Copyright© JSE Limited “Grow” your understanding about trading commodity derivatives….. 1

What’s up ! Purpose Of The Futures Market Participants Of The Futures Market Value added & Risk Of Futures Market Role Of Hedgers And Speculators Derivatives Products Traded Physically settled Products Physical Settlement Process Cash Settled Products 2

Purpose of the futures market A trading operation that provides market participants with a price determination mechanism and a price risk management facility through which they can manage their exposure to adverse price movements on the underlying physical market and where performance by both counterparties to the contract is guaranteed

Who can participate in the futures market Any individuals, foreign clients and corporate through any JSE registered member Foreign Clients - participating in the physical delivery of products in the commodities futures market are subject to Value added tax protocol as set up by the South African Revenue Service. 4

VALUE ADDED & RISKS OF FUTURES MARKET 5 Price Determination Mechanisms Management of exposure to adverse price movements Guarantees performance by counter parties Small initial margin leads to high exposure and profit potential Any given transaction can result in a loss Losses may be greater than initial invested amount

Role Of Hedgers And Speculators Hedgers can be described as those market participants who use derivative contracts to manage price risk of a underlying commodity that is present in the physical market Typically a farmer producing the grains we trade, a miller who processes the grain, a trader involved in grains market who could export or import the product, banks involved in providing financing to the grain market Speculators are those market participants who use derivative contracts, not to manage price risk, but with the purpose of benefiting from a directional move in the derivatives market Could be farmers who will not harvest the underlying crop as per their derivative position, traders, retail and institutional clients 6

Derivatives Products Traded Futures contracts: a standardised contract for a future date that will allow a market participant to hedge their underlying exposure in the physical market 100tons, of WM1 grade white maize for JULY 2010 basis Randfontein Options contracts: Put Options provide the buyer the right but not the obligation to sell grain at a specific floor price. Sellers of put options are obligated to buy grain at the floor price Call Options provide the buyer the right but not the obligation to buy grain at a specific ceiling price. Sellers of call options are obligated to sell grain at the ceiling price Options expire 5 business days before moving into the delivery month 7

Future Contracts Agricultural Products White Maize - Standardised contract of WM1 100metric tons Yellow Maize - Standardised contract of YM1 100metric tons Wheat - Standardised contracts of B1, B2,B3 50metric tons Soya Beans - Standadised contracts of class SB* 25metric tons Sunflower Seed - Standadised contracts of FH South African Origin 50metric tons Corn - Standadised contracts of the underlying derivatives contracts as traded on the Chicago Board of Trade (CBOT) * as defined in the South African grading regulation of the Agricultural Products Standards Act of

Agricultural Products 9 Sun Flower Seeds–50 tons Soya beans–25 tons White and Yellow Maize- 100 tons Wheat- 50 tons

Futures Contracts Foreign Referenced Commodity Products Gold - Standardise 10 troy ounce contract referencing the Gold futures contract traded on NYMEX through its COMEX division Platinum - Standardise 10 troy ounce contract referencing the Platinum futures contracts meeting all specification as listed and traded on NYMEX, a subsidiary of the CME Group Inc Crude Oil - Standardise 100US barrels( liters) contracts referencing a light sweet crude oil futures contract meeting all specifications as listed and traded on NYMEX a subsidiary of the CME Group Inc 10

Physically Settled Products All the agricultural products traded on the commodities platform are physically settled except for the cash settled Corn Contract Since there's no transparent and a well regulated cash market physical delivery ensures the futures contracts closing prices reflect the true market conditions Roughly 2% of all grain contracts traded on the JSE are physically delivered Derivative market therefore most often used for price risk management 11

Physical Settlement process Is a two day settlement process, the short position holders (seller) give notice on day one for delivery the following business day, long position holders (buyer) are notified of the delivery on day one Grain is either randomly allocated to buyers Alternatively an exchange for physical (EFP) will allow a buyer and seller to negotiate the actual exchange of silo receipts Notice day requires JSE receiving a silo receipt representing the product The long position holder is invoiced by the JSE the same afternoon and is required to make full payment on delivery day 12

Physical Settlement process There is over 18 delivery points for the seller to choose from The final cash settlement price is discounted for location differentials Randfontein is used as the reference delivery point this is done to ensure the buyer is not placed in a worse off position A SAFEX receipt is a recognisable tradable instruments, it can be retendered on SAFEX a number of times when the futures expiry expires When a silo receipt is returned to a silo owner for out loading of the physical product, it is finally cancelled 13

14 Reference point

Cash Settled Commodities Corn Contract 100 tons, with Mar, Jul, Sep and Dec expiries Crude Oil trading WTI or light sweet crude 100 US barrels per contract, with Feb, Jun, Aug and Dec expiries Gold 10 troy ounce contract, with Apr, Jun, Aug and Dec expiries Platinum 10 troy ounces, With Jan, Apr, Jul and Oct expiries ALL THE ABOVE TRADED IN RANDS 15

Final cash settlement price Referencing NYMEX or COMEX market for FINAL futures price Rely on a number of iterations from both underlying international market and the currency spot market to eliminate market abuse by dominate participants Markets that we reference are deep and very liquid WTI on NYMEX and COMEX Gold are the worlds most liquid derivative contracts Use the dollar per ounce (or barrel) value X spot R$ exchange rate For more information about the cash settlement process visit our website on under productshttp:// 16

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