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Derivatives trade in base metals

, ET Bureau|
Feb 18, 2019, 08.46 AM IST
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There is no additional tax for a person who is not involved in delivery.

Highlights

  • The Exchange has a designated warehouse at Thane district in Maharashtra.
  • The seller has to deliver the metal as per specifications of the contract.
  • All deliveries will happen through exchange’s Commodity Receipt Information System (COMRIS).

Commodity Summary
MCX

ALUMINIUM
What are the base metals futures traded on MCX? How have they been finally settled on the day of expiry?

The base metal contracts traded on MCX are aluminium, copper, lead, nickel and zinc and their mini variants. Of these, except copper, all other contracts are settled based on LME cash settlement price on the last working day of the contract month. The copper contracts are settled based on the COMEX (CME Group) settlement prices on the last working day of the contract month.

Some of these contracts are being made compulsory delivery. How will this benefit the user community?

Aluminium (5MT) and Zinc (5 MT) have been converted to compulsory delivery settlement mode from March 2019 contract and April 2019 contract onwards, respectively. The exchange is also in the process of converting all other metal contracts including its mini variants into delivery based contracts. The user community having an underlying exposure to these two metals will now be able to give and take delivery of both these metals through the exchange delivery mechanism.

How will the delivery be facilitated?

The Exchange has a designated warehouse at Thane district in Maharashtra. The seller has to deliver the metal as per specifications of the contract. On the last trading day of the contract month all buyers and sellers having an outstanding Open Interest will have to compulsorily take or give delivery of the metal. All deliveries will happen through exchange’s Commodity Receipt Information System (COMRIS).

How are these contracts settled currently?

The Exchange has started disseminating on its website the spot prices of both the metals twice a day (morning & evening). These prices are determined through a polling process with the market participants. The Final Settlement Price (FSP) of the deliverable contracts will be arrived at by taking the simple average of the last polled prices of the last three trading days of the contract month.

Which are the most active/liquid base metals contracts. Do any actual users trade them currently? What could be the speculator -user mix?

All the base metals contracts on the exchange including the mini variants are extremely liquid and are very actively used by the hedgers to hedge their metal price risk on a regular basis.

Can one trade options on these base metals?

Options are traded on Zinc (5MT) and Copper 5 (MT) where the underlying on both these options is the respective futures contracts traded on the exchange.

What will be the quality specifications?

At present, primary aluminium ingots with minimum purity of 99.70 per cent and primary special highgrade zinc with minimum purity of 99.995 of LME approved brands only will be eligible for delivery.

Will there be any additional margins to be paid during delivery?

An incremental tender margin of 5 per cent is levied during the last five working days of the contract on all outstanding positions in addition to initial and special/additional margins. Post expiry, delivery period margins are applicable on marked deliveries. Sellers are exempted from all types of margins, except mark-to-market (MTM), if goods are tendered.

What about taxes? Are there additional taxes to be borne?

There is no additional tax for a person who is not involved in delivery. Only at the time of delivery, the buyer has to pay GST in addition to final settlement price (FSP).

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