Frequently Asked Questions – Forward Contract
32 / 51 Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road,
Kanjurmarg West, Mumbai 400 078, India.CIN No. U51909MH2003PLC140116 Phone: +91-22-6640 6789, Fax +91-22-6640 6899, Website: www.ncdex.com
of referenced future contract’s DSP one day prior to the trade and the 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.
NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED Frequently Asked Questions – Forward Contract
33 / 51 Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road,
Kanjurmarg West, Mumbai 400 078, India.CIN No. U51909MH2003PLC140116 Phone: +91-22-6640 6789, Fax +91-22-6640 6899, Website: www.ncdex.com
b. How much is the Incremental Margin in case of Fixed Price Contracts?
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
1000
0
0
1
stMonday after trade
1025
0
25
2
ndMonday after
trade
1015
0
15
3
rdMonday after
trade
1000
0
0
Wednesday after 3
rdMonday after trade
960
40
0
4
thMonday after
trade
975
25
0
d. What is the time given to the buyer/seller to provide the incremental margin?
The buyer or seller will have to provide the incremental margin required, within 2 working days from the date of the incremental margin call given.
e. What if there is a shortfall in incremental margin?
NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED Frequently Asked Questions – Forward Contract
34 / 51 Registered Office: 1st Floor, Akruti Corporate Park, Near G.E. Garden, LBS Road,
Kanjurmarg West, Mumbai 400 078, India.CIN No. U51909MH2003PLC140116 Phone: +91-22-6640 6789, Fax +91-22-6640 6899, Website: www.ncdex.com
In case either the buyer or seller fails to provide the incremental margin required, within 2 working days from the date of the incremental margin call, 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. In case the buyer/seller has not provided the same, it shall be considered a default, the trade shall be deemed to be cancelled and the margin blocked amount shall be forfeited. The margin blocked amount will be the amount collected until the incremental margin call preceding the one resulting in default.
4) What will happen to the margin in case of default by one of the parties?
90 % of the amount collected from the defaulting party after deducting applicable service tax, shall be paid as compensation to the counterparty and 10% of the margins blocked after deducting applicable service tax, shall be retained by the Exchange as transaction charges.
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.