What are penalties for non-performance of delivery?

The penalties for failure to honour the delivery settlement obligations are defined in the contract specifications of respective commodity. The penalty provisions are reiterated as under:

I . Compulsory Delivery Contracts

Penalty on seller in case of delivery default (default in delivery against

open position at expiry in case of compulsory delivery contracts and

default in delivery after giving intention for delivery during the staggered

delivery period) shall be as follows:

A. Futures contracts on agri-commodities:

3% of Settlement Price plus replacement cost (difference between settlement price and average of three highest of the last spot prices of 5 succeeding days after the commodity pay-out date, if the average price so determined is higher than Settlement Price, else this component will be zero.)

B. Futures contracts on non-agri commodities:

3% of Settlement Price plus replacement cost (difference between settlement price and higher of the last spot prices on the commodity pay-out date and the following day, if the spot price so arrived is higher than

Settlement Price, else this component will be zero.)

MCXCCL shall have the flexibility to increase/decrease penalty for

specific commodities depending on situation, in consultation with SEBI.

Norms for apportionment of penalty:

a. At least 1.75% of Settlement Price shall be deposited in the

Settlement Guarantee Fund of MCXCCL

b. Up to 0.25% of Settlement Price may be retained by MCXCCL

towards administration expenses

c. 1% of Settlement Price plus replacement cost shall go to buyer who

was entitled to receive delivery

Intentional/wilful delivery default

MCXCCL shall have following deterrent mechanism (including

penal/disciplinary action) in place against intentional/wilful delivery

default.

a. In the event of the seller end client holding stock but failing to

deliver against the commodity pay-in obligation :

i. Additional penalty of 3% of settlement price will be levied on the

wilful default

b. In the event of the defaulting seller end client selling the stock in off-

market during tender period inspite of having a sell open position

and failed to square off the sell position by expiry:

ii. Warning letter on 1st instance during the previous six months

iii. Additional penalty of 3% of settlement price will be levied on

such wilful default from 2nd instance during the previous six

months Buyer default shall not be permitted.

ii. Both Option Contracts

After getting matching intentions from the buyer and seller to take and

give delivery, if any of the party fails to honour its obligations, a penalty

of 2.5% of the DDR will be imposed on him. Additionally, a replacement

cost of 4% of DDR will be recovered from the defaulting buyer / seller.

Norms for Apportioning of the penalty:

a. 2% (i.e. 80% of penalty amount) will be credited to SGF of MCXCCL

b. 0.5% (i.e. 20% of penalty amount) will be credited to the counter

party

While out of the replacement cost recovered 90% will be passed on to

the counter party and 10% will be retained by MCXCCL towards

administrative expenses.

iii. Seller’s Option Contract

If the Seller fails to deliver after giving delivery intention, the penalty and

replacement cost provisions, as applicable to seller default in

Compulsory Delivery contract shall apply to such defaulting seller.

Buyer default shall not be permitted.

In the event of spot prices not being available on any day during the post

settlement period for computation of replacement cost on account of delivery default in the expiring contract, then close price of the next available futures contract of that commodity shall be used for computation of replacement cost in the event of delivery default.

To know more about Physical Delivery Settlement please click on the link given : https://www.mcxccl.com/docs/librariesprovider2/delivery/faq/mcxccl-faq_15102020.pdf?sfvrsn=a0387291_4