Due Date Rate
Also written DDR · Settlement rate
The 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.
In plain language
Every commodity futures contract has two settlement prices, and confusing them is one of the cheapest marks in the paper to lose.
The daily settlement price is the closing price. It exists to mark positions to market each evening so that losses cannot pile up.
The Due Date Rate, also called the Final Settlement Price, exists once. It is the rate at which the contract dies — the rate the delivery invoice is raised at, the rate a cash-settled position is squared against, and the rate the delivery default penalty is computed on.
And it is not a traded price. For most commodities it comes from the spot polling process, because the whole point is to make the futures market land on the physical market rather than on itself.
How it works
FSP calculation relies on the spot price available on the expiry day and at least two additional days prior to it. For most contracts that means a simple average of the polled spot prices of E, E-1 and E-2. The period varies by commodity — for electricity it is the volume weighted average of all the days in the expiring month, and for others typically three to five days.
Where the contract is an option, the FSP is borrowed rather than computed afresh:
| Instrument | Its FSP is |
|---|---|
| Commodity futures | Polled spot average, per the contract specification |
| Options on Futures | The daily settlement price of the underlying futures on option expiry day |
| Options on Goods | The same FSP as the futures expiring on that day |
| Index futures | Index value from the weighted average traded prices of constituent futures between 4:00 pm and 5:00 pm |
The Due Date Rate drives four things: final cash settlement; the delivery and payment obligations of compulsory delivery contracts and of expiring options; the delivery default penalty and the buyer's compensation; and the tax-paid invoice the seller raises, which is struck at FSP inclusive of GST even though the trade was done at some other price.
When polling fails — no spot trading on E, E-1 or E-2 — SEBI permits the average of whatever polled prices are available going back to E-3, provided the expiry-day price exists. If the E-day price itself is missing, exchange circulars take over: an alternate basis centre, then extrapolation from the last 30 days of futures-versus-spot movement, then futures prices of the last three days with outliers removed, and finally the last available polled spot price.
The formula
FSP / Due Date Rate = (Polled spot on E + Polled spot on E-1 + Polled spot on E-2) / 3
where E is the expiry day. The number of days and the averaging method are set in the contract specification.
A worked example
An RM seed contract expiring on the 20th. Lot size 10 MT = 100 quintals. Polled spot prices, in rupees per quintal:
| Day | Polled spot |
|---|---|
| E-2 (18th) | 5,470 |
| E-1 (19th) | 5,500 |
| E (20th) | 5,530 |
Due Date Rate = (5,470 + 5,500 + 5,530) / 3 = Rs 5,500 per quintal
Contract value = 100 quintals x Rs 5,500 = Rs 5,50,000
The seller now raises a tax-paid invoice on the buyer for Rs 5,50,000 plus GST, even if he originally sold the contract at Rs 5,310. The Rs 190 per quintal difference reached him days ago through daily mark-to-market; invoicing at the traded price would pay him twice.
Now a failure case. Suppose spot markets are shut for a week for Diwali and the last polled price available is from the 13th, while expiry falls on the 20th. With no E-day price, the exchange works down its fallback ladder, and as a last option the polled price of the 13th is itself used as the FSP for the 20th. Seven days of unobserved market, settled on a week-old number — which is exactly why the polling panel and its disclosures are regulated as tightly as they are.
Why NISM asks about it
Chapter 6 (Trading Mechanism), section 6.2.4 and the contract specification list in section 6.4, with the derivation in Chapter 3 (Commodity Futures), section 3.10, and the invoicing rule in Chapter 7 section 7.13. Expect a three-day averaging computation, and the identity questions — Due Date Rate is the Final Settlement Price, and the FSP of an Option on Futures is the DSP of the underlying futures.
Common exam traps
- DDR and FSP are the same thing; DSP is not. DSP marks positions daily, FSP kills the contract.
- Neither is the Last Traded Price. LTP is whatever the final trade printed at; DSP and FSP come from documented methodologies.
- Options on Futures take the futures DSP as their FSP — a traded number. Options on Goods take the polled FSP.
- The invoice is raised at FSP, not at the traded price. The gap was already settled through MTM.
- Electricity is the outlier: volume weighted average across all days of the expiring month, not a three-day average.
- The fallback ladder needs the E-day price to exist before it will average two or one prior days. Once the expiry-day price is missing, a different set of exchange rules applies entirely.
Check yourself
1.A change to a contract's Daily Price Limit or Due Date Rate methodology falls into which modification category?
- a)Category A — done by the exchange with 10 days' advance notification
- b)Category B — done by the exchange with Product Advisory Committee and Regulatory Oversight Committee approval
- c)Category C — material, requiring deliberation in those committees and then SEBI permission
- d)It cannot be modified once a contract is launched
Show the answer
Answer: (c) Category C — material, requiring deliberation in those committees and then SEBI permission
"CATEGORY C: These are MATERIAL MODIFICATIONS REQUIRING REGULATORY APPROVALS. Prior to that, any modification in this category would have to be DELIBERATED WITHIN THE PRODUCT ADVISORY COMMITTEE AND REGULATORY OVERSIGHT COMMITTEE BEFORE SEEKING PERMISSION FROM SEBI. These include CONTRACT LAUNCH CALENDAR, DPL, DUE DATE RATE / SETTLEMENT RATE, TENDER PERIOD, STAGGERED DELIVERY PERIOD START DATE for near month."
The full three-tier structure:
Category Covers Approval A — Non-material Symbol, order size, tick size, strike levels, number of strikes Exchange, with 10 days' notice B Expiry date, trading unit, delivery centre, delivery unit, quality specifications, premium/discount, open position limit Exchange with PAC and ROC approval (POST FACTO) C — Material Contract launch calendar, DPL, Due Date Rate, tender period, staggered delivery start date SEBI permission after PAC and ROC deliberation The graduation is by how much a change can move money. A symbol or tick size affects convenience. An expiry date or delivery centre affects logistics. But the due date rate methodology determines what everyone holding an open position ultimately receives — which is why only SEBI can sanction it.
Note the timing rule applies across the board: "Any modification can be done with AT LEAST 10 DAYS OF PRIOR INTIMATION", and "all changes relevant to CATEGORY B AND C would have to be ANNOUNCED TO THE MARKET 10 DAYS PRIOR."
Note also the "post facto" wording in Category B — those committees approve after the exchange acts, unlike Category C where SEBI's permission comes first.
2.Why can the Last Traded Price of a contract on expiry day differ from its Final Settlement Price?
- a)Because the LTP includes taxes while the FSP does not
- b)Because FSP is arrived at by a documented methodology using polled spot prices, while LTP is simply the price of the last trade of the day
- c)Because the FSP is always the previous day's closing price
- d)Because LTP is calculated on futures while FSP is calculated on spot options
Show the answer
Answer: (b) Because FSP is arrived at by a documented methodology using polled spot prices, while LTP is simply the price of the last trade of the day
"LAST TRADED PRICE at the end of the day or on expiry of contract MAY BE DIFFERENT FROM THE DSP/FSP/DDR. This is because DSP OR FSP IS ARRIVED AT BY USING A DOCUMENTED METHODOLOGY, WHILE LTP IS ACTUALLY THE PRICE AT WHICH THE LAST CONTRACT OF THE DAY WAS TRADED."
The reason this matters is manipulation. A single last trade could be one lot, placed by anybody, seconds before the bell. Settling an entire market's delivery and payment obligations on that number would invite abuse — which is why FSP rests on polled spot prices across the expiry day plus at least two prior days.
The two settlement prices and their jobs:
DSP (Daily Settlement Price) FSP (Final Settlement Price / Due Date Rate) Purpose "To calculate the DAILY MARK-TO-MARKET profit or loss" "The price at which DELIVERY OR FINAL CASH SETTLEMENT IS DONE at expiry" Why "Helps the clearing corporations TO AVOID ACCUMULATION OF LOSSES" Also fixes the DELIVERY DEFAULT PENALTY and options obligations ⚠️ The cross-reference worth memorising: "FSP in case of OPTIONS ON FUTURES IS THE DSP OF THE UNDERLYING FUTURES ITSELF, while in the case of OPTIONS ON GOODS, IT IS THE SAME AS THE FSP OF FUTURES EXPIRING ON THE SAME DAY."
Where this is taught
Free preparation for NISM Series XVIRelated terms
- Daily Settlement PriceThe price at which every open futures position is marked and reset at the end of each day — the last 30 minutes' volume weighted average price of that contract, computed separately for each expiry.
- Final Settlement PriceThe price at which a commodity derivative is finally settled at expiry — a simple average of the polled spot prices of the expiry day and the two days before it.
- 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.
- 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.
- Spot price pollingThe statistical process by which an exchange collects physical-market prices from an empanelled panel of traders and users, strips out outliers, and publishes a single daily spot price.
- Staggered delivery periodThe window before expiry in which buyers and sellers holding open positions may mark an intention to give or take delivery, spreading deliveries out instead of stacking them on expiry day.