 General
What is Nepal Spot Exchange (NSE)?
Nepal Spot Exchange is a national level institutionalized, electronic, transparent spot exchange, which is poised to transform the rural economy. It is a state-of the-art unique electronic market place providing customized solutions to various problems faced by the farmers, traders, processors, exporters, importers, arbitragers, investors and the general mass.
What are the trading hours?
Trading hours take place on all days of the week (except Sundays and holidays declared by the Exchange).
What are the different types of participants in Nepal Spot Exchange?
The participants on the Nepal Spot Exchanges will be the actual buyers and sellers who are interested in taking delivery and making delivery of the commodity. In other words, manufacturers, traders, farmers, and exporters are the types of participants in this market.
How is trading done in the Nepal Spot Exchange?
Nepal Spot Exchange trading is an online trading system. It is an order-driven, transparent trading platform, which is reachable to the various participants through the internet, VSAT, and leased line modes operated by members or sub-brokers spread across the country.
What is a Spot contract?
A Spot contract is an agreement between two parties to buy or sell a specified quantity and defined quality of a commodity at a certain time as specified in the contract. The spot contract is of one day duration and the open position at the end of the trading session results into the compulsory delivery.
What is the benefit of Spot trading in commodities?
The biggest advantage of commodities trading in spot exchange is to mitigate the counter party risk and the quality risk of the commodities traded in the physical market. Exchange also provides the quality certification, grading and warehousing facilities for the commodities to be traded on the Exchange. Exchange is also issuing the Warehouse Receipt (WR) for the depositor which can be used for warehouse receipt financing from the banks.
Who can trade on commodity exchanges?
Commodity exchanges have a membership framework. Members of the exchange and registered, approved/ authorized users (i.e. clients) of the members can trade on commodity exchanges.
Trading
How can you trade on NSE platform?
The trading can be done by the members of NSE or the clients having the NSETP terminal provided by the Exchange with user ID and password.
What would be the settlement period?
All contracts settling in cash i.e MTM would be settled on the following working day after the contract expiry date. All contracts materializing into deliveries would settle in a period of T+1, T+2, T+3........... The exact settlement day would be specified for each commodity contract.
What is the purpose of collecting margin?
The purpose of collecting margin money by the exchange is to avoid the counter party risk of defaulting by its members or their clients in fulfilling their obligations. It is part of the risk management system.
What is initial margin?
It is the minimum percentage of the contract value required to be deposited by the members/clients to the exchange before initiating any new buy position.
What is mark to market (MTM)?
At the end of every trading day, the margin account of the trader/client is adjusted to reflect the participant's gain or loss. The price changes on the close of every trading day may result in some gain or loss as compared to the previous day's closing price. These price variations are netted into the daily margin account. This process is known as mark to market.
What happens if an open position of a spot contract is not squared off (closed out) before the end of the trading day?
If an open position of a spot contract is not closed out on or before the end of the trading day, depending on the long position, the trader will have to take/give delivery of the underlying commodity respectively. It will come to effect as per the settlement mode mentioned in the contract.
What is the role of a clearing house in commodity markets?
A clearing house or exchange of an Exchange performs every activity related to delivery, settlement, margins, and managing the settlement guarantee fund. The clearing house or exchange will manage margin of the members, make pay-in and pay-out effective, and monitor delivery and settlement process.
What is process of trading on the spot exchange?
Every trade on the exchange is supported by an initial margin that is marked to market (MTM) on a daily basis. Then the outstanding amounts are credited to or debited from the respective members' settlement account. These payments are then processed electronically through clearing banks.
What do you understand by a contract specification?
A contract specification is a document, which provides detailed guidelines and parameters of any relevant commodity traded on the exchange. The contract ensures the standards of commodity spot through various parameters such as trading details, contract duration or expiry date, quality parameters, delivery mode and its details.
It includes every possible detail for the successful execution of the trade conducted on the exchange. These include trading lot, price quote, order size, tick size, limits of daily price, margin and open positions, delivery centers, settlement price and procedure, tender/delivery period, taxation, legal obligation, etc.
What is the life of a commodity spot contract?
The life of a commodity spot contract is the period when the contract will be available for trading. All the spot contracts are available for the single day only (yet to confirm). The outstanding positions result into compulsory delivery.
What is a delivery centre, as specified in the contract specification?
It is the place or location of the various exchange-designated or approved warehouses where the participants/traders are obliged to get and give the delivery of the commodity.
What is the meaning of delivery pay-in of commodities?
Delivery pay-in of commodities refers to the seller delivering the commodity to the exchange-specified warehouse during the tender/delivery period of the contract.
What is the meaning of pay-in of funds at the time of delivery?
Pay-in of funds at the time of delivery refers to the transfer of funds from the buyer-member's settlement account to the exchange before he takes delivery of the commodity from the exchange-specified warehouse.
What do you mean by delivery pay-out of commodities?
Delivery pay-out of commodities refers to the time period when the buyer extracts the commodity from the exchange specified warehouse.
What do you mean by pay-out of funds at the time of delivery?
Pay-out of funds at the time of delivery refers to the transfer of funds to the selling-member's settlement account from the exchange, after the buyer extracts the commodity.
How is dematerialization done in case of commodities?
Delivery of commodities can be done through dematerialized warehouse receipts. All the members and authorized/approved users of the commodity exchange can open demat accounts with accredited depository participants to facilitate acceptance/delivery of commodities through warehouse receipts in dematerialized form.
Membership
What are the different types of membership categories?
There are two types of membership categories available in Nepal Spot Exchange 1.Clearing Member, 2.Broker Member.
What are warehouse receipts?
Warehouse receipts are title documents issued by warehouses to depositors against the commodities deposited in the warehouses. These documents are transferred by endorsement or delivery. The original depositor or the holder in due course can claim the commodities from the warehouse by producing the warehouse receipt.
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