© Copyright 2018. All rights reserved. National Commodity Clearing Limited. (NCCL)
Daily Settlement Price for mark to market settlement of futures contracts
The daily profits/losses of the Members are settled using the Daily Settlement Price. The Daily Settlement Price shall be determined in the manner described here under or in such other manner as may be prescribed by NCCL from time to time. The Daily Settlement Price notified by NCCL by any method, shall be binding on all its Members and their constituents.
The Daily Settlement Price is determined as follows:-
The Clearing Corporation shall determine the Daily Settlement Price in the following order:
i. Volume Weighted Average Price (VWAP) of contracts during the last 30 minutes of trading
ii. VWAP during the last one hour of trading
iii. VWAP during the last three hours of trading
iv. VWAP of the trades during the day
v. A price arrived through any other method which the Clearing Corporation, in its absolute discretion, considers to reflect the market price better.
The VWAP arrived through the above methods shall be considered only if the liquidity criteria set by the Clearing Corporation is met. Further, in case the contract hits the daily price limit and closes at circuit price then the DSP will be the circuit price.
In the event of failure of Method 1, the Daily Settlement Price will be determined using any of the following methods which in the opinion of NCCL would be a better indicator of market prices:
i. Theoretical futures price derived from the spot price:
F = (S − U) ert
Where F = futures price, S = polled spot price, r = 30 day MIBOR rate and T = time remaining till maturity, e is not defined here, U is a factor of adjustment for backwardation (where the futures prices are lower than spot prices). This can arise due to reasons such as cyclical/seasonal factors, changes expected in supply/demand conditions due to arrival of new crops during harvest season, etc.
NCCL would measure the expected backwardation with historical data to validate the factor of adjustment to be used for the contract, besides keeping the market perceptions of future prices in perspective. This factor of adjustment shall be used in the formula given above to arrive at the base price on the day trading commences on the contract.
Once the trading begins on the contract, the factor of adjustment (U) shall be the average of the factor of adjustments for the preceding ‘n’ trading days, where n shall be five or number of days from the commencement of trading in the contract whichever is lower.
ii. Theoretical Futures price arrived from liquid contracts of the same commodity:
The spreads that prevail between active contracts (the contracts that qualify method 1 described above) shall be used to determine the theoretical futures price for other contracts that do not meet the criteria for liquid contract as stated above, in the same commodity. For example, if we assume that the near month and middle month contracts are active, the theoretical futures price for an illiquid far month contract shall be determined as a theoretical futures price using the spread between the near and the middle month contract.
iii. Previous day’s settlement price or a price arrived through any other method which the Clearing Corporation, in its absolute discretion, considers to reflect the market price better. And any such Daily Settlement Price determined by Clearing Corporation shall be binding on all its Members and their constituents.
The Daily Settlement Prices will be disseminated to Members through the file NCDEX_CN01_ ddmmyyyy.CSV (in Common/Reports directory on Extranet).
Final Settlement Price for futures contracts
The Final Settlement Price (FSP) at the expiry of contract shall be determined in accordance with the method prescribed in respective contract specification. All open position at close of market on the expiry date of the relevant contract shall be settled/ marked for delivery at the Final settlement Price.
The price arrived at as above shall be adjusted by applying premium / discount in respect of quality, quantity, location etc. in accordance with the adjustments specified in the Contract Specifications / Product Note of respective commodity. The premium/discount shall be determined and disclosed by NCDEX prior to launch of the contract in various commodities.
Currently for contracts where Final Settlement Price (FSP) is determined by polling, unless specifically approved otherwise, the FSP shall be arrived at by taking the simple average of the last polled spot prices of the last three trading days viz., E0 (expiry day), E-1 and E-2. In the event the spot price for any one or both of E- 1 and E-2 is not available; the simple average of the last polled spot price of E0, E-1, E-2 and E-3, whichever available, shall be taken as FSP. Thus, the FSP under various scenarios of non-availability of polled spot prices shall be as under:
|Scenario||Polled spot price availability on||FSP shall be simple average of last polled spot prices on|
|1||Yes||Yes||Yes||Yes/No||E0, E‐1, E‐2|
|2||Yes||Yes||No||Yes||E0, E‐1, E‐3|
|3||Yes||No||Yes||Yes||E0, E‐2, E‐3|
In case of non-availability of polled spot price on expiry day (E0) due to sudden closure of physical market under any emergency situations noticed at the basis centre, NCCL / NCDEX shall decide further course of action for determining FSP in consultation with SEBI.
The Settlement Price for any delivery allocation during staggered period (i.e. up to one day prior to expiry) would be the last available spot price for the respective contract.
Final exercise settlement price for option contracts
The Final Settlement Price shall be determined in the manner described here under or in such other manner as may be prescribed from time to time.
Currently, Daily Settlement Price (DSP) of the underlying Futures contract on the Options Expiration day shall be the Final Settlement Price.