PowerPoint Presentation - Dubai Gold _ Commodities Exchange by wulinqing


									   Customs Procedure
    DCR-Swapping ?
Evidently there may be DCRs covering rebar where the ultimate
   Is liable to pay duty (Category A, Category B options 1&2)
   Is not liable to pay duty (Category B, option 3)
   May not wish to take that specific rebar (Eg, may prefer
    different diameters or origin)

Experience of other Exchanges suggest this will be one factor to
   The more frequent use of EFPs & ADPs
   The emergence an off-exchange ‘DCR-swapping’ market,
    where Buyers allocated DCRs for rebar of an origin they
    don’t like, or they may have to pay duty on, will use their
    broker to locate ‘more preferred’ DCRs (eg basis origin or
    duty status) to ‘swap’. At least one side of the swap will end
    up paying (the broker) a premium for this service.
   Examples in the Brochure, with progressively more
    being placed on the website
   DGCX offers training courses in ADPs, EFPs and EFSs
   They both make futures trading more ‘user friendly’ to
    the steel community

ADPs: Alternative Delivery Procedures
  The random allocation process throws together
       Seller based in Abu Dhabi
       Buyer based in Abu Dhabi
   Buyer and Seller make contact and agree delivery of
    product (rebar, or price correlated steel of similar value
    to the futures commitments) between themselves in
    Abu Dhabi
   Provided both Buyer and Seller sign off on the ADP,
    DGCX classes the contracts as ‘closed’
       No Exchange delivery takes place
EFPs: Exchange of Futures for Physical
    Can be used to initiate, swap, or close a position in the
     futures market with an equal position in the physical
EFP to swap existing positions
    Stockist long in physical steel, seeking buyer, but
     thinks prices will rise
       Wants to conclude physical sale now, but wait to finalize
   A hedged Contractor long in forward month of DGCX
    Steel Rebar futures needs steel now (eg project
   Contractor and Stockist agree to swap their respective
    long positions current prices
   Stockist inherits long futures position, which he can
    close out now or wait in the hope prices rise
   Contractor takes the physical steel he needs and no
    longer has position in futures market
       Equal and offsetting hedge position means Contractor’s
        hedge has been successful
EFP to initiate a position
   A steel manufacturer is approached by
    one of his long standing customers who
    want to buy 3000 mt of rebar to be
    delivered in 45 days.
       The manufacturer wants to service the
        customer but does not want to commit to a
        price since he believes prices would rise.
       Meanwhile, the customer wants to secure the
        supply from the manufacturer but is wary of
        fixing a price since he believes prices would
   They both agree to transact through EFP
    so that they can retain their exposure to
    price of rebar and at the same time secure
    each other’s delivery requirements
EFP to initiate a position (continued….)
   On Feb 15th, they enter into an EFP transaction
    through their respective brokers. The daily
    settlement price of April rebar futures (delivery
    1st week April) is US$ 602 mt

Manufacturer   Sells of 3000 mt of rebar at $602/mt, which
               he must deliver to customer 1st week April
               Takes long position of 300 lots of April
               rebar futures @ $ 602/mt
Customer       Becomes long 3000 mt of physical rebar @
               $602/mt (deliverable 1st week April)
               Takes short position of 300 lots of April
               rebar futures @ $ 602/mt
EFP to initiate a position (continued….)
    Because equal & opposite positions in the April futures
     contract have been exchanged for physical positions,
     both parties are exposed in the manner they want to
     the price of rebar
    Has secured physical supply at a ‘maximum’ cost
    He can close out his futures any time before first
     Thursday in April, and hopes prices will fall
    Has secured physical sale at a ‘minimum’ sales price
    He can close out his futures any time before first
     Thursday in April, and hopes prices will rise

EFP to close a position
    In March, a stockist has 3000 mt of rebar in his
     warehouse and is anticipating a decline in the price.
     He takes a short position in 300 lots of May-expiring
     steel rebar futures on DGCX, then trading @ $ 600 mt.
    A contractor needs 3000 mt of rebar early May, but is
     concerned that the price is going to fall further, thus
     wants to buy as late as possible. Faces timing dilemma
    On April 5th, the stockist agrees to sell 3000 mt of
     rebar to the stockist at the then prevailing May rebar
     future settlement price of $ 591 mt plus a $ 3 mt
     premium to reflect the origin / diameters of his rebar.
    They agree to EFP the trade, with the contractor
     inheriting the stockist’s short position
Positions after EFP on 5th April
Stockist      Goes long (to offset his physical position)
              300 lots of May rebar futures contract
              @591/mt (Profit $ 9 mt or $27,000)
              Sells physical stock of 3000 mt of rebar at
              $594 mt (settlement + $ 3 mt)
contractor    Long physical stock of 3000 mt of rebar at
              $ 594 mt
              Short 300 lots of May rebar futures
              contract $ 591 mt

  Since both participants anticipated prices to decline, the
  EFP enables then to detach pricing from the supply
  thereby meeting both their pricing and physical supply

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