Both options
A delivery logic under which delivery happens only if both buyer and seller agree; if either declines, the position is cash settled at the Due Date Rate.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- ClearingThe daily accounting step that reconciles what every party owes and is owed on its open and closed positions, and turns a day of trades into one net obligation per member.
- Compulsory deliveryA delivery logic under which every position still open at expiry must give or take physical delivery — neither side can elect to settle in cash.
- Delivery default penaltyThe SEBI-prescribed charge on a seller who fails to deliver against an expiring contract — a fixed percentage of the settlement price plus a replacement cost, most of which is paid over to the buyer.
- Due Date RateThe rate at which an expiring commodity contract is finally settled — the Final Settlement Price, normally the simple average of the polled spot prices of the expiry day and the two preceding days.
- Extreme Loss MarginA flat 3.5 per cent margin collected on cash-market positions to cover losses falling outside what the VaR margin is designed to capture.
- Initial marginThe deposit both the buyer and the seller of a futures contract must place before the position is accepted, sized to cover a 99% worst-case one-day loss on that position.
Where this is taught
Free preparation for NISM Series XVIRelated terms
- SettlementThe step where the obligations computed by clearing are actually discharged — commodities against funds on a delivery-versus-payment basis, or cash against the settlement price.
- Compulsory deliveryA delivery logic under which every position still open at expiry must give or take physical delivery — neither side can elect to settle in cash.
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