, extended to exchange-traded funds in 2013, to correlated indices in November 2019 and to different-expiry offsets in April 2024; NSE introduced its cross-margining facility for correlated indices in January 2020. In commodities, SEBI’s June 2021 circular allows a 75% cross-margin benefit between commodity index futures and their constituent futures. Brokers apply the benefit at client level only when they have registered the client for cross-margining with the clearing corporation, so the saving does not appear automatically in every account.
FAQ
What is portfolio margin?
Margin on the net risk of a set of positions. In India: SPAN offsets within one underlying, and cross-margining between index futures and constituent stocks.
Do options get cross-margin benefit in India?
No, options are excluded from cross-margining; they only get SPAN offsets within the same underlying.
How much margin benefit does cross-margining give?
The saving from netting, less a spread margin of about 25% of the upfront margin on the offsetting positions (higher for different expiries).
Can I offset Nifty futures against Bank Nifty futures?
Only for index pairs the clearing corporation has approved under SEBI's correlation criteria; not automatically.
Does the stock basket have to match the index exactly?
Yes, the basket must fully replicate the index in the published unit counts.
Build the hedge, then check the net Greeks
TradePulse Positions totals the net delta and theta across your legs so you can see what risk actually remains after an offset.
Related terms
- SPAN margin, where single-underlying offsets come from
- Exposure margin, not reduced by offsets
- Basis, the residual risk on a futures-cash offset
- Futures contract, the eligible instrument
- Delta neutral, net exposure after hedging
- Initial margin, what is blocked at order time