Settlements of Futures contracts

Future contracts have two types of settlements, the Mark to Market (MTM) settlement which happens on a continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract. On the NCDEX, daily MTM settlement and final MTM settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank. All positions of a CM, either brought forward, created during the day or closed out during the day, are marked to market at the daily settlement price or the final settlement price at the close of trading hours on a day. Daily settlement price: Daily settlement price is the consensus closing price as arrived after closing session of the relevant futures contract for the trading day. However, in the absence of trading for a contract during closing session, daily settlement price is computed as per the methods prescribed by the Exchange from time to time. Final settlement price: final settlement price is the polled spot price of the underlying commodity in the spot market on the last trading day of the futures contract. All open positions in a futures contract cease to exit after its expiration day. Settlement of commodity futures contracts is a little different from settlement of financial futures which are mostly cash settled. The possibility of physical settlement makes the process a little more complicated. Daily mark to market settlement Daily mark to market settlement is done till the date of the contract expiry. This is done to take care of daily price fluctuations for all trades. All the open positions of the members are marked to market at the end of the day and the profit /loss is determined as below: On the day of entering into the contract, it is difference between the entry value and daily settlement price for that day. On any intervening days,  when the member holds an open position, it is the difference between the daily settlement price for that day and the previous day’s settlement price. On the expiry date if the member has an open position, it is the difference between the final settlement price and the previous day’s settlement price. Final Settlement One the date of expiry, the final settlement price is the closing price of the underlying commodity in the spot market on the date of expiry (last trading day) of the futures contract. The spot prices are collected from polling participants from base centre as well as other locations. The responsibility of settlement is on a trading cum clearing member for all trades done on his own account and his client’s trades. A professional clearing member is responsible for settlement all the participants trades which he has confirmed to the Exchange.