Index. Business. NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED Frequently Asked Questions Forward Contract

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1 Index Business 1. What are forwards contracts? How are Forwards different from Futures? How does the present offering from NCDEX add value to market participants? How would the Forwards segment benefit the commodities industry at large How can the Exchange platform benefit an individual trade participant? Would there be any benefits for the Government at large? What are the different types of settlement under this category? What is the NTSD segment? What is the TSD segment? Can I net / square off my position in a TSD contract the day after I have initiated the trade? What are the different types of contracts permitted? What are Reference price contracts? What are Fixed price contracts? Which commodities are allowed to be traded? What is a Pricing Date? What is the minimum and maximum duration of contracts What are the different types of quality parameters involved in placing an order? Is there any scope for both the parties involved to mutually cancel a trade? What are the alternatives modes/ locations wherein delivery can be effected? Are Forward trades on the Exchange guaranteed as in the case of Futures? What is the scope for arbitration in case of disputes? As a Buyer how do I satisfy myself that the quality is in terms with the norms laid down in the contract? Who can trade forwards? As a registered futures client, do I still need separate Trading account for forwards? / 45

2 25. Is CTT Applicable on forwards trade? What are transaction charges for forwards? Is futures contract compulsory in case of reference price forward contracts? Can commodities recorded in COMTRACK be traded on forward platform? Is there any intraday price limit in forwards? 17 Membership 1. What is new type of membership category for trading in Forward Contracts? What are the salient features of CPM membership category? Who can apply for CPM membership? What are the membership criteria for a CPM? What should be the main objective clause in the Memorandum of Association to obtain membership in Forward segment? What is the requirement of Security Deposits for CPM? What is the admission process for CPMs? Whether the Settlement bank account is required for CPMs Whether Conversion from CPM to TCM/TMs is allowed? Whether a CPM is allowed to appoint Authorized Person Is there any restriction on User ID for CPMs? Whether existing members of Future segment are allowed to trade in Forward segment? Whether existing members of Futures segment have to open a separate clearing account with the bank for clearing for the Forward segment? Whether all the TM/TCM which are clearing through other clearing member/s will be enabled for trading in Forward segment?..21 Compliance 1. What are the guidelines for issue of advertisement by the members? Whether a member can trade through another trading member? 21 2 / 45

3 3. What are the guidelines for display of details at member's office? What are the guidelines for portfolio management services by the members? Whether accounts of clients are required to be settled on a quarterly basis? What are the PMLA requirements which are required to be complied with? What are the other annual compliance requirements applicable for CPMs?.22 Operations 1. What are the trade timings for Forwards market? Will Forward contracts be available on NCDEX Futures trading screen? From where does the member log in to trade in forwards market? How to get log-in ID and Password for Forward Trading? How to place an order in the system? Can the order be modified or cancelled? Where to check whether orders got traded? How are margins collected? Do we need to create client ID separately for forward segment? In what forms can the member provide collaterals for forward trades? What is the process for Release of Collateral? How will Initial Margin be collected? Are Forward Trades covered under purview of Margin Reporting? Net positions and margins of transferable contracts? Will outstanding orders get cancelled on suspension of member in Forwards Trading system? How is the profit and loss computed in case of Intra day square-off for TSD contracts? 26 Risk 1. What are the types of margins that will be levied on forwards contracts? Initial Margin.26 3 / 45

4 3. Incremental Margin What will happen to the margin in case of default by one of the parties? Are there Pre-Expiry Margins like in case of futures contracts? Will there be any limits on the outstanding obligations? Will the position limits in futures contracts be clubbed with the outstanding obligation limits in forwards?. 29 Accounts 1. How transaction charges will be collected from the members? What if transaction charges are not collected from the Exchange dues account or settlement account? When Commodities Transaction Tax (CTT) is will be collected? What if CTT is not paid by member? How compensation will be collected in case of default of incremental margin? Will the member have to maintain separate books of accounts for Forwards segment?. 31 Technical 1. Do I need to download any software to access Forwards system? Do I need Open VPN to connect to Forwards system through Internet? Can I log in to Futures Trading system and Forwards Trading system through the same User ID simultaneously? Can I change my password in Forwards Trading system? What is the structure of Order Number What is the structure of Trade Number What is the structure of Token Number From where can the members download the files of Forward system / 45

5 Clearing and Settlement 1. How will the settlement of funds be carried out by the exchange? Can multiple delivery modes be used by Seller for a particular transaction? What are the different modes of Delivery in forwards segment? Who bears the handling and transportation charges under the various delivery modes? How shall the exchange of information after allocation between Member and Exchange take place in case of direct Delivery? What details are required to be furnished by Buyer Clearing Members? What is the time limit for the buyer to provide the above details? What details are required to be furnished by Seller Clearing Members? What is the time limit for the Seller member to provide the above details? When will the buyer member receive information on Warehouse provided by the seller? When will the Seller member receive information on buyer? Who will appoint the assayer? What is the time limit for appointing Assayer? Is it compulsory to get the goods assayed by Assayer? Is it possible to select more than one Assayer? Who will bear the assaying charges? What is assayer s role after his appointment? What if the assayer appointed by buyer fails to submit a schedule for sampling to both the seller and the buyer by P day? When can the assayer start sampling and by what time the results are expected to be posted? How will assayer share the details of schedule and assaying with exchange and buyer and seller member?.37 5 / 45

6 21. What if the buyer doesn t pay the assaying charges upfront and the assayer does not start the sampling in the period prescribed? How and when will the seller and the buyer come to know the test results? How can the quality of goods received in an approved warehouse under COMTRACK delivery mode in the buyers COMTRACK account be checked? For the purpose of Sales Tax Settlement, what is the time limit for the seller to update the sales tax amount? Can Seller claim any Other Charges in addition to Sales Tax? What if the seller member does not update the amount sales tax and other charges on or before P + 1? How will the buyer member intimated about the sales tax amount and other charges levied? When shall the buyer arrange the funds with respect to delivery payin including sales tax and other charges? How will the buyer come to know about the amount to be arranged on P + 2? What if the buyer does not arrange the Payin by P + 2? What if the Buyer Member arranges partial amount towards a particular transaction by P + 2? What if the time limit for completion of Physical delivery? Can seller tender delivery in multiple consignments (from the same warehouse) for a particular transaction? What if assayer rejects a consignment? Can Buyer or seller raise any dispute on the assaying results given by the appointed assayer? Can the seller offer the goods in multiple warehouses and if so what is the criteria with respect to the distance, quantity in each warehouse? In case of delivery through Comtrack is there a need for a Comtrack account? What are the timelines for transferring the commodities in the buyer s account in case of ENW delivery (Comtrack)? Are CNT charges applicable for this transfer.40 6 / 45

7 40. Can a lot, which is due for revalidation but haven t crossed its FED, be used to meet the sell obligation in case of Forward contract? Can the seller deliver his electronic credit in COMTRACK under FOT or FOR basis? Can a Buyer reject a Consignment? Who will give the final confirmation of completion of physical delivery? What does the confirmation by buyer imply? How will the seller come to know about the acceptance of delivery by the buyer? In case of FOR delivery, after Confirming rake point what if the buyer fails to arrange for placement of the rake? In case of FOR delivery, when are the wagons to be placed by the buyer? Can the Buyer or the seller witness the sampling, testing and delivery process? Does the buyer personally go for sampling, testing and taking delivery or can authorize his representative? What documents the buyer will have to give to the representative and what intimation he has to give to and by what mode to the seller? And whether the seller will have to be intimated for this authorization separately and independently? What if the seller fails to make arrangements for labor and ensure delivery from the warehouse by P+12th day What if the seller fails to shift the commodity which has been reported as passed by the assayer from the warehouse/s to the rake point and into the wagons by P+12th day? When will seller receive the payout amount? What documents therefore the seller must take from the buyer as proof of having taken the delivery? What if the Buyer fails to confirm or raise objection within P+12 day? Will the seller receive the balance payout if the buyer fails to confirm before P +12 day? How will be the shortage Quantity will be computed in case of partial delivery? What if the assayer appointed by the buyer fails to arrange necessary number of well-equipped sampler at the warehouses indicated by the seller 43 7 / 45

8 59. What if the assayer appointed by the buyer fails to communicate the assaying results to the seller and the buyer as per the schedule indicated by the assayer? What if the Assayer appointed by the buyer is not being able to draw samples for some reason related to the seller s warehouse (like warehouse not open, no space for drawing samples etc.) What is the compensation mechanism in the event of default by Seller or Buyer? Whether Delivery Margins will be applicable on trades? When the margins will be released to Buyer Member? When the margins will be released to Seller Member? What if Settlement Date falls on NCDEX Trading Holiday? Can a member cancel the trade? What if the buyer fails to arrange for trucks as per the schedule indicated by him? / 45

9 Business 1) What are forwards contracts? A Forward Contract is a bilateral agreement in which the buyer and seller agree upon the delivery of a specified quantity and quality of a commodity at a specified date, agreed price and location. 2) How are Forwards different from Futures? A Forward contract is a customized contract between two parties. Terms of the trade are customized to cater to the needs of the parties involved. A futures contract is a standardized version of a Forward contract. Some key differentiating parameters between forwards and futures are given below. Definition Structure Purpose Forwards An agreement between two parties to buy or sell an asset at a pre-agreed future time, price and location. & Customized to customer needs. Usually used for hedging. Futures A standardized contract, traded on a futures exchange, to buy or sell a certain underlying commodity at a certain date in the future, at a specified price. Standardized. Initial margin payment required. Type contract of Unstandardized Standardized Transaction method Institutional guarantee Negotiated directly by the buyer and seller The contracting parties Quoted and traded on the Exchange Clearing House or Exchange Risk High counter party risk Low Counter party risk 9 / 45

10 Settlement Contract Maturity Settlement occurs at the end of the period Forward contracts generally mature by delivering the commodity. Daily Marked to market settlement takes place. Final settlement on the expiry of the contract. Future contracts may mature by square off of positions or cash settlement/ delivery of commodity at the expiry of contract. 3) How does the present offering from NCDEX add value to market participants? Many market participants in the physical market indulge in forwards transactions. However, unlike an organized futures market, the forwards segment is plagued by counterparty risk on account of its bilateral nature. It has been observed that often when circumstances turn against one party to the trade, the likelihood of default increases thereby exposing the counterparty when he most requires the trade to be executed. By launching an exchange traded forward, NCDEX is attempting to bring to the table the considerable expertise it has developed over the years in creating value in the agricultural segment. 4) How would the Forwards segment benefit the commodities industry at large? An efficient and vibrant Forwards platform can have a number of benefits to the commodity trade at large. A liquid forwards segment would give confidence to participants that they would be able to procure / sell at pre-determined points of time in the future and this would ensure that they are optimally stocked rather than over stocked. Participation on a well-managed Exchange platform would ensure optimum risk management. It is also envisaged that this would be a truly national platform with delivery at many more centres than the limited service areas that the futures market caters to. 5) How can the Exchange platform benefit an individual trade participant? Initiating a forward transaction on the Exchange platform can benefit a trade participant in the following ways 10 / 45

11 Larger market: As against the limited number of counterparties the participant would normally trade with, an Exchange platform provides him a larger avenue to trade Increased Liquidity: Being a nationwide platform, the participant is now able to tap a much larger pool of liquidity Professional Risk Management: Trade on the Exchange platform is backed by a Risk Management system which collects appropriate margins from all parties Compensation Guarantee: In the event of a counterparty default the participant is assured of a compensation guarantee to the extent of 90% of margins (after deducting service tax) collected till date. 6) Would there be any benefits for the Government at large? The transparency brought about by an Exchange traded forwards segment can immensely add to the Governments visibility of potential future demand-supply pulls and pressures. At present, the Government can use future prices for the same purpose. However, future prices are anchored to the supply and demand fundamentals of a few select centers in the country. A Forward market is truly pan-india in nature. 7) What are the different types of settlement under this category? There would be two types of settlement permitted o o Non Transferable Specific Delivery (NTSD) Transferable Specific Delivery (TSD) 8) What is the NTSD segment? Under this segment every trade executed would result in delivery. Netting of positions would not be permitted under this segment. 9) What is the TSD segment? Under this segment, in case the Fixed parameters and Bid and Offer parameters are identical for buy and sell trade for the same client, the trades would be netted at end of day. Any open position at end of day shall result in delivery. 11 / 45

12 10) Can I net / square off my position in a TSD contract the day after I have initiated the trade? No. Position can be netted only on the date of the trade and that too only if the Fixed Parameters and the Bid & Offer parameters are identical for a buy and sell trade for the same client. A position if existing at the end of the day shall result in delivery. 11) What are the different types of contracts permitted? There would be two types of contracts permitted o Reference price contracts o Fixed price contracts 12) What are Reference price contracts? A reference price contract is anchored to a particular futures contract traded on the Exchange. The contract would be priced at a premium / discount to the NCDEX contract based on the inherent parameters of the forward contract. The same is illustrated with the help of an example below. NCDEX has sugar contracts expiring in August 2014, September 2014, October 2014, December 2014, March 2015, May 2015, July 2015 and October The quality basis is standard Sugar M Grade and Basis centre is Kolhapur. Now suppose a mill in Erode wishes to enter into a forward with a Buyer to sell 500 MT of Sugar at a quality which is at a premium to NCDEX quality by Rs 100 for delivery on September 10, A forward contract would be entered on the Exchange at a price of The pricing date would be September 10, The contract would be settled at the DSP of the next expiring futures contract on the pricing date (September 20, 2014) + the premium / discount agreed upfront (Rs 100). Thus if the DSP on the pricing date of the September 2014 expiry contract were Rs 3100 then the contract would be settled at Rs Rs 100 = Rs ) What are Fixed price contracts? Fixed price contracts are contracts which are entered at a flat price. Considering the above example, the parties would enter into an agreement at a flat price (Example: Rs 3200/quintal). 12 / 45

13 14) Which commodities are allowed to be traded? Forward trading will be commenced with trading in two commodities Maize and Sugar. The tree diagram below shows various types of contracts that will be available for trading. Transferrable Contract Fixed Price Contract Reference Price contract Upto 30 Days Contract 31 to 60 Days contract Sugar Forwards Sugar Non Transferrable contract Transferrable Contract Fixed Price Contract Reference Price Contract Fixed Price Contract Reference Price contract Upto 30 Days contract 31 to 60 Days contract Upto 30 Days contract 31 to 60 Days contract Raw Sugar Non Transferrable contract Fixed Price Contract Reference Price Contract Upto 30 Days contract 31 to 60 Days contract 13 / 45

14 Transferrable Contract Fixed Price Contract Reference Price contract Upto 30 Days contract 31 to 60 Days contract Maize Forwards Non Transferrable contract Fixed Price Contract Reference Price Contract Upto 30 Days contract 31 to 60 Days contract In case of Reference Price contracts, pricing date cannot be more than 180 calendar days from trade date. 15) What is a Pricing Date? Pricing date is akin to the expiry day of the contract. In case of a Reference Price contract the settlement price of the contract would be arrived at on the basis of the DSP of the reference futures contract on the Pricing Date. The settlement price of the contract would be derived by taking into consideration the Trade Price and the Basis Price. The Basis Price is the price of the Reference contract (nearest expiring contract after the pricing date) on the Pricing Date. Trade price is the Premium / Discount over the Basis Price agreed at time of trade. In case of Fixed price contract it is the day when the contract matures at the Traded Price determined at time of trade. 14 / 45

15 16) What is the minimum and maximum duration of contracts? Reference Price Fixed Price NTSD Min 12 days & Max 180 Min 12 days and Max 60 days TSD Max 180 days Max 60 days The maximum period of 180 calendar days is subject to a futures contract expiring on the date later than the due date. 17) What are the different types of quality parameters involved in placing an order? The quality parameters for forward contracts have been segregated into Fixed Parameters and Bid & Offer Parameters. Fixed parameters are minimum quality norms for the commodity which cannot be compromised. Bid and Offer parameters are parameters which would affect the pricing of the contract. These include duration of contract, name of mill & location, crop year, grade, grain count, etc. 18) Is there any scope for both the parties involved to mutually cancel a trade? Yes, in case the Buyer and Seller mutually agree to reverse the trade and provide a written consent to the Exchange the trade will be cancelled. Exchange charges as prescribed of the trade value will be applicable. 19) What are the alternatives modes/ locations wherein delivery can be effected? Delivery can be effected at any mutually agreed location within India. Mode of delivery would vary across different commodities. In general, in addition to Exchange approved warehouse, delivery could also be at a Rake point, truck point, etc. depending on the commodity. 15 / 45

16 20) Are Forward trades on the Exchange guaranteed as in the case of Futures? The Forward contract traded on NCDEX is a compensation guarantee contract. In the event of a counterparty default the participant is assured of a compensation guarantee to the extent of 90% of margins (after deducting service tax) collected till date. 21) What is the scope for arbitration in case of disputes? Disputes between the members of the Exchange inter-se and between members and constituents, arising out of or pertaining to trades done on the Exchange shall be settled through Arbitration. The Arbitration proceedings and appointment of Arbitrators shall be as governed by the Bye-laws, Rules and Regulations of the Exchange. 22) As a Buyer how do I satisfy myself that the quality is in terms with the norms laid down in the contract? The buyer has an option to get the goods assayed. Assaying is not mandatory. In case the Buyer is confident on the quality of a particular seller, he can lift goods without Assaying. Failure to appoint assayer by buyer in required time as prescribed by Exchange procedures shall result in lifting of deliveries without assaying. The Buyer shall pay for assaying. 23) Who can trade forwards? The forwards segment is predominantly targeted towards those participants who interested in receiving or effecting delivery of goods. For example a forward contract in Sugar may be entered into between a Soft drink manufacturer who has a certain quantity of monthly requirement of Sugar and a Sugar Mill. Similarly, a Forward contract in Maize may be entered into between an exporter and a supplier from the inland markets. It could even be entered into by a participant on the Futures exchange either to procure goods towards delivery on the futures platform or to sell the goods which he is expecting to receive as delivery at a future date. 24) As a registered futures client, do I still need separate Trading account for forwards? No separate trading account is required for those clients who have completed the KYC formalities and are registered as a client on the Futures segment of the Exchange. 16 / 45

17 25) Is CTT Applicable on forwards trade? Yes, CTT is applicable on Forwards Trade. 26) What are transaction charges for forwards? Transaction charges for trades on the forwards segment are 0.10% of Trade value in case of Maize & 0.05% in case of Sugar of the trade value. 27) Is futures contract compulsory in case of reference price forward contracts? Reference price Forward contracts are linked to specific futures contracts for the purpose of settlement. Reference price contracts are available till a maximum period of 180 calendar days. However, the maximum period of 180 calendar days is subject to a futures contract expiring on the date later than the due date. 28) Can commodities recorded in COMTRACK be traded on forward platform? Yes. The forwards segment provides options to trade either within the Exchange warehouse system or deliver directly outside the Exchange warehouse system. However, this facility may be made available at a later stage. 29) Is there any intraday price limit in forwards? There are no intraday price limits in case of forward transactions. 17 / 45

18 Membership 1) What is new type of membership category for trading in Forward Contracts? The Exchange has introduced a separate `Forward segment for market participants who require physical delivery, on sell as well as on buy side. For this segment the Exchange has introduced a new category of membership known as `Commodity Participant Members (CPMs). This membership is designed for physical market Value Chain Participants (VCPs), Small and Medium Enterprises (SMEs), etc. who could potentially fulfill their delivery and raw material requirements. 2) What are the salient features of CPM membership category? CPM can trade only on his own account i.e. only Proprietary Trading (PRO Trading). A CPM as such is not allowed to have clients. CTCL and Algorithmic trading is not permitted. CPM can only trade only on Forward segment and not in the Futures segment. CPM can clear their own trades i.e. the Clearing and Settlement will be carried out by the concerned CPM. 3) Who can apply for CPM membership? The following persons/ entities are eligible to become members: Individuals Sole proprietorships Partnership Firms Limited Liability Partnership (LLP) Hindu divided Family (HUF) Co-operative societies registered Companies, Corporations or institutions incorporated under Companies Act, 1956 Government certified Farmers Producer Organization (FPO) Such other persons / entities as may be permitted by the relevant authority of the Exchange 18 / 45

19 4) What are the membership criteria for a CPM? A CPM will be will have to fulfill the net worth criteria and will be required to pay fees/charges as mentioned below: Criteria Minimum Net worth Requirement Admission Fee (one time, non-refundable ) CPMs Rs Lakh Rs. 50,000 CPMs FPOs (Farmers Producer Organization) Not Prescribed NIL Annual Membership Fees Rs. 10,000 Rs. 5,000 Transaction Charges As stipulated from time to time. As stipulated from time to time. 5) What should be the main objective clause in the Memorandum of Association to obtain membership in Forward segment? The main objective clause in the Memorandum of Association should be any of the following:- To carry on the business of trading in agricultural products, metals including precious metals, precious stones, diamonds, petroleum and energy products and all other commodities and securities, in spot markets and in futures and all kinds of derivatives of all the above commodities and securities. To carry on business as brokers, sub brokers, market makers, arbitrageurs, investors and/or hedgers in agricultural products, metals including precious metals, precious stones, diamonds, petroleum and energy products and all other commodities and securities, in spot markets and in futures and all kinds of derivatives of all the above commodities and securities permitted under the laws of India. To become members and participate in trading, settlement and other activities of commodity exchange/s (including national multi - commodity exchange/s) facilitating, for itself or for clients, trades and clearing/settlement of trades in spots, in futures and in derivatives of all the above commodities permitted under the laws of India 19 / 45

20 6) What is the requirement of Security Deposits for CPM? There is no Base Capital (BC) and Base Minimum Capital (BMC). CPMs is required to submit the deposits in cash before they trade on the Forward Segment. 7) What is the admission process for CPMs? The admission process will involve following steps: 1. Submission of Application by applicant in prescribed format with payment of applicable charges and Documentation as prescribed by the Exchange & available on Exchange website 2. Scrutiny and processing of the application by the Exchange 3. Admission of CPM after completion of prescribed formalities 4. Activation of membership 8) Whether the Settlement bank account is required for CPMs. CPM is required to open a settlement account with any of the approved clearing banks. For the updated list of Approved Banks reference may be made to the NCDEX Website at 9) Whether Conversion from CPM to TCM/TMs is allowed? Yes. Conversion from CPM into TCM/TMs may be permitted at the sole discretion as per the terms and condition prescribed by the Exchange from time to time. and 10) Whether a CPM is allowed to appoint Authorized Person No. The CPM is not permitted to appoint Authorized Person since they are allowed to undertake trading only on PRO account. 11) Is there any restriction on User ID for CPMs? Yes, since only pro-trading is permitted; Only Corporate user ID is issued to CPMs. 12) Whether existing members of Future segment are allowed to trade in Forward segment? 20 / 45

21 Yes, all future segment members (Viz. Trading Members, (TMs), Trading cum- Clearing (TCMs) and Strategic Trading cum Clearing Members (STCMs) will be automatically enabled to trade on Forward Segment. 13) Whether existing members of Futures segment have to open a separate clearing account with the bank for clearing for the Forward segment? No, existing TCMs/STCMs who trade in Forward segment will use their existing accounts with clearing banks and TMs continue clearing through their existing clearing arrangements with PCMs/STCMs. 14) Whether all the TM/TCM which are clearing through other clearing member/s will be enabled for trading in Forward segment? Yes. All the TM/TCM who are active in Futures segment will be enabled for trading in Forward segment. If any clearing member wishes to restrict the TM/TCM clearing through them from trading in Forward segment, they will be required to request the Exchange to disable the member. Compliance 1. What are the guidelines for issue of advertisement by the members? Guidelines for issue of advertisement by the members are given in circular no. NCDEX/LEGAL-003/2005/046 dated February 22, Please refer to the same. The guidelines are also applicable on members trading in Forward segment. 2. Whether a member can trade through another trading member? Since CPMs are registered to carry out their own or PRO trades only on Forward segment, they can register as a client with a member of Futures segment and can trade in futures segment. 3. What are the guidelines for display of details at member's office? Please refer circular no. NCDEX/COMPLIANCE-002/2006/238 dated September 19, 2006 on Display of details at member's office. 21 / 45

22 The members trading in Forward segment including CPM members are required to display the details at member s office. 4. What are the guidelines for portfolio management services by the members? Members are not permitted to undertake any advisory services in the nature of portfolio advisory services, portfolio management services and similar such other advisory services resulting in fund based portfolio management services to clients for investment in commodities future contracts. Please refer circular no. NCDEX/COMPLIANCE-003/2008/285 dated December 23, 2008 for further details. The guidelines are also applicable on members trading in Forward segment. 5. Whether accounts of clients are required to be settled on a quarterly basis? The guidelines on quarterly settlement of clients are also applicable to Forward Segment. 6. What are the PMLA requirements which are required to be complied with? The members trading in Forward segment have to comply with the PMLA requirements specified from time to time like registration on FINNET portal, appointment of Principal Officer, etc. 7. What are the other annual compliance requirements applicable for CPMs? Compliances Time Lines Applicability Submission of Annual Return FY XXX On or before October 31, XXXX Applicable on all categories of members trading in forward segment. A simplified format of Annual return applicable on CPMs will be issued by Exchange. 22 / 45

23 Submission of Annual Compliance Report FY XX-XX On or before June 30, XXXX Applicable on all categories of members trading in forward segment. A simplified format of Annual Compliance Report applicable on CPMs will be issued by Exchange. Disclaimer: - Members are requested to also refer to circulars, Bye-Laws, Rules and Regulations for detailed/latest/complete compliance requirements. Operations 1) What are the trade timings for Forwards market? Forwards market will remain open for trading from am to pm. There will be no pre-open session and trade modification session. Forward Markets will remain closed when there is only evening session trading on Future Segment. 2) Will Forward contracts be available on NCDEX Futures trading screen? The Forwards segment shall be available to trade on a separate web based trading platform. 3) From where does the member log in to trade in forwards market? Member can log in from following websites through Internet For Trading URL is For Settlement URL is Members connecting through VSAT/Leased Line/MPLS can log in from following websites: For Trading URL is For Settlement URL is 4) How to get log-in ID and Password for Forward Trading? 23 / 45

24 For the members with active membership in futures, the login ID & Password shall be the same as their user ID & Password used in Futures segment. Active member will be able to login using valid Dealer ID, Corporate Manager ID, Branch Manager ID, Admin ID and Inquiry user ID. In case of CPM category member, the active member will be able to log in using Corporate Manager ID. The Log-in ID & Password shall be communicated by Membership department. 5) How to place an order in the system? Dealer, Corporate or Branch Manager User ID can place an order. All users will by default be allowed to place order in proprietary (Pro) as well as active Clients account. For each unique order new contract will be generated on the Market Watch screen. User will get new token generation message and new order confirmation message in its message area when order is accepted. Only Limit day orders are allowed to be placed. 6) Can the order be modified or cancelled? Member can modify the order on Price & Quantity parameters. Single or all outstanding orders can be cancelled. Quick Cancel all Order button is provided in order book to cancel all outstanding orders. All outstanding orders at end of the trading day will be cancelled by the Exchange. It is to be noted that Client Code modification is not allowed once order gets executed. 7) Where to check whether orders got traded? When order gets matched with counter order, availability of free collateral with respect to margins on trade will be checked before trade is executed. When the trade is executed, user will get trade confirmation message in message area with a Unique Trade number. 8) How are margins collected? Margins will be checked on pre-trade basis. If sufficient collateral is available towards margin requirement, then margins will be blocked before the Trade gets executed. 24 / 45

25 9) Do we need to create client ID separately for forward segment? The members of Futures segment can place orders on behalf of all the clients whose status is appearing as active in NCFE. The member is required to map the clients in the order entry screen whenever the client wishes to trade for the first time. Later on, the client details will appear in the drop down option. In case of new clients, the client details are first required to be created in NCFE. 10) In what forms can the member provide collaterals for forward trades? The CPM category Members can provide collaterals only in the form of cash. These members are required to open a settlement account with Exchange approved Clearing banks. Through this account the member can transfer funds to NCDEX account towards Additional Base Capital deposit. Existing futures segment members, can trade with their existing Collateral. The margin applicable on position in Forward segment will get blocked from their collateral available with the Exchange. 11) What is the process for Release of Collateral? Members can place release request through NCDEX-NCCL Web Portal. After validation for availability of sufficient margin, the amount shall be released to members settlement account. 12) How will Initial Margin be collected? Initial margin will be blocked from collateral deposits of members. If the member does not have sufficient collateral to meet Initial Margin, trade will not be executed and order will get cancelled. 13) Are Forward Trades covered under purview of Margin Reporting? Yes. Existing margin reporting process in NCFE will be applicable for margin reporting for trading in Forward segment. Margin collected by the members from their clients for trades on forwards segment can be clubbed along with margin collected on Futures segment. Members are required to report the Margin Collection on Forward Trades as per existing guidelines. Initial Margin is to be collected on T Day and Incremental margin is to be collected in T+2 days. 14) Net positions and margins of transferable contracts? 25 / 45

26 In case of transferable contracts, positions will be netted at the end of day, and hence respective margins will be released at the end of day. 15) Will outstanding orders get cancelled on suspension of member in Forwards Trading system? Yes, in case the members trading terminal is placed in disabled mode, all the outstanding orders will get cancelled. 16) How is the profit and loss computed in case of intraday square-off for TSD contracts? If the member does a Buy trade in the same token and same client and then does a sell trade in the same client and same token, then at end of day the trades would be netted. At end of day, a new trade (with new trade number) will be generated with net quantity and weighted average price. If the member enters into a Loss then Loss Payin transaction would be generated with due date as T+1. Margin will be released after successful Pay-in. If the member gets a profit then, Profit payout would be generated on P+12. Margin will be released after netting on Trade date. Risk 1) What are the types of margins that will be levied on forwards contracts? The margins chargeable on the forward contracts would be Initial Margin and Incremental Margin 2) Initial Margin a. How much is the Initial Margin in case of Reference Price Contracts? The Initial Margin on forward contracts would initially be a flat 5%. This initial margin would remain the same and would not change through the life of the contract. The margin would be computed by applying the margin percentage (5% at present) on the trade value of the contract. The trade value would be the sum of referenced future contract s DSP one day prior to the trade and the 26 / 45

27 premium/discount or just the referenced future contract s DSP one day prior to the trade, whichever is higher. b. How much is the Initial Margin in case of Fixed Price Contracts? The Initial Margin on fixed price forward contracts would be a flat 7.5% of the trade value in case of contracts of duration up to 30 days and 10% for duration beyond 30 days and up to 60 days. This initial margin would remain unchanged through the life of the contract. c. How is it different from the Initial Margin in the futures contracts? Initial Margin in case of futures contracts keeps changing daily/ intra-day based on changes in prices and volatility. In case of forward contracts, this margin will be a fixed amount that will not change with time. d. Will the initial margin be different for buyer and seller? No, the Initial Margin remains same for the buyer and seller. e. Will initial margin be different for different commodities? For forward contracts to be launched, the initial margin will be stated in the contract specifications/ product note. 3) Incremental Margin a. How much is the Incremental Margin in case of Reference Price Contracts? Incremental Margins would be recomputed every Monday based on price movements/ volatility and the Exchange reserves the right to make a call for Incremental Margins if it deems so necessary. In case the linked futures price moves by more than 3% from the day of trade/ last incremental margin computation, incremental margin may be recomputed and charged earlier than the next Monday and if required at greater frequency intervals. b. How much is the Incremental Margin in case of Fixed Price Contracts? 27 / 45

28 Incremental Margins would be recomputed at weekly intervals taking into account price movements/ volatility (or at greater frequency if necessary) and based on the computation, the Exchange would make a call for Incremental Margins. c. How will the incremental margin be charged for the buyer and seller? The incremental margin will be charged for the party against whom the price has moved. Subsequently, if the price moves in favour of that party, his incremental margin blocked would be reduced. However, if the incremental margin blocked is zero and there is a movement in favour of the party, there would be no MTM credit to that party in such a case. Time Contract Value Incremental Margin blocked for Buyer Incremental Margin blocked for Seller At trade st Monday after trade nd Monday after trade rd Monday after trade Wednesday after 3 rd Monday after trade th Monday after trade d. What if there is a shortfall in incremental margin? In case either the buyer or seller fails to provide the incremental margin required, any excess collateral amount available with the Exchange will be blocked and the remaining amount will be the shortfall. If there is no excess collateral available, the shortfall will be equal to the incremental margin call. The concerned party shall be granted a grace period of 2 working days. In case the buyer/seller has still not provided the same, it shall be considered a default and the trade would be cancelled. The blocked margin including margin collected through Pay-in amount of the defaulting party shall be forfeited. 90% of such amount collected from the defaulting party after deducting service tax, shall be paid as compensation to the counterparty and 10% shall be retained by the Exchange as transaction charges. 28 / 45

29 4) What will happen to the margin in case of default by one of the parties? 90% of the margins blocked (Initial and Incremental) from defaulting party after deducting service tax will be passed to the counter party as compensation and 10% of the margins blocked (Initial and Incremental) will be retained as transaction charges by the Exchange. 5) Are there Pre-Expiry Margins like in case of futures contracts? No, there would be no pre-expiry margins for forwards contracts. 6) Will there be any limits on the outstanding obligations? Outstanding obligation limits are as follows: Sugar: Member Level: 40,000 MT Client Level: 8,000 MT Maize: Member Level: 1, 00,000 MT Client Level: 20,000 MT 7) Will the position limits in futures contracts be clubbed with the outstanding obligation limits in forwards? No, the position limits in futures contracts will remain separate from the outstanding obligation limits in forward contracts. Accounts 1) How transaction charges will be collected from the members? Transaction charges will be collected from member s Settlement account on T+1 day for Fixed Price Contract and on P+2 day for Reference Price Contract. The Invoice inclusive of service tax will be provided for transaction charges. 2) What if transaction charges are not collected from the Exchange dues account or settlement account? 29 / 45

30 2.5% per month or Rs. 500/- whichever is higher, will be levied on members. Service Tax is not applicable. 3) When Commodities Transaction Tax (CTT) is will be collected? For fixed price contract, CTT will be collected on T+1 day. For reference price contract CTT will be collected on P+2 day 4) What if CTT is not paid by member? This will be considered as shortage for all purposes like levy of overdue charges, disablement, default, adjustments from margin/base capital etc. Overdue charges will be levied, higher of Rs. 500/- or 0.09% per day per instance on shortage amount. Service Tax is not applicable. 5) How compensation will be collected in case of default of incremental margin? Incremental Margin will be blocked from collateral of members. In case if either parties default in their obligations, an amount equal to margin blocked from Collateral will be recovered as Pay in from defaulting party on default + 1 day. The counter party will receive a compensation equal to 90% of margins collected after deducting service tax. (A) Margin money on defaulted Trade (B) Service tax included in margin money = A/112.36* (C) Margin amount net of service tax (A) (B) (D) Compensation to counter party (90% of C) (E) Charges retained by Exchange (10% of C) 8.90 In case there is shortage in pay in, then this will be considered as shortage for all purposes like levy of overdue charges, disablement, default, adjustments from margin/base capital etc. Monthly invoice inclusive of service tax will be given to defaulted member for penalty levied. 30 / 45

31 Overdue charges will be levied, higher of Rs. 500/- or 0.09% per day per instance on shortage amount. Service Tax is not applicable. 6) Will the member have to maintain separate books of accounts for Forwards segment? No. Technical 1) Do I need to download any software to access Forwards system? No. You do not need to download any software. The Forwards Trading and Clearing system is a web based system. You need any of the below Internet browsers to access the same. Internet Explorer 8 or above, Google Chrome 35.0 or above, Mozilla Firefox 27.0 or above 2) Do I need Open VPN to connect to Forwards system through Internet? No. You do not need Open VPN to connect through internet. 3) Can I log in to Futures Trading system and Forwards Trading system through the same User ID simultaneously? Yes. You can login to Futures Trading system and Forwards Trading system through the same User ID simultaneously. 4) Can I change my password in Forwards Trading system? Only CPM members can change their password in Forwards Trading system. For all other types of members, password can be changed in Futures system and the new password will be reflected in Forwards system in the next working day. 5) What is the structure of Order Number 31 / 45

32 Order Number is 15 digit number which will be unique for one year. E.g Internal Number Day of year Time in hh:mm:ss format Sequence No (01-99) ( ) (00:00:00 23:59:59 ) ( ) The first two digits are internal number. It will range from 01 to 99 The next three digits (3 to 5) specifies the Day of the Year. It will range from 001 to 366 The next six digits (6 to 11) specifies the Time of the order in hh:mm:ss format. It will range from 00:00:00 to 23:59:59 The last four digits (12 to 15) specifies the sequence number of the Order. It will range from 0001 to ) What is the structure of Trade Number Trade Number is a 15 digit number which will be unique for one year. E.g Internal Number Day of year Time in hh:mm:ss format Sequence No (01-99) ( ) (00:00:00 23:59:59) ( ) The first two digits are internal number. It will range from 01 to / 45

33 The next three digits (3 to 5) specifies the Day of the Year. It will range from 001 to 366 The next six digits (6 to 11) specifies the Time of the order in hh:mm:ss format. It will range from 00:00:00 to 23:59:59 The last four digits (12 to 15) specifies the sequence number of the Trade. It will range from 0001 to ) What is the structure of Token Number The Token number is a 14 digit number. E.g Date Time in ddmmyyhhmmss Sequence No The initial 12 digits specifies date time in ddmmyyhhmmss format. The last two digits specifies the sequence no. It will range from ) From where can the members download the files of Forward system Trading Members can download the below files from the Forwards Trading Front end TR01 - FRWDNCDEX_TR01_<MEMBERCODE>_DDMMYYYY.CSV PS03 - FRWDNCDEX_PS03_<MEMBERCODE>_ DDMMYYYY.CSV CTT01 - FRWDNCDEX_CTT01_<MEMBERCODE>_ DDMMYYYY.CSV CM can download the below files from Forwards Post Trade system TR02 - FRWDNCDEX_TR02_<PRIMARY_MEMBERCODE>_ DDMMYYYY.CSV PS04 - FRWDNCDEX_PS04_<PRIMARY_MEMBERCODE>_ DDMMYYYY.CSV CTT02 - FRWDNCDEX_CTT02_<PRIMARY_MEMBERCODE>_ DDMMYYYY.CSV Members need to log on to the Forwards system and download the files. These files will NOT be available on the Extranet. 33 / 45