Introduction to Contracts

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Introduction to Contracts

Types of Tradable Contracts in IME

1-Cash Contract

In this type of contracts, the buyer is obliged to pay in cash the total contract value in addition to broker's commission fees, and the seller is required to deliver the commodity up to 3 days.

2-Forwards Contract

In this type of contracts, the whole contract value is paid by buyer and the seller is committed to deliver the product in specified date and time. This type of contract is considered as a financing instrument for sellers.

3-Credit contract

It is a kind of contract in which the product is delivered to buyer immediately, and its value will be paid to seller in maturity date. This type of contract is considered as a financing instrument for buyers.

4-Futures contract

Futures contract is a kind of contract in which the seller is committed to sell a certain amount of product at a given price in maturity date and in contrast, the other party undertakes to buy the product with the same characteristics in maturity date. In order to have both sides fulfill their obligations, they shall deposit a certain contract value as collateral to clearing house and in accordance with futures price fluctuations shall adjust the initial collateral. On behalf of them, the clearing house can give the possession of a part of collateral to the other party as "concession of the occupation". The juridical meaning is that both parties permit clearing house to tenure the collateral.

5-Options Contract

An options contract is a contract giving the holder the right, but not the obligation, to buy a specified amount of a commodity or a commodity based security at a specified price within a specified time from owner. The owner will be committed to sell the commodity or the commodity based security on holder's request. It is noteworthy that the rules and regulations, procedures and required infrastructure for options contracts have been provided in IME, but has not been launched yet.

6-Standard Parallel SALAM

It is a kind of contract in which a given amount of commodity will be sold based on standard parallel SALAM features. The contract value shall be paid in accordance with contract in settlement deadline and the commodity shall be delivered in maturity date. The buyer can sell the equivalent amount of purchased commodity via standard parallel SALAM with the following condition:

-Each standard parallel SALAM is separate from other contracts.

-According to this contract, the equivalent amount of purchased commodity will be sold.

-Based on its characteristics, the contract will be concluded in initial public offering.

Concurrent with contract conclusion, a draft contract will be signed and the seller will transfer the commodity deliverance to the commodity supplier and the supplier is committed to deliver it based on the draft.

7- Certificate of Depositary Receipt (CDRs)

A certificate of depositary 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 by IME. It is worth noting that in implementation of guaranteed price plan, after depositing the commodity by farmer or supplier in a warehouse listed by IME, a certificate of depositary receipt (CDR) will be issued by a warehouse keeper. Then the farmer or supplier holding the CDR can trade his/her commodity in the IME through authorized brokerages. Moreover, the opportunity of financing and receiving loans from banking system is been provided through this instrument.

8- Exchange Traded Commodities (ETCs)

Exchange Traded Commodities (ETCs) are financial instruments issued against a direct investment by the issuer in commodities or commodities derivative contracts. The price of an ETC is, therefore, directly or indirectly linked to the performance of the underlying. ETCs:

- Are traded on the stock exchange like shares

- Passively track the performance of the commodity or commodity indices to which they refer, thus are fully entitled to be referred to as “passive instruments”.