Hi Commodity Traders,
There is a good news for base metal commodity traders. In a recent MCX circular MCX/MCXCCL/837/2024 the tender period for commodity futures contracts in the Base Metals category has been reduced from 5 days to 3 days.
The changes are applied to the following contracts:
- Aluminium
- Aluminium Mini
- Copper
- Lead
- Lead Mini
- Nickel
- Steel Rebar
- Zinc
- Zinc Mini
What is a tender period?
The Tender Period is a defined timeframe towards the end of an expiry of a derivative contract. Theoretically, during which traders with open positions can voluntarily indicate their intent to deliver or take delivery of the underlying. Usually, it is the period a few days before the expiry. Hence, it is also called pre-expiry period. On the expiry day, all remaining open positions are mandatorily settled via physical delivery or cash, with the final settlement price.
Why is the margin requirement increased for instruments in the tender period ?
Margin requirements for derivative contracts, particularly commodities, are increased as they approach their expiry dates to address the heightened risks associated with settlement and price volatility. As expiry nears, the convergence of futures prices with spot prices often leads to greater price fluctuations, necessitating higher margin to cover potential risk.
Additionally, contracts nearing expiry are more likely to transition into physical delivery, which introduces logistical and financial challenges. Higher margins ensure participants are adequately prepared to meet these obligations and minimize the risk of default.
By progressively increasing margins, exchanges also encourage speculative traders to exit positions early, leaving only those with genuine delivery intent, which helps maintain market stability. This practice aligns with regulatory requirements and strengthens the market’s risk management framework, ensuring an orderly settlement process and safeguarding financial stability for all participants.
What does this circular mean for the commodity traders at Dhan ?
As mentioned earlier, this circular changes the tender period for base metal contracts. For commodities like Aluminium, Copper, Zinc, Nickel, Steel Rebar, and Lead, the tender period for contracts expiring from January 2025 onwards has been reduced from 5 days to 3 days.
This gives Dhan traders two extra days to trade. According to Dhan’s RMS policy, trading is not allowed during the tender period. Earlier, trading would stop on E-5 day, but now it will stop on E-3 day (where E is the expiry day).
Regarding margin requirements, the pre-expiry margins for these contracts have been revised for base metals. For example:
- On January 29, 2025, the pre-expiry margin will start at 8.34%.
- On January 30, 2025, it will increase to 16.68%
- Finally, on January 31, 2025 the day of expiry, the pre-expiry margin reaches 25%.
Earlier, margin increments were distributed over a 5 day period. But this will not be of much relevance for Dhan users, because there will not be trading during the tender period. There is no change for other commodity derivatives. It will follow a 5 day tender period. Hence the tender period for other commodities will start from E-5 day.
Since we are this subject, let us have a look at the Dhan RMS Policy on physical delivery & tender period. 
Commodities with compulsory delivery will be closed one day before their respective tender period/delivery intention. Physical delivery of positions is not allowed. All deliverable contracts on MCX enter the ‘Tender Period positions’ as specified by the exchange from time to time. Customers’ positions will be squared off one day prior to the start of the ‘Tender Period’ of the contract. No positions will be allowed to carry forward into the Tender Period. Please note that the creation of new positions in contracts will be blocked one day prior to the initiation of the ‘Tender Period’ or ‘Devolvement Period.’
Regards
Kuldeep Mathur