The committee focused on ways of making operational the broad recommendations of the L C Gupta committee to fix the initial margin to cover at 99 per cent Value at Risk. Following are some of the major recommendations of the committee.

First, Sebi should only recommend the use of a particular Value at Risk estimation methodology, but should not mandate a specific minimum margin level. The derivatives exchange and clearing corporation would be authorised to fix the quantum of margin for index futures using this methodology. An exponential moving average method would be used to obtain the volatility estimate every day. The volatility at the end of a particular day is estimated using the previous day's volatility estimate and the returns observed in the futures market during the current day. However, for the first six months of trading (until the futures market stabilises with a reasonable level of trading), the initial margin shall not be less than 5 per cent.

Second, the margin on calendar spreads to be levied at a flat rate of 0.5 per cent per month of spread on the far month contract of the spread subject to a minimum margin of 1 per cent and a maximum margin of 3 per cent on the far side of the spread for spreads with legs up to 1 year apart.

Third, the clearing members liquid net worth must satisfy two conditions on a real time basis: Liquid net worth shall not be less than Rs 50 lakh at any point of time and the mark-to-market value of gross open positions at any point of time of all trades cleared through the clearing member shall not exceed 331/3 times the members' liquid networth.