Types of Tradable Contracts in IME

 

Part one- Spot Market

The spot market of the IME is the trading platform for physical commodities like steel billet, bloom, rebar, beam, tin plates, hot-rolled coils, cold-rolled coils, galvanized color sheets and steel slabs which are traded in the Industrial Trading Floor of the exchange together with gold bar, iron ore and cement. Copper cathode and wires as well as aluminum ingots, billets and alloys are also traded in this floor together with zinc and lead.

Numerous types of polymers like LLDPE, PVC, ABS, styrene, poly-styrene, polypropylene, PET and chemicals like caustic soda, glycole, ethylene, argon, terephthalic acid and other petrochemicals are traded in the Oil and Petrochemical Trading Floor of the exchange which is also the venue for trading of lube cut, vacuum bottom, bitumen and base oil.

The third group of commodities are agricultural products like various forms of saffron, pistachios, raisins, cumin seeds, wheat, barley, oil seeds, rice and dates that are traded on Agricultural Commodities Trading Floor.

 

Based on settlement and delivery maturities, spot trade fall in  following categories:

 

1-Cash Contract 

In this type of contract, the buyer is obliged to settle the trade value in three working days from matching of trade, and the seller is required to deliver the commodity promptly in 10 calendar days from trade. 

 

2-Physical Forward Contract

In this type of contract, trade settlement is done by buyer like cash contract yet the seller will remain committed to deliver the product at a maturity ( normally 45 days) stated in the offering notice prior to trade. This type of contract is considered as a financing tool for manufacturing units that receive the total price of the commodity in advance but at a discounted rate compared to normal cash trades.

 

3-Credit contract

Here, the seller deliveres the underlying like the cash contract to the buyer, but will be paid in a maturity stated in the offer notice. This type of contract is considered as a financing instrument for downstream manufacturers who produce a semi-finished or a finished product with the raw material purchased from the exchange. They pay the trade value at the maturity at rates that are higher than the normal cash trades i.e. a premium on normal price.

 

In all transactions of the exchange, the clearing house acts as the central counterparty to each trade side. The clearing house ensures comitments of seller and buyers through collateral management both in spot and derivatives trades.

 

 

Sub-divisions of the Spot Market

 

Side Market

 

Commodity Depositary Receipt (CDR)

A commodity depository receipt (CDR) is a security that entitles the ownership of a specified amount of a commodity and is guaranteed by a warrant issued by listed warehouses of the IME. CDR is within the category of spot market solutions. After depositing the commodity by farmer or supplier in a warehouse listed by the IME, a receipt (CDR) will be issued which would be negotiable and tradeable in the secondary market of the exchange at http://www.tsetmc.com/Loader.aspx?ParTree=15. The receipt is also acceptable as collateral in the IME physical market or as the backing of the delivery in futures market. Some designated banks in IME have provided opportunity for traders to get short term loans based on the commodity receipts.

The CDR instrument is an effective solution for the farmers at the time of harvest and after. They can sell their commodity at more reasonable prices into the crop season. At the moment, active CDRs of IME are on issued and traded on Gold coin, Cumin seeds, Raisins, Dates, Saffron, Rice and Pistachios.

 

Commodity ETFs

Commodity funds are financial instruments available for traders who have exposures or interests in commodities. They are low risk investment tools as well. Exchange-traded commodity funds are one of the pioneering and effective trading instruments of our exchange. Commodity ETFs assist in regulating the agricultural market price of crops and products. They generally help broaden the spectrum of risk management products. Increasing the financial literacy of farmers is the other feature of such instruments while the commodity funds can turn agriculture market to a lucrative trading option for investors. They are trusted gadgets for a risk-free investment in the international capital market. Many of the international and multi-national commodity trade corporations buy and trade fund units in order to both mitigate their risks and gain from investments. Diverse range of underlying commodities in the commodity funds ensures a liquid market for investors of variety needs with a guaranteed profit.

 

 

 

 

 

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