4 Clearing and Settlement

7/27/2019 4 Clearing and Settlement

1/57


2/57


3/57

1. Wh at depo s i t s do es a mem ber have to k eep with the exchange and what exposure the m emb er wi l l ge t aga ins t i t?


4/57

Security Deposit is given in two stages.Initial Security Deposit Its given at the initial

stage which is revised from time to time when themembership is taken and is considered for givingthe exposure to the members.

Rs. 15 lakhs for Trading cum Clearing Member (non deposit based) and Rs. 50 lakhs for Trading cum Clearing Member (deposit based), Professional Clearing Member andInstitutional Trading cum Clearing Member that is available towards exposure limit.

Lock in period of 3 years.

Additional Security Deposit Member gives additional security deposit for

the want of additional exposure.


5/57

If the member maintains Rs. 50.00 lakhs in cashand gives an undertaking for the same, then hecan give the BG and/or FDR of any amount, i.e.1 : 3 ratio is not required to be maintained.

Shares of the approved companies and/or thewarehouse receipts of approved commodities

are accepted as collaterals for additionalmargins. For maximum valuation and haircuts, refer circular MCX/258/2005, MCX/319/2005,MCX/006/2006 and MCX/046/2006 or any other circulars issued subsequently in this regards.

Forms of additional deposit: Bank Guarantee

The bank guarantee instrument should be for a


6/57

minimum period of 1 (one) year and amaximum period of 3 (three) years excludingclaim period of minimum 45 days.

The bank on behalf of the member must issuethe bank guarantee.

The processing of bank guarantee instruments,its validation and upload in to the system willtake at least 3 working days.

Fixed Deposit Receipts

Members may submit fixed deposit receipt (FDR)issued by the approved banks for the purpose of Additional deposit. The FDR should be


7/57

accompanied by the bank lien andmembers lien letter.

The processing of fixed deposit instruments, its validation and upload inthe system will take at least 3 (three)working days and therefore, the memberswill be entitled to get additional exposurelimit at least after 3 (three) working daysfrom receipt thereof by the Exchange, If

required.


8/57

2. What are the typ es of m argins? Wh at i s the

com putat ion m ethodology fo r it ?


9/57

Different types of margins collected by theExchange are as follows:Ordinary (Initial) Margin:

Ordinary margin requirement is calculated byapplying the margin percentage applicable for a contract on the value of the open position of a member in that contract. If a member has net

position in various contracts of the samecommodity running concurrently, he is requiredto pay margin separately on each of thesecontracts at client level. Similarly, if a member has open position in various commodities, the

total amount required is calculated as sum totalof margin required in respective of eachcommodities and


10/57

contracts separately. The computationmethodology in respect of ordinary margin is asfollows: -

Intra day During the trading session, themargin is calculated on the absolute differencebetween total sales in value terms and totalbuy in value terms in respect of all transactionsexecuted in a contract during the day at client level, in addition to previous days open

position carried forward at the closing price of previous day.

End of day At end of the trading session, themargin amount is computed at client level onnet position in a contract in quantitative terms

multiplied by the official closing price.


11/57

3. How do I settle my trades?


12/57

Each Trading day shall be a settlement day unless it is declared otherwise specifically by the Exchangeby way of notification.

All transactions in contracts permitted on theExchange shall be subject to marking to market and settlement through the clearinghouse, at intervals as specified. The Exchange shall have the

right to effect marking to market and settlementsthrough the clearing house more than once duringthe course of a working day if deemed fit onaccount of the market risk and other parameters.

Member can settle his position by taking theopposite position. Settlement of differences due onoutstanding transactions shall be made


13/57

by clearing members through the clearing banks.There shall be a daily settlement price in respect of each future contract.

Positions can be settled either by way of closing it out at daily settlement price on each day and duedate rate on expiry of contract and/or by way of

delivery.

The settlement procedures can be briefed as Settlement on MCX takes place on a T+1 basis i.e.

Daily settlement or daily Mark to Market Settlement


14/57

There are two types of settlements on MCX. Marking open position of the member to the

daily settlement (close) price for mark to market settlement.

Delivery settlement is effected only whendelivery is given or taken during contract maturity month and closing out of residual open

position at DDR depending on the deliveryoption.


15/57

4. What is the settlement period?


16/57

Settlement period is the cycle, whichincludes trade Execution to settlement of that trade. Daily Settlement includes tradesdone on that day and are settled by way of MTM profit or loss on the next working dayi.e. on T+1 basis.


17/57

5. What is the settlement guarantee fund?


18/57

The Exchange maintains the Settlement Guarantee Fund. Whenever a clearingmember fails to meet his settlement obligations to the Exchange arising out of the transactions, as may be provided in the

Bye-Lays and Regulations from time to time,or whenever a clearing member is declareda defaulter, the Exchange may utilize the

settlement Guarantee to fulfill the

obligations.


19/57

6. What is Marked-To-Market (MTM) Settlement?


20/57

MTM Settlement means that any notionaland/or booked losses or profits of themembers based on outstanding position at the end of a trading day and loss / gain on T + 1 day is either debited or credited toMembers settlement account. Notional gain

/ loss on open positions, at the end of thetrading day, are computed with reference tothe closing price of the said contract withthe traded price of the contract.


21/57

7. What are special margins?When are they levied?


22/57

Special Margin: - In case the price fluctuation in a contract during

the trading session is more than 50% of the circuit filter limit applicable on that contract comparedto the base price of the day, a special marginequivalent to 50% of the circuit filter limit or as

specified by the Exchange is applied. Such special margin amount is immediately reflected inutilized margin of the members having

outstanding position in that contract and in casethe available margin of a member is not sufficient to cover such special margin required, then amargin call is sent to the member which is

required to be remitted by the member immediately. In such case, since the availabledeposit is already exhausted, he is put in squareoff mode and the same continues during suchtrading session till collection of required margin


23/57

amount is completed or member squares off his position.

Tender Period/Delivery Period Margin: - When a

contract enters into tender period/delivery periodtowards the end of its life cycle, tender periodmargin is imposed. Tender margin is levied asdefined in the contract specification and isapplicable on both outstanding buy and sell

position, which continues up to the marking of delivery obligation or expiry of the contract,whichever is earlier. The delivery period margin islevied on the marked quantity and is calculatedat the rate specified for respective commoditymultiplied by the marked quantity at the expiring

contract. When a seller submits deliverydocuments along with surveyors certificate, his position is


24/57

treated as settled considering early pay-in andhis tender period/delivery period margin to such

extent is reduced. When a buyer pays money for the delivery allocated to him, his delivery periodmargin is reduced on such quantity for which hehas paid the amount. If delivery does not happen with respect to certain open positionand is finally settled by way of difference as per the Due Date Rate, the delivery period margin is

released only after final settlement of differencearising out of such closing out as per the DueDate Rate.


25/57

8. How can I increase margin?


26/57

The margin can be increased by givingCash / Bank Guarantee / Fixed deposits asadditional security deposit. Shares of approved companies in Demat form withthe custodian and the warehouse receiptsof approved commodities are alsoaccepted as collaterals towards theadditional margin requirements. (Refer

relevant circulars)


27/57

9. How to release margin / Additional securitydeposit?


28/57

a. The member can release only that margin which isgiven as an additional deposit.

b. In case a member intends to get his additional security deposit released to him during its tenureor on its maturity, he shall inform the Exchange at least one week in advance.

c. The Exchange subject to clearance of Exchangedues will consider any request for withdrawal of the additional security deposit.

d. Request for release can be considered only whenthe member has not utilized such deposit /amount for margin at the time of release.


29/57

10. When does pay-in and payout occur?


30/57

Pay in & payout of funds for Mark to Market Settlements is effected on T+1 basis. It means that any booked losses or profit of the members aredebited or credited in their bank settlement account on the next day of its trading.

Pay in & payout of funds for delivery-based settlements is effected on E+2 / E + 3 (E stands for expiry of contract) basis for delivery of gooddelivery by the seller or as prescribed in thecontract specification.


31/57

11. What is maximum level of mark to market loss allowed by member?


32/57

The maximum level of mark to market lossallowed to a member is 75% of his totaleligible deposit. The moment a member crosses this limit the trading terminal isautomatically put in square off mode.


33/57

12. What should a member do if he hasutilized 100% of his margin?


34/57

When a member utilizes 100% margins, hehas the following options:

Deposit additional margin in his settlement account & inform the exchange to debit it,thereby increasing his exposure.

Or Square off existing positions thereby

liquidating and hence releasing margins.Members can square off their positionsfrom their terminals as, on utilizing 100 %margins, the member is put in square off mode.


35/57

13. Where can I see my Mark-To-Market Profit?


36/57

Mark-To-Market profit or loss can be seenon the TWS online and can also be takenfrom the Net Obligation Report, availableon the FTP server at end of each tradingday.


37/57

14. Can my Mark-to-Market Profit beadded to my Margin account?


38/57

No. Mark-to-Market Profit is credited toMembers Settlement Account.


39/57

15. How to get spot prices of variouscommodities?


40/57

Spot price of the commodities permittedfor trading is disseminated by theExchange on the Traders Work Station(TWS) of the members, and can be viewedin the column Underlying Asset in Market Watch Screen.


41/57

16. How do I get historical data of commodities traded on MCX?


42/57

Historical data like open, high, low & closing pricevolume and open interest is available in theBhavcopy report being sent at 17 hrs and after 23.30 hrs on daily basis.

This information is available in the website(www.mcxindia.com) before the beginning of trading during the following day. It is available inthe link Bhav Copy (Date Wise) & Bhav Copy(Commodity Wise) .


43/57

17. How w il l var ious ch arg es (viz . us er id charges , t ransac t ion charges e tc ) be co l l ec ted f rom m e?


44/57

The charges are reflected in dailyobligation report of the members.

The Exchange debits these charges to the settlement accounts of the members periodically.


45/57

18. When can a member access theextranet (FTP server)?


46/57

A member can access extranet (FTP) server anytime during a day through internet andduring non-trading period through theleased line and VSAT.


47/57

19. Which securities can be given as collateral?


48/57

The list of equity shares acceptable towardsadditional security deposit as collaterals for increasing the trading limits is given in

circulars issued by the exchange (Refer circular no. MCX/337/2005 &MCX/047/2006).


49/57

20. Which are the clearing banks in which settlement A/c can be opened?


50/57


51/57


52/57

21. What are the applicable transactioncharges for trade volume on MCX?


53/57


54/57

22. What are the stamp duty charges?


55/57

The Stamp duty is payable on all futurescontracts by the members as per StateGovernment requirements.


56/57

23. What end of day reports is sent to members?


57/57

Exchange is providing the following reports tothe members at the end of the trading day

on Extranet (FTP Server)Bhav Copy:- Daily Price List.Obligation report:-Daily pay-in and payout

of a member anddetails of

previous days open position

Trade file:- Daily trading detailsPosition file:- Details of end client level

open positionMargin:- Margin details.

Documents

4 Clearing and Settlement