Chapter 7 United Arab Emirates Financial Rules and Regulations PDF

Chapter Seven Trading 1. Abu Dhabi Securities Market (ADX) 171 2. Broker and Trading Rules of the ADX 176 3. Clearing, Depository and Registry Rules 179 4. Clearing in Commodities Mark...

Chapter Seven Trading 1. Abu Dhabi Securities Market (ADX) 171 2. Broker and Trading Rules of the ADX 176 3. Clearing, Depository and Registry Rules 179 4. Clearing in Commodities Markets 188 5. Dubai Gold & Commodities Exchange 193 This syllabus area will provide approximately 11 of the 100 examination questions 170  Trading This chapter covers the regulatory aspects of trading on the Abu Dhabi Securities Market (ADX) and the commodities markets in the UAE. The rules and regulations associated with the Dubai Financial Market (DFM) are covered in the following chapter. 1. Abu Dhabi Securities Market (ADX) The Abu Dhabi Securities Exchange (ADX) is a market for trading securities. This includes shares issued by public joint-stock companies, debt instruments issued by governments or corporations, exchange traded funds, and other financial instruments approved by the UAE Securities and Commodities Authority (SCA or the Authority). Its stated mission is to be an innovative, attractive and transparent marketplace 7 empowering UAE’s economy. 1.1 E-Trading Regulations Learning Objective 7.1.1 Know the E-Trading regulations (E-Trading Regulations) 1.1.1 Introduction In the context of the Abu Dhabi Securities Exchange, ‘E-Trading’ is the system used by the brokerage company that enables the customer to enter orders for the purchase or sale of securities directly over the internet. Once the order is received, the system verifies the possibility of implementation and then automatically sends it to the electronic trading system of the ADX. The regulations in relation to E-Trading were issued by the Exchange in December 2017. They are aimed at ensuring the brokerage company has the technical capability, systems and controls surrounding the E-Trading service sufficient to protect clients and maintain the integrity of orders reaching the ADX’s trading system. 171 The regulations state that the E-Trading service may only be provided through a brokerage company, and only after the brokerage has obtained the ADX’s approval. 1.1.2 Approval Conditions In order to gain approval to provide E-Trading services, the brokerage company must meet the following conditions: 1. Paying the required fee to the ADX. 2. Having the technical and administrative capabilities necessary to provide the E-Trading service. 3. Having qualified technical personnel in operating systems and networks, database systems and information protection systems. 4. Obtaining the ADX’s prior approval of the form of the E-Trading agreement, which must include the information and data shown below, and the Exchange may request any amendments it may consider appropriate: a. Identifying the concept of E-Trading service, indicating the high knowledge level in the field of securities trading that is necessary to benefit from the service. b. The charges incurred by the customer for use of the service. c. A detailed statement of the rights and obligations of both the client and the brokerage company, and the duration of the agreement. d. The responsibility of the customer to maintain the user number, password and details of the orders executed through the service. e. The means of communication with the client. f. The nature of the work of the client to indicate the client’s knowledge in the field of securities trading. g. The fact that the client alone bears the responsibilities resulting from their activities undertaken through the E-Trading system. h. The fact that the client understands the risks and losses that may impact their investments in securities through E-Trading and in particular the following: that the processing of orders entered may not take place immediately, and will follow the regulatory procedures established by the ADX the seriousness of processing orders through the internet due to the speed of change in prices that are driven by supply and demand that some orders may not be executed, may be delayed in execution, or cancelled due to market movements the possibility of incurring losses due to delays in the execution of orders or non-execution for any technical reason, unless due to mistake or negligence of the brokerage company. 1.1.3 Applications The application submitted to the ADX by the brokerage company to enable it to supply E-Trading services must include supporting information such as reports clarifying the technical system and devices used to provide the electronic link between the brokerage company and the Exchange. In response to the application, the ADX can request any clarifications, information, or other documents it deems necessary. 172  Trading 7 The decision to approve or reject the application will be given within 30 days of the date of submission of the application, and the brokerage company must then register the approval with the Authority within a period not exceeding five working days from the date of approval. The approval period is one year, expiring at the end of December each year. The duration of the first approval period starts on the date such approval is granted and runs until the end of December of the same year. Renewal of approval is by application to the ADX submitted at least one month before its expiry, together with the payment of the renewal fee. 1.1.4 The Brokerage Company’s E-Trading Obligations When providing E-Trading services, the brokerage company is obliged to undertake the following: 1. Obtain a special username for the service assigned by the Exchange. 2. Provide the clients with detailed monthly statements showing the securities trading carried out through the E-Trading service and the cash balance in their accounts. 3. Enable the ADX to access all data and documents relating to E-Trading orders. 4. Provide the ADX with a report issued by an external auditor assessing the information security and programs at the brokerage company. 5. Ensure that any modification or update to electronic software is in compliance with the requirements of the E-Trading regulations. 6. Retain back-up copies of all the data and documents relating to the provision of this service for ten years. 7. Appoint a compliance officer to deal with any client complaints. 173 1.1.5 Operational Requirements The brokerage company must provide a technical system with the following operational characteristics and requirements: 1. The system should allow obtaining the IP address for all orders automatically. 2. Failover solutions must be available in the required systems and applications to deal with any defect in operation that may result from a single point of failure. 3. Secure encryption from one side to another to transfer all data between the client and the brokerage company’s system through a secured unified protocol, and mutual authentication between the client and the server of the brokerage company. 4. Sufficient security features to ensure that it is not subject to internal or external attacks. 5. An alternative communication channel with sufficient capabilities to identify and authenticate the client in the event of failure of E-Trading. 6. Implementation of a second factor of authentication for the login session of all orders issued using the internet protocol. 7. The ability to automatically terminate the trading session in the event the client does not perform any activity. 8. Back-up and storage systems sufficient to provide sustainable performance and on-site and remote back-up capabilities including providing another disaster recovery site. Suspension or Cancellation of the E-Trading Service The ADX has the right to suspend or cancel the E-Trading service in any of the following events: 1. Technical defect in the trading system on the Exchange or the brokerage company’s electronic systems. 2. If the ADX finds that any of the investors have violated the applicable legislation. 3. If the brokerage company submitted a request to cancel or suspend the service provided to its clients due to violation of the applicable legislation. 1.2 Remote Access by Foreign Brokerage Companies Learning Objective 7.1.2 Know regulations governing remote access to the Abu Dhabi Securities Exchange by foreign brokerage companies (Abu Dhabi Securities Exchange Foreign Brokerage Companies Remote Access Regulations) The ADX will allow remote access by foreign brokerage companies where it is considered appropriate to do so. The considerations and conditions for this are detailed in the Foreign Brokerage Companies Remote Access Regulations. 174  Trading The central requirement is that remote access may only be conducted through a foreign brokerage company after first obtaining ADX approval. The conditions that need to be met are as follows: 1. The foreign brokerage company must be licensed in its home country by a regulator similar to the Securities and Commodities Authority. That regulator must be a member of the International Organization of Securities Commissions (IOSCO), and must apply regulations and procedures at least similar to that applied in the UAE regarding know your customer (KYC), customer due diligence (CDD), anti-money laundering and countering the financing of terrorism (AML/CFT), as well as meeting any requirements under the UAE Commercial Companies Law. 2. The counterpart regulator in the home country must act reciprocally in its treatment of financial brokerage companies licensed in the UAE. 3. The foreign brokerage company must provide ADX with collateral in accordance with its established conditions and procedures. 4. The foreign brokerage company must have a contract with a clearing member of the Exchange to undertake the operations of clearing and settlement of trading transactions if the company wishes to obtain approval to act as a brokerage company (a trading member). 5. The foreign brokerage company must not have had a licence denied by any controlling regulatory authority similar to the Authority. 6. The foreign brokerage company’s professional record with its regulators must not, within the six 7 months preceding the date of application, include decisions to suspend its operation, serious violations such as violations of the financial creditworthiness criteria, or separation of accounts. 7. The provision by the brokerage of necessary electronic software and technical systems in accordance with the requirements determined by ADX. 8. The payment of the approval fee determined by ADX. The application for approval must be submitted to the ADX on the requisite form with the required supporting information and documents. This must include an undertaking to disclose to the Authority and the ADX upon request, any information about the company or its customers, any changes in the company’s organisational or financial position, or which might have an effect on the conduct of its activity or any decisions taken against it in its home country or any other country where it operates. The ADX will issue its decision whether to approve or reject the application within 30 days from the date of submission of the complete application. The applicant must then register the ADX approval with the Authority within no more than five working days of the date of issue. The duration of the approval is for one year and expires at the end of December each year, with the duration of the first approval running from the date of approval until the end of December of the same year. The approval is renewed by application to the ADX at least one month before its expiry, together with the payment of the renewal fees due to the ADX. As with approval, renewal must be registered with the Authority within no more than five working days of renewed approval by the ADX. To gain and retain approval, the foreign brokerage company must accept certain obligations that include providing the ADX with the following reports: a. Annual compliance report prepared by the internal auditor within 90 days of the end of the fiscal year showing the extent of compliance and the effectiveness of the company’s internal control system. 175 b. Quarterly reports within 45 days and an annual report within 90 days of the end of the fiscal year. c. Any other financial statements or reports as may be required by the Authority or the ADX. The Authority is entitled to supervise and inspect any transactions, records, information or documents of the foreign brokerage company concerning its trading or activity on the ADX in order to ensure its compliance with Authority law, regulations and decisions. If a foreign brokerage company fails to comply with the above regulations, the ADX may take any of the following measures, including to: 1. issue a warning 2. liquidate or use the collateral, wholly or partially for its intended purpose 3. suspend the foreign brokerage company from remote access trading for a period of no more than one year 4. impose financial penalties 5. cancel the approval, and 6. refer any violator to the Authority to consider the violation and decide on the appropriate penalty. 2. Broker and Trading Rules of the ADX Unsurprisingly, the ADX has numerous regulations applicable to brokerage firms arranging trades on the Exchange. Many of these are contained within the ADX’s ‘Broker and Trading Rules’ which were issued in 2016. This sub-section contains a number of the requirements laid down in those regulations. 2.1 Reporting Requirements Learning Objective 7.2.1 Know brokerage companies reporting requirements for the ADX (Article 11) Brokers operating on the ADX must provide the Exchange with certain reports, documents and information. These include the following: Audited quarterly reports within 45 days of the end of the specified fiscal period. Audited annual financial statements within 90 days of the end of the specified fiscal period. Any approvals issued by the Authority or any other competent authority with regard to: adding a new activity to the commercial licence, omitting or modifying an activity or any other approval issued by the Authority to practise any activity related to financial services amending the brokerage firm’s articles of association or memorandum of association increasing or decreasing the brokerage firm’s capital making mergers or acquisitions changing the address, headquarters or branch address of the brokerage firm changing partners or modifying their ownership of the brokerage firm. Any other financial data or reports required by the ADX, plus any other information or documents required by the ADX for the purposes of surveillance of trading, investigation of violations or complaints, or management of transactions. 176  Trading 7 2.2 Client Orders Learning Objective 7.2.2 Know obligations of brokers towards client orders (Articles 17–19) Brokers have a number of obligations in relation to client orders, including the following: 1. Disclosing conflicts – if the broker has an interest in the transaction to be executed in favour of the client, or has any link to the transaction which may lead to a conflict of interest, the broker must take the appropriate procedures to ensure fair treatment to the client which will include informing the client of the broker’s interest. The client then has the right to refuse the transaction. 2. For orders that breach the law or regulations – in such cases the ADX has the right to order the broker to resell or repurchase the securities to return to the previous situation before executing the breach. If a profit is made from the resale or repurchase transaction, the broker must transfer the profit to the ADX. If a loss is incurred, the broker will suffer the loss but may have recourse against the client, if it is proved that breach was caused by the client. 3. Sell orders – unless the transaction meets the Authority’s regulations on short selling of securities, the broker must ensure that the client already owns the securities before entering a sell order. The broker must then pay to the client the value of the sold securities (less the commissions and fees due) within the period agreed between both parties. 4. Buy orders – unless the order is subject to the Authority’s margin trading regulations, or the broker has assumed full responsibility, the buying client must pay the value of the securities to be purchased before the execution of the buy transaction. If the broker has assumed full responsibility and the client fails to pay the value of the purchased securities plus the accrued commissions during the settlement period, the broker may sell the securities within one business day of the settlement date, after gaining ADX approval. If a profit is made from the sell transaction, the broker must transfer the profit to the ADX, where the amount is allocated to the Investor Protection Fund. Any loss that is incurred is borne by the broker. 177 2.3 ADX Debt Instruments Rules Learning Objective 7.2.3 Know rules concerning debt instruments (Article 47) Debt instruments on the ADX are traded through brokers. The trading unit for debt instruments is one instrument based on its nominal value in each issue, and each deal will be for one or more unit. Prices are shown on the E-Trading system as buy or sell orders at the unit price, without any accumulated interest. This is also referred to as the ADX price and the ‘clean’ price. Buyers will then pay the value of the units purchased at their ADX price plus the accumulated interest until settlement date. This is commonly referred to as the ‘dirty’ price. The E-Trading system calculates the accumulated interest on the debt instruments until settlement date. Public auction procedures are used to fix debt instrument prices in accordance with supply and demand, and within the applicable price ranges. 2.4 ADX Big Block Deals Learning Objective 7.2.4 Know requirements for big block deals (Article 48) Brokers are permitted to execute deals through the window allocated in the E-Trading system for ‘big block’ deals, where the deals meet the following requirements: a. Obtaining approval from the Exchange after filling the big block deal request form. b. The execution of the deal must not violate the Authority regulations or ADX rules. c. The execution of the deal must not violate the article of association of the issuing company in respect of ownership limits. d. The percentage of securities to be traded must be equal to or more than 1% of the issuer’s capital. e. One side of the deal must be one person while the other side can be up to a maximum of ten persons. ADX, in cases it deems necessary, may waive the transaction from this condition. f. The execution of the big block deal cannot be at a price higher or lower than 25% of the closing price from the previous trading session. g. Trading commissions on big block trades are calculated based on execution price or on the company’s stock closing price from the previous trading session, whichever is higher. h. Big block deals do not affect the closing price of the listed company or the price index. Similarly, they do not affect the highest and lowest prices executed during the trading session or during the last 52 weeks. i. Big block deals are subject to disclosure procedures adopted by the ADX and executed deals need to be notified to the Exchange. j. ADX management reserves the right to waive the transaction from the limits mentioned in d, e and f above whenever it deems that necessary to preserve the interests of trading and the parties to the transaction. 178  Trading 3. Clearing, Depository and Registry Rules This section explores the way that trades that are executed on the ADX are cleared and settled – the process that enables money to flow from the buyer to the seller and ownership of the securities to flow in the opposite direction, from seller to buyer. 3.1 The Clearing, Settlement and Depository Department Learning Objective 7.3.1 Know the role of the Clearing, Settlement and Depository Department (CSD) (Articles 3–9) The Clearing Settlement and Depository Department (the CSD Department) at the ADX operates a range of electronic systems to facilitate the clearing and settlement of trades. Among the more important of these are the system that issues payment and receipt orders to the settlement banks and the book entry system that updates the register of ownership for purchases and sales. It is important to appreciate that 7 the systems of the CSD Department interact with ‘clearing members’ of the Exchange – if a broker is not itself a clearing member, then it will need to contract the services of a clearing member to clear and settle its trades on its behalf. The CSD Department clears and settles security trading activities conducted in ADX for the clearing members, identifying the net rights and commitments of each and settling the positions arising out of the trading that includes the transfer of ownership, via electronic registration. The CSD Department keeps data pertaining to the transfer of ownership, as well as their relevant documents and records, for a period not less than 15 years. It maintains confidentiality of the information it holds in relation to the entities, issuers and investors and may only disclose this information in the following cases: a. subject to the approval of the concerned party for whom the information is kept confidential, unless it contravenes any applicable laws b. at the request of the Authority, judicial bodies, a competent government entity, any authority, body or entity inside the State engaged in combating money laundering and the financing of terrorism or a market or other entity that is concerned with clearing, settlement and central depository services. The following entities must register with the CSD Department and provide it with all the information and documents it may require: a. brokerage firms b. issuers of securities listed on the ADX c. custodians d. market makers e. entities pledging securities f. any such other entity accepted by ADX. 179 3.2 Regulations Relating to the Register Learning Objective 7.3.2 Know regulations relating to the register deposit (Articles 11 & 12) Any issuer wishing to list securities on ADX, or deposit the register with ADX, must provide ADX with the register of its shareholders (the owners of securities), including the names of shareholders as well as their details, balances, ownership limitations on such balances and any other relevant information. The issuing company must update and provide a copy of the register within a period of five working days from the date of approval on the listing of its stocks on ADX. The issuer is responsible for the validity, accuracy and completeness of the contents of the shareholders’ register provided to the CSD Department. After uploading the shareholders’ register onto the ADX’s electronic systems, the CSD Department will send a copy of the e-register to the issuer of the securities for reconciliation purposes. The issuing company or its registrar must keep all documents pertaining to ownership limitations on securities not deposited with the CSD Department. 3.3 Investor Numbers and Accounts Learning Objective 7.3.3 Know regulations concerning investor numbers and accounts (Articles 13–20) No investor can open a trading account with any broker and trade in securities listed on ADX without having first obtaining an investor number. Usually only one investor number is assigned to each investor, except for the following: a. An investor number may be assigned to an investor-owned individual institution. The CSD Department will link the person’s accounts to its owned individual institution account. b. An investor number will be assigned to each sub-fund of the parent investment fund. Investor numbers can take one of three forms – individual, institutional or government. Individual investor numbers are subdivided into ‘national’ and ‘foreign’. National individual investor numbers are assigned to each UAE national natural person (holding an Emirati passport and family book), or considered a UAE national in accordance with the laws and royal decrees. Foreign individual investor numbers are assigned to each natural person that does not hold Emirati citizenship. Similarly, the institutional investor numbers are subdivided into ‘national’ institutional investor numbers which are assigned to each juristic person or legal entity registered in the UAE and having the UAE nationality, and ‘foreign’ institutional investor numbers assigned to each legal person or legal entity registered outside the UAE or in the UAE free zones. 180  Trading Again, government investor numbers can be ‘national’ where they are assigned to the UAE federal government, any local government, ministries, departments, public institutions and bodies and any other related entity. Alternatively, they will be classed as ‘foreign’ government investment numbers if they are assigned to foreign governments, ministries, departments, and public institutions and bodies and any other subsidiary entity. Any person wishing to trade in securities listed on ADX must open a trading account with a broker, and only one trading account may be opened for each investor with a single broker. Investors may open trading accounts with more than one broker, except where otherwise restricted by CSD Department procedures, the Authority’s regulations or ADX rules. Examples include margin accounts and accounts pertaining to securities lending and borrowing. A trading account may only be opened for a person that has obtained an investor number and there are restrictions as to who can receive applications for the issuance of investor numbers or applications for the amendment of investors’ data. Most notable amongst these are brokers, custodians, issuing companies and their registrars. The CSD Department has full authority to examine these applications and issue the investor number. The 7 recipient of the application must undertake to keep copies of all documents submitted by the investor, and to stamp such documents to prove they are true copies. It is the recipient of the application that is deemed to be responsible for the accuracy of the information and data submitted with respect to its customer, in either electronic or paper format. This includes responsibility for the valid signature of its customer on the application for issuance of investor number, and for the verification of the customer’s identity and capacity. The investor number captures all significant information pertaining to the investor, including but not limited to: a. The full name as per the ID card or family book with respect to national investors, and as per the ID card or passport with respect to foreign investors, and as per the organisational documents with respect to institutional or government investors. b. Nationality. c. ID number, if any. d. Passport number. e. Date of birth. f. Type of investor number (individual, institutional or government). g. Legal capacity. h. Gender. i. Mailing address. j. Phone numbers, fax, email. k. Any statement of the IBAN or the equivalent thereof outside the UAE, which cash profits of securities will be transferred to, in addition to any other transfer made by the CSD Department to the investor account, which must be signed by the investor for acceptance. l. The authorised signatories authorised to sign on behalf of the institutional or government investment, along with a copy of the organisational documents and internal decisions of the juristic person. 181 The CSD Department will make amendments to the investor data, upon submission of a request by the investor on the form prepared for this purpose either personally or through a legal representative. The request must be accompanied by all of the required supporting documents. Investors are responsible for notifying the CSD Department of any changes to their personal data, and the ADX assumes no responsibility for any delay by the investor. The heirs or any person enjoying legal capacity must notify the CSD Department of the investor’s death or loss of capacity to prevent any transaction in the account thereafter. Every person enjoying legal capacity to do so should notify the CSD Department of any update to the institutional or government investors’ data or with respect to the persons authorised to act on their behalf. 3.4 Securities Certificates and Allotment Letters Learning Objective 7.3.4 Know regulations concerning: the deposit of securities certificates (Articles 21–24); allotment letters (Article 25) For those issuers that have securities listed on the ADX with certificates, the owners of those securities may not trade unless the relevant certificates have been deposited in the deposit account at the CSD Department. Securities certificates are deposited according to the following procedures: a. The owner of the securities certificates or their legal representative must submit the request to deposit such certificates, along with the full data and documents required. b. The issuing company or its registrar must verify the validity and ownership of the securities, as well as the identity and capacity of the person requesting the deposit. c. The issuing company or its registrar shall, after verifying the validity of securities, dematerialise the certificates and notify the CSD Department. d. The CSD Department must deposit the dematerialised securities in the investor’s deposit account at the CSD Department through electronic book entry. The issuing company or its registrar must also adhere to the procedures for issuing security certificates in lieu of any such lost or damaged certificates prior to depositing them with the CSD Department. Similarly, where the issuer with ADX listed securities has issued allotment letters regarding such securities, the owner of the securities may not trade until the original allotment letter or security certificate has been deposited with the CSD Department and registered under the relevant investor number. As with certificates, the issuing company or its registrar must also adhere to the procedures for issuing allotment letters or security certificates at the request of the owner in lieu of any lost or damaged, prior to depositing them with the CSD Department. 182  Trading 3.5 Deposit Accounts at the CSD Learning Objective 7.3.5 Know regulations concerning deposit accounts at the CSD (Articles 26–29) The owner of securities held by a broker or custodian can transfer the securities to a deposit account at the CSD Department by: a. Submitting a request to the broker or custodian to transfer a specific number of securities owned to the deposit account at the CSD Department, using the requisite form. b. The broker or custodian must then enter the data of the transfer request to the ADX electronic system and perform such transfer before the opening of the trading session on the next working day. c. Unless there are legal reasons, neither the broker nor the custodian can abstain from transferring the securities owned by the investor to the deposit account at the CSD Department. d. The broker or custodian will be responsible for any delay in making the transfer. 7 The investor may then issue instructions with respect to the securities held in the deposit account at the CSD Department. In the event of the cancellation of the registration of the clearing member at the CSD Department, or the suspension of activity temporarily or permanently, the CSD Department will transfer the securities owned by the investors to the deposit account at the CSD Department, either at the request of the investors or by order of the Authority. If an issuer provides its shareholders with bonus shares, then the CSD Department will deposit the bonus share issued in the account in which the original stock is deposited on the record date, in the appropriate proportion. The CSD Department will register bonus shares in a whole, round number to the deposit account as long as the investor is entitled to one or more shares. The CSD Department will not add fractions of shares to the shareholder’s account. Instead, total fractions of bonus shares are registered in the issuing company’s account. The issuing company must then sell the fractions of shares in the market within a period not exceeding 30 days from the date of registration. 3.6 Settlement Collateral Learning Objective 7.3.6 Know regulations concerning settlement collateral (Articles 31–34) To reduce the risk of settlement failure, clearing members must provide required levels of collateral to the ADX. This collateral includes a guarantee, in the form of a bank guarantee, a cash guarantee or a combination. It is the ADX management that determines the maximum/minimum value for the settlement collateral submitted by the clearing member to ADX. 183 The clearing member may choose to increase its permitted trading ceiling using one of the following methods: a. Increasing the value of bank guarantee or submitting an additional bank guarantee. b. Pledging securities as guarantee, provided that: the securities presented as guarantee satisfy any criteria established by the CSD Department in terms of required liquidity ratio or turnover ratio the value of the securities is calculated at a maximum of 50% of market value the clearing member pledges the securities in favour of ADX and authorises ADX to sell such securities in whole or in part at the market price, to cover any claims or financial liabilities on the part of the clearing member any such other conditions, as may be established by ADX management. c. Depositing the cash money belonging to a specific customer in the bank account designated by the CSD Department, to enable the clearing member to conduct trading operations in favour of such customer. It is the ADX management that, subject to the Authority’s approval, decides on the permitted trading ceiling of the clearing member, in proportion to the value of guarantee deposited. 3.7 Clearing and Settlement Regulations Learning Objective 7.3.7 Know regulations concerning clearing and settlement (Articles 35–46) Clearing members must open ‘Clearing Member’s Settlement Accounts’ at a licensed bank in the UAE, in accordance with the conditions and instructions of the CSD Department. The Clearing Member’s Settlement Account may not be changed, unless after having first obtained the CSD Department’s approval. The ADX enters into an agreement with the settlement bank to define the cash settlement procedures and the obligations of the ADX and the settlement bank, as well as the procedures and controls to be observed by the clearing members. The net value of security transactions is received and paid from and to the clearing members through their settlement account. The ADX may review the Clearing Member’s Settlement Account and obtain a statement of the transactions. The settlement bank and the clearing member must authorise the ADX to do this. 3.7.1 On the Trading Day It is the CSD Department that calculates the net daily amount and dues payable by and to the clearing member for each trading day. This is done by subtracting the total value of the security purchases by the clearing member per trading day from the total value of security sales during the same day, in addition to the commissions payable by the clearing member to the ADX and the Authority. The 184  Trading CSD Department, at the end of each trading day, electronically provides the net amount payable to or by each clearing member, so that each clearing member may review the relevant information. The amounts are considered approved and accepted by the clearing member, if there is no objection by 3pm on the trading day. 3.7.2 On the Settlement Day The CSD Department sends a settlement report to the settlement bank by 08:00 at the latest on the settlement day. The settlement report shows the amount payable to or by each clearing member. The clearing member, on the settlement date, must settle the amount mentioned in the settlement report for the settlement day, undertaking to settle the purchase transactions performed by and through that clearing member. The CSD Department reserves the right to make amendments to the payment or receipt orders of the clearing members at the settlement bank, to remedy any errors in the original settlement report, with no need for recourse to the clearing member. The clearing member must provide, in the settlement account, the amount payable by 09:00 at the latest on the settlement day. It is expected that the clearing member verifies that the cash balance in its Clearing Member’s Settlement Account is sufficient and available for the settlement of any amounts 7 payable on the settlement day, according to the settlement report for that day. The clearing member must arrange an overdraft and authorise the settlement bank to use the overdraft facility if the cash balance in its Clearing Member’s Settlement Account is insufficient or unavailable to settle the amounts payable. The settlement bank must transfer the amounts from the Clearing Members’ Settlement Accounts to ADX settlement account and vice versa by 09:30 at the latest on the settlement day, according to the amounts shown in the settlement report. 185 If a clearing member fails to provide the amount payable in the settlement account by the deadline, the settlement bank will utilise the overdraft facility on that Clearing Member’s Settlement Account. The settlement bank (or the CSD Department) will then request the clearing member to settle the amount payable, in addition to the interest and fees of the settlement bank, by 09:00 at the latest on the day following the settlement day. The CSD Department will take the following measures to collect the amount payable, in addition to the interest and fees payable by the clearing member: a. First, using the cash guarantee submitted by the clearing member, if any. b. Second, if necessary, liquidating the bank guarantee submitted by the clearing member. c. Finally, if necessary, selling the securities pledged by the CSD Department and submitted by the clearing member as guarantee. Without impacting any of the above provisions, the ADX may suspend the clearing member from trading for failing to settle the amount payable for settlement by the prescribed deadline. Furthermore, the ADX may take any legal measures required to claim from the clearing member any amounts paid by the ADX or the settlement bank on behalf of the clearing member due to such member’s failure to fulfil its settlement obligations. It is expected that the clearing member keeps the minimum guarantee required by the CSD Department at all times. If the guarantee falls below the minimum amount required for any reason whatsoever, the ADX may suspend the clearing member from purchases until the guarantee required is presented to the CSD Department. 3.8 Pledging Securities Learning Objective 7.3.8 Know regulations governing the pledging of securities (Articles 49–56) Securities can be pledged in a ‘mortgage contract’ between the creditor (the lender that may want to to take control of the pledged securities in the event of non-payment) and the debtor (the owner of the pledged securities). The CSD Department makes a book entry of the rights connected with the pledging of securities owned by the debtor on mortgage in favour of the creditor on mortgage, as follows: 1. The securities deposited with the CSD Department are the only securities capable of being subject to a pledge. 2. The CSD Department puts the pledge on securities upon the request submitted by the owner of securities (debtor on mortgage). 3. The CSD Department may put the pledge upon the request submitted by the creditor on mortgage, in the following cases: if the creditor on mortgage was a bank and submitted evidence of the approval of the owner of securities (debtor on mortgage) if it has been established that it has the legal capacity to do so by virtue of a power of attorney granted by the debtor on mortgage. 186  Trading Any pledge request must be submitted on the requisite form and contain the following information at least: a. creditor on mortgage b. debtor on mortgage (owner of securities) c. securities, subject of the pledge (issuing company, quantity), and d. party entitled to profits. In order to accept the security pledge request, the creditor on mortgage will be registered with the CSD Department as a pledging entity and the owner of securities (debtor on mortgage) must possess an investor number. The CSD Department registers the pledge on bonus shares on their record date, unless the pledge request otherwise indicates. Furthermore, in the event that the nominal value of pledged securities is split, the CSD Department places a pledge sign on the securities resulting from the splitting process. The pledging of Securities deposited with the CSD Department is only effective upon its registration on the automated clearing system. Any pledge will be released on the basis of a request submitted by the creditor on mortgage using the form prepared for this purpose or by an order of a competent court, 7 due to the termination of pledge by the settlement of the debt secured by pledge, or for any such other reason established by law. The CSD Department cannot release a pledge unless by a request submitted by the creditor on mortgage, provided that the creditor on mortgage follows the correct legal procedures. Where the debt secured by pledge is settled, the creditor on mortgage must immediately request the CSD Department to release the pledge. If a competent court issues a writ of precautionary or executive seizure and sale of securities that bear an indication of mortgage or freezing, the CSD Department will: a. If the claimant is the creditor mortgagee or the party to whose benefit the shares have been frozen, the CSD Department will execute the court order and notify the court about the undertaken procedures. b. If the claimant is not the creditor mortgagee, the CSD Department will execute the precautionary or executive seizure without selling the securities, then notify the court in writing of the existence of the mortgage over the securities and of the mortgage data. c. If the securities were frozen upon the request of its owner and to the owner’s benefit, the freezing is removed, and the court order on precautionary seizure or executive seizure and sale of securities is executed. 187 4. Clearing in Commodities Markets Clearing in any market typically involves a clearing house that sits between the two entities that are involved in the transaction. The role of the clearing house can be summarised as making sure that the transaction goes smoothly which will involve guaranteeing that both parties will receive what is due. This puts the clearing house at risk and is broadly dealt with by making sure the clearing house has plenty of financial capacity and putting in place mechanisms to make sure the participants’ can meet their requirements. The participants are often required to deposit what is known as ‘margin’ with the clearing house to act as a good faith deposit towards their obligations. The clearing house is often referred to as the central counterparty (CCP) because of its role in guaranteeing both sides of the trades it clears. 4.1 Clearing Operations in Commodities Markets Learning Objective 7.4.1 Understand the regulations of clearing operations in commodities markets (The Authority Resolution No. (11) of 2015): licence conditions (Article 3); obligations of the commodities CCP (Article 10); risk management (Article 11) Clearing activity can only be practised in a market after first obtaining a licence from the Authority. This involves meeting certain conditions that include the following: 1. The applicant must be a joint-stock company incorporated within the UAE or a free zone area company whose core business is to conduct clearing activities. 2. The company’s memorandum of association must be authenticated by the official authorities. 3. The paid-up share capital and reserves must not be less than AED 50 million. 4. The licence fee of AED 200,000 must be paid to the Authority in advance. 5. A commodities CCP must ensure compliance with the relevant IOSCO’s Principles on Clearing. The Authority will assess compliance on an annual basis and release the results. 6. The applicant must develop corporate governance provisions approved by the Authority that include a clearly defined organisational structure, and operational processes, procedures and policies for the board of directors and executive management, technical and administrative staff. 7. At least one third of the board of directors of the company, subject to a minimum of two members, must be independent. All board members must be of good repute and have adequate experience in the fields of financial services, risk management and clearing services. 8. The appointment of the chairman, board members and the CEO, and their compensation must be approved by the Authority. 9. Technical and administrative staff necessary for the conduct of the clearing activities must be duly appointed. 10. Suitable headquarters along with the software and technical systems and equipment necessary to engage in the business are required. 11. Approval by the Authority of the shareholders of a commodities CCP, including full transparency and disclosure of the identity and ownership levels of those shareholders. The Authority has absolute discretion to refuse any transfer of ownership. 188  Trading 12. Voting rights of shareholders must be commensurate with their respective ownership percentage. 13. Additional conditions or requirements as decided by the Authority in accordance with the requirements of the public interest may apply. A commodities CCP must satisfy all of the licence conditions at all times. 4.1.1 Obligations of a Commodities CCP Under the Authority regulations, a commodities CCP is obliged to take all administrative and technical procedures necessary to initiate the licensed activity, including the following: 1. Provide a system for internal control and periodic review, applicable to its managers and employees, to ensure compliance with applicable law, regulations, decisions, circulars, legislations and the internal regulations of the company, as well as the procedures for compliance with the laws, regulations, decisions, circulars, by-laws and legislations in force in the UAE concerning anti-money laundering and financing of terrorism. The system for internal control must be subject to frequent and independent audits. The results of such audits must be forwarded to the board of directors and must be made available to the Authority. 2. Develop effective institutional and administrative procedures to identify and manage potential 7 conflicts of interest between: the Exchange and the commodities CCP the commodities CCP (or any of its board members or employees) and its members and their clients, and illustrate the adequate procedures to deal with such situations as they arise. 3. Set the rules of professional conduct for its employees, supervise them, regulate and control their personal dealings in securities so as to ensure their compliance with the provisions of law, regulations, decisions and instructions issued by the Authority, particularly those related to honesty, integrity and conflicts of interest. 4. Maintain, on a continuous basis, the capital adequacy necessary to engage in the activity in order to secure its ability to meet its obligations. 5. Provide adequate liquidity necessary to meet its obligations on an ongoing basis. 6. There should be permanent electronic programs, systems, technical devices and IT and staff to execute clearing transactions of the clearing members to determine the net rights and obligations on the same day as the transaction. The executed transactions should be cleared with margin settlement and account reconciliation to verify that the margin requirements are met on time. 7. Ensure that the clearing members meet their obligations relating to the settlement of transactions. If the reason for delaying the completion of the settlement is due to the seller, the arising rights and benefits shall be for the buyer as of the date scheduled for settlement. 8. Analyse and monitor the performance and the extent of compliance with margin requirements in general through periodic review. In addition, it must review and ensure the correctness of its margin system on a periodic basis. 9. Provide the Authority with the following reports and documents: interim financial reports (quarterly reports) reviewed by the external auditor within 45 days of the end of the quarter an annual financial report audited by the external auditor within three months of the end of the fiscal year minutes of meeting of the board and its committees a periodic and updated report on the equity percentage of shareholders or clearing members who hold more than 10% of the capital of the clearing company 189  the details of any reciprocal operating agreements with other clearing organisations any other financial statements or reports requested by the Authority. 10. Obtain prior approval of the Authority before taking any of the following actions: amending the company’s memorandum of association or articles of association or selling a stake to a strategic partner adding, deleting or modifying an activity in the trade licence increasing or decreasing the company’s capital carrying out mergers or acquisitions changing the partners or amending their shareholdings in the CCP disclosing or exchanging information with any other party. 11. Immediately notify the Authority of the following: any intention to place a clearing member in default in the event of any material changes or developments in the company, or any deficit that affects its financial position any material changes in the information or data provided when applying for the licence any change in the members of the board of directors of the clearing company any lien or mortgage on the assets of the commodities CCP, and any lawsuits that the commodities CCP or one of its employees is a party to, and of any potential judicial rulings issued in such lawsuits, which may affect the financial position of the company any violations by its employees of the laws, regulations, by-laws or decisions issued by the Authority. 12. Keep books and records or use computers and other modern technology equipment in accordance with the international accounting standards accepted by the Authority, and keep all records and financial data relating to the clearing operations, margin payments, financial instruments, clearing member and the market where transaction are executed, date and time of the transaction and the date of the time of the settlement and date of expiry of the contract, as well as all contracts entered into by the commodities CCP or that it has been a party to and all information related to practising its activities, for a minimum period of ten years. Back-up copies of the data and documents must be maintained for the same period and must be safeguarded against damage. The Authority must be allowed to access and review everything related thereto upon request. 13. Observe the principles of honesty, integrity and confidentiality of data and information and avoid conflict of interest when practising the activity. 14. Practise the licensed activity with due diligence in accordance with the provisions of the law, the regulations and the conditions and controls on the basis of which the licence was issued subject to commercial norms and the principles of honesty, fairness, and equality. 15. To provide sufficient information about non-confidential matters to enable clearing members and their customers to abide by the regulations of margin trading (either using in-house systems or systems from external suppliers). 16. There should be transparency to enable clearing members and their customers and related parties to understand central clearing rules and to assess the liquidity of the transactions including ‘open interest’ and clearing volume and any other information provided by the clearing company. 17. To establish and administer a ‘default fund’ which is used in the event of breach or default. 18. To establish rules in case of clearing member defaults against any of its liabilities. In the event of such a breach or default the following will be transferred to another clearing member chosen by the client. 19. The segregation of accounts should be clearly identified to enable clearing members and their customers to make their decisions about their transactions. 190  Trading 20. Instigate and enforce prudential requirements on its operations to hold the commodities CCP safe from any risks it encounters with clearing members and their clients, including the following: at all times on real-time basis, monitor the exposure of the commodities CCP to its clearing members set margin requirements to the minimum level agreed to with the Authority and sufficient to cover: - 99% confidence - closing of the clearing company’s positions and those of its members within one day - maximum risks that the clearing company was exposed to over the preceding three years (back tested) determine the form and value of the guarantee that the clearing member must provide according to the category of its membership maintain a fully funded default fund sufficient to cover any default of the two biggest clearing members, the contributions in the fund by the clearing members will be based upon the risk exposures that they maintain with the central clearing company by taking the following procedures: - the adequacy of the default fund shall be established through stress testing. Such testing shall be done at least daily - separate default funds may be maintained for different asset classes for which the 7 commodities CCP provides clearing services. The asset classes are: credit, equity, rates, fixed income, foreign exchange, commodities and others to set procedures that clarifies the mechanism to finalise all obligations (offsets) arising from trading operations in the market between the CCP company and its members the commodities CCP must assess its liquidity requirements on a daily basis ensuring that it has adequate liquidity, covering both payments and receipts, and is not subject to wrong way risk covering of defaulting members liabilities must prioritise: - the margins of the defaulting member - the guarantee deposited at the CCP company by the defaulting member - the default fund contributions to the obligations of the defaulting member - the ‘skin-in-the-game’ of the commodities CCP (a minimum of AED 10 million) - contributions by non-defaulting members with prior approval required from the Authority margin and default fund contributions must be collected by the commodities CCP in either cash or securities. Bank guarantees are not acceptable to establish effective procedures applicable to handling default cases against obligations by clearing members. These procedures must clearly identify the responsibilities of the CCP and the responsibilities of the CCP board of directors. These procedures must be approved by the Authority to establish suitable procedures for separating the accounts between clearing members and their customers in order to ease the transfer of the financial positions and collaterals from the defaulting member to another non-defaulting member the commodities CCP must perform stress tests on both its margin requirements and default fund contributions. The commodities CCP should take the appropriate steps, as agreed in advance with the Authority. Periodic back tests should be performed to ensure that the stress test scenarios are adequate. 191 4.1.2 Risk Management A commodities CCP must manage its risk by adhering to the following: 1. Preparing an operational manual for risk management that includes the identification and definition of specific risks that the commodities CCP may face and how to address them should they materialise. Effective measures must be developed to ensure that current or potential risks that the commodities CCP may be exposed to are identified, indicating how to address, confront, report and monitor such risks, in order to enable the commodities CCP to continue to operate and to comply with the provisions of the regulations. Such risks include: credit risks counterparty risks market risks operational risks legal risks business risks – arising from poor management or investment decisions, as well as business continuity and disaster recovery issues. Any plans for continuity and recovery should be adequately tested and the results made public liquidity risks – a strong structure must be developed to manage liquidity risk and must include the operational and analytical tools and mechanisms to identify, measure and monitor cash flows associated with the settlement on continuous basis and in a timely manner so as to ensure that the organisation is capable of settling the liabilities and payments associated with the settlement processes in all currencies concentration risks cases of liquidation or restructuring risk exposures of the clearing members and their customers risk exposures of other entities that deal with the commodities CCP, such as other CCPs with which the commodities CCP works under interoperability agreements, the settlement systems, the payment systems, the settlement banks, the liquidity providers, and the securities depository systems, and the markets served by the commodities CCP. 2. Establish adequate mechanisms for internal controls to monitor and evaluate the adequacy and effectiveness of its risk management policies, procedures and systems. Such mechanisms must include sound administrative and accounting procedures. 3. Establish a surveillance program to assess clearing members’ compliance with the risk management requirements of the commodities CCP. 4. Establish remedial procedures in the event of default by clearing members towards risk management requirements, and the procedures that would be taken in case of a default by any member after coordination with the Authority. 5. Continuous assessment of member contributions to the default fund and the risks it may pose according to the rules set by the CCP. 6. Not to dismiss the internal auditor except by a decision of the board of directors, provided that both the Authority and the internal auditor are notified at least 30 days prior to dismissal explaining the reasons and justifications for the dismissal. 7. Comply with all regulatory rules, procedures and requirements established by the Authority concerning internal controls and the role of the internal auditor. 192  Trading 5. Dubai Gold & Commodities Exchange Dubai Gold & Commodities Exchange (DGCX) commenced trading in November 2005 as the region’s first commodity derivatives exchange and has become a leading derivatives exchange in the Middle East. DGCX’s range of futures contracts offers participants of the physical commodities markets, such as producers, manufacturers and end users, with a sophisticated means of hedging their price risk exposure. 5.1 Delivery Months Learning Objective 7.5.1 Know delivery months for products traded on the Dubai Gold & Commodities Exchange: Gold Futures (I.4.1); India Gold Quanto Futures (I.5.1); Shanghai Gold Futures (I.6.1); Silver Futures (J.4.1); Crude oil Futures (N.5.1, N.6.1, N.7.1, N81); Equity Index Futures and Options (P61) 7 In order to provide hedging opportunities to its customers, the DGCX provides a range of delivery dates for its contracts. Below are the delivery dates for selected derivatives available on the Exchange: Contract Delivery months Every two months starting February each year, with six delivery Gold futures months available for trading at all times. Every two months starting February each year, with six delivery India Gold Quanto Futures months available for trading at all times. Every two months starting February each year, with six delivery Shanghai Gold Futures months available for trading at all times. Every two months starting February each year, with five Silver Futures delivery months available for trading at all times. Crude Oil Futures – Brent Crude Every month, with 18 delivery months available for trading. Every month, with 18 delivery months and an additional ten Crude Oil Futures – West Texas semi-annual (June and December) delivery months available Intermediate (WTI) Crude for trading. Crude Oil Futures – WTI Mini Crude Every month, with 12 delivery months available for trading. Crude Oil Futures – Dubai India Every month, with two delivery months available for trading. Quanto Crude Oil Futures Equity Index Futures and Options – Monthly and quarterly with three delivery months and one MSCI India Index Future quarterly delivery month available for trading. 193 5.2 Gold Futures Learning Objective 7.5.2 Know details of Gold Futures: contract size (I.4); minimum price movement (I.4.2); last trading day (I.4.3); final cash settlement price (I.4.4); cash settlement day (I.4.5) The contract specification for the Gold Futures contract is as follows: The contract size – 32 troy ounces of refined gold. Minimum price movement – US$0.10 per troy ounce. Last trading day – two business days prior to the last business day of the delivery month. Final cash settlement price – the daily settlement price on the last trading day. Cash settlement day – the business day following the last trading day. 5.3 India Gold Quanto Futures Learning Objective 7.5.3 Know details of India Gold Quanto Futures: contract size (I.5); minimum price movement (I.5.2); last trading day (I.5.3); final cash settlement price (I.5.4); cash settlement day (I.5.5) The contract specification for the India Gold Quanto Futures contract is as follows: The contract size – one lot. Minimum price movement – US$1.00 per lot. Last trading day – two business days prior to the last business day of the delivery month. Final cash settlement price – the benchmark reference gold futures price that is made publicly available on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading day. 5.4 Shanghai Gold Futures Learning Objective 7.5.4 Know details of Shanghai Gold Futures: contract size (I.6); minimum price movement (I.6.2); last trading day (I.6.3); final cash settlement price (I.6.5); cash settlement day (I.6.6) The contract specification for the Shanghai Gold Futures contract is as follows: The contract size – 1,000 grammes (1 kg). Minimum price movement – CNH 0.01. Last trading day – 15th calendar day of the delivery month. 194  Trading Final cash settlement price – the Shanghai Gold Benchmark Price as published by the Shanghai Gold Exchange on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading day. 5.5 Silver Futures Learning Objective 7.5.5 Know details of Silver Futures: contract size (J.4); minimum price movement (J.4.2); last trading day (J.4.3); final cash settlement price (J.4.4); cash settlement day (J.4.5) The contract specification for the Silver Futures contract is as follows: The contract size – 1,000 troy ounces of refined silver (plus or minus 10%) of 0.999 fineness, cast in one bar by an approved silver refiner and located in an approved silver vault. 7 Minimum price movement – US$ 0.005 per troy ounce. Last trading day – two business days prior to the last business day of the contract delivery month. Final cash settlement price – the benchmark reference silver futures price that is made publicly available on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading day. 195 5.6 West Texas Intermediate (WTI) Futures Learning Objective 7.5.6 Know details of West Texas Intermediate (WTI) Light Sweet Crude Oil Futures: contract size (N.5); minimum price movement (N.5.2); last trading day (N.5.3); final cash settlement price (N.5.4); cash settlement day (N.5.5) The contract specification for the West Texas Intermediate (WTI) Light Sweet Oil Futures contract is as follows: The contract size – 1,000 barrels. Minimum price movement – US$ 0.01 per barrel. Last trading day – four business days prior to the 25th calendar day of the month preceding the delivery month. Final cash settlement price – the relevant reference futures price that is made publicly available on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading day. 5.7 Brent Crude Oil Futures Learning Objective 7.5.7 Know details of Brent Crude Oil Futures: contract size (N.6); minimum price movement (N.6.2); last trading day (N.6.3); final cash settlement price (N.6.4); cash settlement day (N.6.5) The contract specification for the Brent Crude Oil Futures contract is as follows: The contract size – 1,000 barrels. Minimum price movement – US$ 0.01 per barrel. Last trading day – the second last business day of the second month preceding the delivery month. Final cash settlement price – the relevant reference futures price that is made publicly available on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading day. 196  Trading 5.8 Mini WTI Crude Oil Futures Learning Objective 7.5.8 Know details of DGCX Mini West Texas Intermediate (WTI) Light Sweet Crude Oil Futures: contract size (N.7); minimum price movement (N.7.2); last trading day (N.7.3); final cash settlement price (N.7.4); cash settlement day (N.7.5) The contract specification for the Mini West Texas Intermediate Crude Oil Futures contract is as follows: The contract size – 100 barrels. Minimum price movement – US$ 0.01 per barrel. Last trading day – four business days prior to the 25th calendar day of the month preceding the delivery month. Final cash settlement price – the relevant reference futures price that is made publicly available on the last trading day. In the event that this price is not available, the Clearing Corporation will determine such final cash settlement price as it considers appropriate, at its absolute discretion. Cash settlement day – the business day following the last trading. 7 5.9 Dubai India Quanto Crude Oil Futures Learning Objective 7.5.9 Know details of Dubai India Crude Oil Quanto Crude Oil Futures: contract size (N.8); minimum price movement (N.8.2); last trading day (N.8.3); final cash settlement price (N.8.4); cash settlement day (N.8.5) The contract specification for the Dubai India Quanto Crude Oil Futures contract is as follows: The contract size – three barrels. Minimum price movement – US$ 1. Last trading day – four business days prior to the 25th calendar day of the month preceding the delivery month. Final cash settlement price – the final cash settlement price for the WTI Light Sweet Crude Oil Futures Contract converted using the official US Dollar reference rate issued by the Reserve Bank of India, or equivalent successor rate that is determined by the Exchange, on the last trading day. Cash settlement day – the business day following the last trading. 197 5.10 MSCI India Index Futures Learning Objective 7.5.10 Know details of MSCI India Index Futures (INR): contract size (P.6); minimum price movement (P.6.2); last trading day (P.6.3) The contract specification for the MSCI India Index Futures contract is as follows: The contract size – 25 index points x price. Minimum price movement – 0.5 index points. Last trading day – the last Thursday of the delivery month, except where that day is not a business day, in which case the last trading day will be the preceding business day. 5.11 Errors in the Index Learning Objective 7.5.11 Know rules concerning errors in an equity index (P.5) If, no later than 30 minutes after the publication of the final cash settlement price for a particular delivery month, any member of the Exchange notifies the Exchange of, or there otherwise comes to the attention of the Exchange, an alleged or apparent error in the closing price of the relevant equity index due to anything other than an error in the weighting of the price for any constituent stock, then the Exchange must promptly request the index provider to investigate such alleged or apparent error. If in the index provider’s opinion an error has been made, the index provider must correct the closing price which is used to determine the final cash settlement price for that delivery month and the Exchange will then re-determine the final cash settlement price accordingly. No correction of the final cash settlement price will be made in respect of any error notified to the Exchange or coming to its attention after the expiry of the 30-minute period. Neither the Exchange, nor its officers, employees, agents or representatives accept any liability whatsoever in respect of a decision as to whether or not to correct the closing price or as to the amount of any correction, or as to whether or not to re-determine the final cash settlement price. 198