NSEL Arbitrage
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Transcript of NSEL Arbitrage
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 TRANSACTION Margin charged by exchange
T Buy T+3 contract(IIFL client )
5% based on VARSettlement pay-in on T+3 Delivery Through Allocation Letter
T 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)
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.
DAY TRANSACTION Margin charged by exchange
T Sell T+3 contract(miller)
Based on warehouse Receipt
T Buy T+36 contract (miller)
25% margin of the contact value Bank Guarantee for remaining 75%
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 doesn’t 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
AMOUNT REQUIRED AT PAY IN WITH VAT
QTY. RATE AMOUNT
A BUYING IN T+3 Contract Per 20 Kgs Rs.
1 Cost of One Truck (Approx. 300 Bags / Lots) Each Bag is of 75 Kgs 300 850 956250.00 956250.00
2 Exchange Transaction Fee: @ Rs 5/-Per Lac 47.81 47812.50
3 Warehouse Receipt Transfer Charges: Rs 50/- per Lac 478.13 1004062.50
4 Brokerage of Member: Assumed at 10 paisa 956.25
5 service tax on brokerage @10.03% 98.49 958481.18
6 CNF Billing Charges: IBMA - Rs 100/- per bill of 300 Bags 110.30buy value 956250.00
Total Cost to Investors in Buying Castorseed in T+3 Contract 957940.98vat 47812.50
B SELLING IN T+36 Contract EXPENSES 3419.34
1 Sale Proceeds of One Truck (Approx. 300 Bags / Lots) RECEIVABLE 300 870.1 978862.5total 1007481.84
2 Less:Exchange Transaction Fee: @ Rs 5/- Per LAC 48.94
3 Less: Warehouse Receipt Transfer Charges: Rs.50/- per lac 489.43
4 Brokerage of Member: Assumed at 10 paisa 978.86
5 service tax on brokerage @10.3% 100.82
6 CNF Billing Charges: IBMA - Rs 100/- per bill of 300 Bags 110.30
NET RECEIVABLE BY INVESTORS 977134.14
C NET EARNINGS PER ONE TRUCK LOAD OF CASTOR SEED IN 36 DAYS 19193.16
D SETTLEMENT DAYS CALCULATION
1 Date of Trading 22-Dec-11
2 Settlement Date for T+3 Contract i.e. FUNDS PAY IN 27-Dec-11
3 Difference i.e. number of days for which initial margin is blocked 5
4 Settlement Date for T+36 Contract i.e. FUNDS PAY OUT from exchange 13-Feb-12
5 FUND PAYOUT DATE to CLIENT 14-Feb-12
6 Number of Days for which funds are invested at exchange end 48
7 Number of Days for which funds are invested at client end 49
G COST OF INVESTMENT
1 INITIAL 5% MARGIN 47812.50 5 239062.50
3 Balance Money: Day 36 956250.00 49 46856250.00
4 VAT @ 5% debited at the time of funds pay in 47812.50 49 2342812.50
Total Return calculated for one day investment of 49438125.00
H Estimated ANNUALIZED RETURNS in case of payout 14.17
1INITIAL 5% MARGIN 47812.50 5 239062.50
3Balance Money: Day 36 956250.00 48 45900000.00
4VAT @ 5% debited at the time of funds pay in 47812.50 48 2295000.00
Total Return calculated for one day investment of 48434062.50
I Estimated ANNUALIZED RETURNS in case of back to back rollover 14.46
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 STEELCOSTS INVOLVED IN BUYING AND SELLING IN STEEL TRADERS CONTRACT EX KURNOOL, ANDHRA PRADESH DELIVERY
AMOUNT REQUIRED AT PAY IN WITH VAT
QTY. IN LOT RATE AMOUNT
A BUYING IN T+2 Contract Per 1 MT Rs.1 Cost of One Lot 10 48200 482000.00 482000.002 Exchange Transaction Fee: @ Rs 10 Per Lac 48.20 24100.003 Delivery Charges @ Rs 90/- per LAC 433.80 506100.004 brokerage @ 10 PAISA 482.00 5 service tax on brokerage 49.65 6 cnf billing charges 110.30 Total Cost to Investors in Buying STEEL in T+2 Contract 483123.95 B SELLING IN T+25 Contract
1 Sale Proceeds of One Lot RECEIVABLE 10 49100 491000.00 2 Less:Exchange Transaction Fee: @ Rs 10 Per LAC PAYABLE 49.10
3 Less: Delivery Charges PAYABLE: Rs 90/- per LAC PAYABLE 441.90
4 brokerage @ 10 PAISA 491.00
5 service tax on brokerage 50.576 cnf billing charges 110.30
NET RECEIVABLE BY INVESTORS 489857.13C NET EARNINGS PER ONE LOT OF STEEL IN T+25 DAYS 6733.18D SETTLEMENT DAYS CALCULATION 1 Date of Trading 7-Feb-122 Settlement Date for T+2 Contract i.e. FUNDS PAY IN 9-Feb-123 Difference i.e. number of days for which initial margin is blocked 24 Settlement Date for T+25 Contract i.e. FUNDS PAY OUT 15-Mar-125 Number of Days for which funds are invested 35 LESS: ONE DAY on account of utilisation of fund by both parties. 36G COST OF INVESTMENT 1 Initial Margin Cost: @ 3% Up To T+2 Day 14460 2 28920.002 Balance Money: Day 25 482000.00 36 17352000.003 VAT @ 5% debited at the time of funds pay in 24100.00 36 867600.00 Total Return calculated for one day investment of 18248520.00H Estimated ANNUALIZED RETURNS in case of payout 13.47 COST OF INVESTMENT 1 Initial Margin Cost: @ 3% Up To T+2 Day 14460 2 28920.002 Balance Money: Day 25 482000.00 35 16870000.003 VAT @ 5% debited at the time of funds pay in 24100.00 35 843500.00 Total Return calculated for one day investment of 17742420.00I Estimated ANNUALIZED RETURNS in case of back to back rollover 13.85
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