Brics Guide to Commodities
Commodity Daily
Brics Guide to Commodities
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What is a commodity?
The term 'commodity' includes all kinds of goods. FCRA defines 'goods' as 'every kind of movable property other than actionable claims, money and securities'. Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognised under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all permissible commodities which include precious (gold and silver) and non-ferrous metals; cereals and pulses; ginned and un-ginned cotton; oilseeds, oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and onions; coffee and tea; rubber and spices, etc. -
What is a Derivatives contract?
A derivatives contract is one which derives its value from the value of its underlying. The underlying could be shares, currency, interest rates, commodities, etc. -
What is a futures contract?
A futures contract is an obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future contract and a Forward contract is that Futures are typically traded over an exchange (Exchange-Traded Contracts - ETC) versus Forwards, which are considered Over the Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange. -
What are commodity futures?
A contract to buy or sell a commodity at a specific price and on a specific delivery date. -
Which commodities are available for trading in the derivatives market?
Currently commodities which are available for trading in NCDEX & MCX.
IN ENERGY - Crude Oil.
IN PRECIOUS METALS - Gold, Silver.
IN BASE METALS - Steel, Copper, Nickel, Tin,
IN AGRO BASED - Cashew, Castor, Chana, Chilli, Coffee, Cotton, Guar Gum, Gur, Jeera, Jute, Kapas, Maize, Mulberry Green Cocoons, Mulberry Raw Silk, Pepper, Rice, Rubber, Soy Meal, Sugar, Tur, Turmeric, Urad, Wheat and Yellow Peas.
IN OIL SEEDS - Castor Seed, Crude Palm Oil, Expeller Groundnut Oil Guar Seed, Mustard Oil, RBD Palmolein, Rapeseed, Seasame Seed, Soybean & Soy Oil.
(Commodities are being added frequently by the exchanges. The above list of commodities is as of May 2005) -
What are the commodity derivatives market timings?
The commodity derivatives timings are:
NCDEX & MCX
Monday to Friday:
10 am to 11.30 pm (Agri commodities till 5 pm only)
Saturday:
10 am to 2 pm -
What are the margins applicable in the commodities market?
Margins on both the exchanges range from 4 to 8 % except for a few commodities where it is around 10% to 20% depending on their volatility, unit of trading and lot size. (Margin may change from time to time as notified by respective exchanges.) -
Are any transaction charges imposed on commodity futures contracts, as in case of stocks?
Yes, the exchange levies transaction charges based on volumes. e.g.
On NCDEX - Rs.6 per lakh and on MCX - Rs. 5 per lakh. -
How many contracts will be available for futures trading? Of three calendar months as in case of equities?
Generally it is 3 consecutive months, but recently exchanges have started providing upto 7th month contract for some of the commodities. -
What is the date of expiry of contracts?
On NCDEX it is always on 20th of every month.
On MCX it differs from commodity to commodity. -
How would contracts settle?
All open contracts which are not intended for delivery will be settled in cash. They will be settled on the following day after the contract expiry date. -
Is delivery available? Is delivery compulsory?
Yes, but its not compulsory, buyers and sellers intending to take/give delivery should express their intention to the exchange. The exchange will match delivery randomly and assign it accordingly. -
How would a seller get the electronic balance for physical holdings?
The seller intending to make delivery would have to take the commodities to the designated warehouse. These commodities would have to be assayed by the Exchange specified assayer. The commodities would have to meet the contract specifications with allowed variances. If the commodities meet the specifications, the warehouse will accept them. Warehouses will then update the receipt in the depository system giving a credit in the depositor's electronic account. -
How can a buyer take physical delivery?
Any buyer intending to take physical delivery has to put a request to its Depository Participant, who will then pass on the same to the registrar and the warehouse. On a specified day, the buyer can go to the warehouse and pick up the physical goods. -
How is uniformity ensured in delivered grades/varieties?
The exchange will specify in its contract description, the particular grade/variety of a commodity that is being offered for trade. A range will be specified for all the properties and only those grades/ varieties, which fall within the range, will be accepted for delivery.
In case the properties fall within the range, but differ from the benchmark specifications, the Exchange will specify a premium / rebate. -
Do clients or participants need to have sales tax registration?
Those clients who trade with the intention of taking or giving delivery should have sales tax registration before settlement of the delivery based trades. Deliveries given by clients or participants who are not registered under the relevant state sales tax law or whose registration is not valid on the date of sale or delivery will amount to default. -
Who is responsible for payment of sales tax?
It is obligatory on the part of the seller to collect the sales tax from the buyer and deposit the same into the Government Treasury. However, in the case of commodities which are liable to tax on purchases only and not on sales, the buyer will have to discharge the liability for payment of tax. In all other cases, payment of taxes will be the sole responsibility of the seller. -
When is sales tax payable by the buyers?
On the day of settlement the sales tax incidence on the trades settled would be notified to the clearing members, which will be settled on the supplemental settlement day, which is normally two days after the actual settlement day. -
Can sales tax exemptions be availed of? How?
Yes. The participants can avail of the exemptions if any, entitled to them. The buyers will have to indicate their ability to give supporting documents / certificates / declarations prescribed under the respective state sales tax laws at the time of giving requests for taking delivery and will have to be submitted before the supplemental settlement day. Submission of incomplete or invalid declarations / certificates would amount to defaulting on the part of the seller. -
If a client/participant trades in more than one commodity having delivery centers in different states, does he need sales tax registration in each of such states?
Yes, the client/participant will have to register in all those states where the delivery center for the commodities is located.
Thanks,
Commodity Daily
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Note- Members express their own view & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell call, pl use own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.
NEW INVESTORS SHOULD BE VERY CAREFUL.
--
Thanks,
Commodity Daily
You received this message because you are subscribed to the Google Groups "Commodity Daily" group.
To subscribe visit link http://groups.google.com/group/commoditydaily/subscribe
To unsubscribe from this group, send email to commoditydail...@googlegroups.com
OnlineChat : "commodi...@gmail.com" , "gaura...@yahoo.com"
Note- Members express their own view & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell call, pl use own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.
NEW INVESTORS SHOULD BE VERY CAREFUL.