National spot exchange ltd (NSEL)

NSEL: brief outline

It is MCX group company Promoted by : -Financial Technologies India Ltd -NAFED (National Agriculture Cooperative Marketing Federation of India Ltd.) Compulsory delivery based contracts NSEL has designed products for trade ,investment in commodity in form of demat. Traded metals are E-gold, E-silver, E-copper, E-zinc, E-lead Traded agri commodities are Castor seed, Castor oil, Cotton Wash Oil

Arbitrage Opportunities in Agro Commodities on NSEL (Spot Exchange)

Agro commodities offering arbitrage opportunities Castor Seeds, Castor Oil & Cotton Wash Oil Various settlement cycles like T+2 & T+25, T+3 & T+36. Buying in one settlement (T+2 / T+3) and selling in another settlement (T+25/T+36)
DAY
T

TRANSACTION
Buy T+3 contract (IIFL client )

Margin charged by exchange

5% based on VAR Settlement pay-in on T+3 Delivery Through Allocation Letter

Sell T+36 contract (IIFL client )

Based on buy order in T+3 / Warehouse receipt

A buy in T+3 is eligible for selling in T+36 as Exchange guarantees delivery where the buyer obtains allocation letter on T+3

Arbitrage Opportunities in Agro Commodities on NSEL (Spot Exchange)

DAY T

TRANSACTION Sell T+3 contract (miller)

Margin charged by exchange Based on warehouse Receipt

Buy T+36 contract (miller)

25% margin of the contact value Bank Guarantee for remaining 75%

Exchange is acting as counter party in both the trades and guarantee settlement. Exchange has settlement guarantee fund of Rs.90 crore. Average daily volume in this structure is around Rs.25 crore.

Arbitrage Opportunities in Agro Commodities on NSEL (Spot Exchange)

Physical delivery of goods remains in warehouse and buyer gets allocation letter. Exchange has taken insurance on goods in Warehouse. Exchange takes cash margin and bank guarantee from millers who are buying in T+36 contracts. Currently exchange has taken Rs.100 crore cash margin and bank guarantee of around Rs.250 crore from miller. On an average miller use exposure of Rs.350 crore on exchange. Millers are direct members of the exchange and doesnt route through any broker. Exchange is charging 5% margin on T+3 buy trade and adjust marked to mark difference also. In case of default on part of buyer exchange reserves rights for auction.

Example of castor seed

Price quotation: 20 KG Trading Unit/1 lot: 300 bags (75 Kgs each) and in multiples thereof Fund Pay In On the date of trade that is T: 5% margin on buy side + expenses On T+2: 95% on the contract value along with 5% VAT

Fund payout T+25: sell side contract value + buy side VAT Income from spot arbitrage will be part of other income

Example of castor seed

COSTS INVOLVED IN BUYING AND SELLING IN CASTOR SEED TRADERS CONTRACT EX KADI DELIVERY QTY. A 1 2 3 4 5 6 B 1 2 3 4 5 6 C D 1 2 3 4 5 6 7 G 1 3 4 H BUYING IN T+3 Contract Cost of One Truck (Approx. 300 Bags / Lots) Each Bag is of 75 Kgs Exchange Transaction Fee: @ Rs 5/-Per Lac Warehouse Receipt Transfer Charges: Rs 50/- per Lac Brokerage of Member: Assumed at 10 paisa service tax on brokerage @10.03% CNF Billing Charges: IBMA - Rs 100/- per bill of 300 Bags Total Cost to Investors in Buying Castorseed in T+3 Contract SELLING IN T+36 Contract Sale Proceeds of One Truck (Approx. 300 Bags / Lots) RECEIVABLE Less:Exchange Transaction Fee: @ Rs 5/- Per LAC Less: Warehouse Receipt Transfer Charges: Rs.50/- per lac Brokerage of Member: Assumed at 10 paisa service tax on brokerage @10.3% CNF Billing Charges: IBMA - Rs 100/- per bill of 300 Bags NET RECEIVABLE BY INVESTORS NET EARNINGS PER ONE TRUCK LOAD OF CASTOR SEED IN 36 DAYS SETTLEMENT DAYS CALCULATION Date of Trading Settlement Date for T+3 Contract i.e. FUNDS PAY IN Difference i.e. number of days for which initial margin is blocked Settlement Date for T+36 Contract i.e. FUNDS PAY OUT from exchange FUND PAYOUT DATE to CLIENT Number of Days for which funds are invested at exchange end Number of Days for which funds are invested at client end COST OF INVESTMENT INITIAL 5% MARGIN Balance Money: Day 36 VAT @ 5% debited at the time of funds pay in Total Return calculated for one day investment of Estimated ANNUALIZED RETURNS in case of payout 1INITIAL 5% MARGIN 3Balance Money: Day 36 4VAT @ 5% debited at the time of funds pay in Total Return calculated for one day investment of I Estimated ANNUALIZED RETURNS in case of back to back rollover 47812.50 956250.00 47812.50 5 48 48 47812.50 956250.00 47812.50 5 49 49 239062.50 46856250.00 2342812.50 49438125.00 14.17 239062.50 45900000.00 2295000.00 48434062.50 14.46 48 49 5 13-Feb-12 14-Feb-12 22-Dec-11 27-Dec-11 300 870.1 300 RATE Per 20 Kgs 850 AMOUNT Rs. AMOUNT REQUIRED AT PAY IN WITH VAT 956250.00 47.81 478.13 956.25 98.49 110.30buy value 957940.98vat EXPENSES 978862.5total 48.94 489.43 978.86 100.82 110.30 977134.14 19193.16 958481.18 956250.00 47812.50 3419.34 1007481.84 956250.00 47812.50 1004062.50

Arbitrage Opportunities in Agro Commodities on NSEL (Spot Exchange)- STEEL

Steel contracts are traded in NSEL its compulsory delivery contract

The process of trading is same like castor products

Current steel contract available is T+2 and T+25 settlement, symbols for the same are STLTMTKUR2 and STLTMTKR25

Price quotation: per MT Trading Unit/1 lot: 10MT and in multiples thereof Exchange is acting as counter party in both the trades and guarantees settlement. Average daily volume in this is around Rs.2 3 crore Physical delivery of goods remains in warehouse and buyer gets allocation letter

Arbitrage Opportunities in Agro Commodities on NSEL (Spot Exchange)- STEEL

Exchange has taken insurance on goods in Warehouse.

Exchange takes cash margin of 15% from miller who is buying in T+25 contracts. Fund Pay In On the date of trade that is T: 5% margin on buy side + expenses On T+2: 95% on the contract value along with 5% VAT Fund payout T+25: sell side contract value + buy side VAT Income from spot arbitrage will be part of other income

Example of STEEL
COSTS INVOLVED IN BUYING AND SELLING IN STEEL TRADERS CONTRACT EX KURNOOL, ANDHRA PRADESH DELIVERY QTY. IN LOT RATE Per 1 MT A BUYING IN T+2 Contract 10 48200 1 Cost of One Lot
2 3 4 5 6 B 1 2 3 4 5 6 C D 1 2 3 4 5 G 1 2 3 H 1 2 3 I Exchange Transaction Fee: @ Rs 10 Per Lac Delivery Charges @ Rs 90/- per LAC brokerage @ 10 PAISA service tax on brokerage cnf billing charges Total Cost to Investors in Buying STEEL in T+2 Contract SELLING IN T+25 Contract Sale Proceeds of One Lot RECEIVABLE Less:Exchange Transaction Fee: @ Rs 10 Per LAC PAYABLE Less: Delivery Charges PAYABLE: Rs 90/- per LAC PAYABLE brokerage @ 10 PAISA service tax on brokerage cnf billing charges NET RECEIVABLE BY INVESTORS NET EARNINGS PER ONE LOT OF STEEL IN T+25 DAYS SETTLEMENT DAYS CALCULATION Date of Trading Settlement Date for T+2 Contract i.e. FUNDS PAY IN Difference i.e. number of days for which initial margin is blocked Settlement Date for T+25 Contract i.e. FUNDS PAY OUT Number of Days for which funds are invested LESS: ONE DAY on account of utilisation of fund by both parties. COST OF INVESTMENT Initial Margin Cost: @ 3% Up To T+2 Day Balance Money: Day 25 VAT @ 5% debited at the time of funds pay in Total Return calculated for one day investment of
Estimated ANNUALIZED RETURNS in case of payout

AMOUNT AMOUNT REQUIRED Rs. AT PAY IN WITH VAT 482000.00 482000.00 48.20 24100.00 433.80 506100.00 482.00 49.65 110.30 483123.95 491000.00 49.10 441.90 491.00 50.57 110.30 489857.13 6733.18 7-Feb-12 9-Feb-12 2 15-Mar-12 35 36

10

49100

14460 482000.00 24100.00

2 36 36

28920.00 17352000.00 867600.00 18248520.00 13.47 28920.00 16870000.00 843500.00 17742420.00 13.85

COST OF INVESTMENT Initial Margin Cost: @ 3% Up To T+2 Day Balance Money: Day 25 VAT @ 5% debited at the time of funds pay in Total Return calculated for one day investment of
Estimated ANNUALIZED RETURNS in case of back to back rollover

14460 482000.00 24100.00

2 35 35

Thank You