Spot Contracts in Cotton Bales Trading, Delivery and Settlement Process Bhavik Mehta VP- Cotton , National Spot Exchange www.nationalspotexchange.com

Introduction National Spot Exchange (NSEL) has launched compulsory delivery based spot contract in cotton bales on Mumbai delivery basis. Cotton bale contract is available on NSEL platform, which can be accessed from any location for buying and selling. NSEL provides excellent opportunity to the ginners to sell cotton bales on the Exchange Platform to the buyers such as exporters, spinning mills and traders. NSEL has made arrangement for professional warehousing in Mumbai and various other centers across Maharashtra for facilitating the trade. It is further going to expand across the country. www.nationalspotexchange.com

Physical Market operation from Buyer’s side for ready delivery contracts www.nationalspotexchange.com

Contract Specifications of Pre-certified Cotton Bales Mumbai Delivery Contract Commodity Cotton Bales Symbol COTNYTL8 Contract Daily contract Buying and selling on intra day basis will be permitted, but all positions outstanding at end of trading session on the same day must result into compulsory delivery. Trading period Mondays through Saturdays except holidays specified in advance Trading session Monday to Friday: 10.00 a.m. to 6.00 p.m. Saturday: 10.00 a.m. to 2.00 p.m. Trading Trading unit 100 Bales Quotation/Base Value Rs. Per Candy Tick size (minimum price movement) Rs. 10 Daily price limits 3% Price Quote Ex – Warehouse, Yeotmal (out side Octroi Limits within 50 kms Radius) excluding VAT/ CST and any other Additional Tax or Surcharge on Sales Tax and Local Taxes. Initial margin 5 % Maximum Order Size 1200 Bales www.nationalspotexchange.com

Delivery www.nationalspotexchange.com Cont… Delivery unit 100 Bales and direct multiples thereof. Delivery center(s) Exchange designated warehouse at Mumbai. Tender and Delivery Period Nine working days from the contract trading day. Delivery Logic Compulsory. Net positions at close of the trading session must be delivered on the designated tender days. Quality specifications on Physical Inspection and HVI Mode Ginning Pattern Roller Ginned Cotton Only – Saw Ginned Cotton will be rejected. Staple Length Min 28.5 mm Micronaire 3.5 to 4.9 Strength 28 gpt Trash% 3.0 % Maximum Color- Grade Not above 31-5 Moisture Max 8.5 % Physical Condition Of Bales All bales of the lot should be in good condition – should be free from oil / ink stains penetrating the bale or damaged in any other way. www.nationalspotexchange.com

www.nationalspotexchange.com Cont… Packing Material Should be in cloth packing only. Cloth material used should be of good quality(50*11Oz). It should also be strapped either with Plastic (PP) straps or with Iron hoops of good quality / condition (not rusted) The bales should be well packed - from all six sides - should be in export worthy conditions. Not more then 5 bales should be pre- opened (either for sampling or for any reasons). If any bale is pre- opened, then it must have been well re- packed so that it is not in burst condition. Bale size , Weight per bale and total weight Bales should be of approx. 48 “ x 18” X 18” dimensions .Total weight of the lot (100 bls/lot) should be 17000kgs (+/- 5 %) where in individual bales should not be weighing less then 160 kgs or not more then 175 kgs Identification nos. / Markings on Bale All markings such as name of the Producer/ Ginner / seller, if any; name of the Variety, if any; Lot no., if any; press Running Nos. in continuation for all 100 bales. The P.R. Nos. in continuation only will be considered as one lot. Every bale of the lot has to have its serial no. starting from 1 to 100 and the Press running nos. in sequence; Press marks, if any; Cotton Season all identification marks - Marking should be put on cloth / Paper labels, No plastic material should be used for labels, if markings are stenciled with ink on surface of the bale, then the ink used for such markings should not have damaged the Cotton inside the bale. Premium / discount No premium / discount for any variation in quality specification. www.nationalspotexchange.com

Delivery and Settlement Procedure of Cotton Bales Mumbai delivery contract Delivery logic Compulsory delivery: Any buyer or seller having open position at close of the trading session on the same day must result into compulsory delivery. Delivery allocation will be done at client level. Delivery pay-in [Commodity] Regular On T+8 by 2.00 PM Auction T+8 (5:00 pm to 5.30 pm) Delivery pay-in [Commodity] against Auction, if any On T+9 at 11.00 am Delivery pay-out [Commodity] Regular On T+8 at 5.30 PM Delivery pay-out [Commodity] Auction T+9 By 01.00 PM Pay-in of funds MTM pay-in Funds pay-in against delivery Auction pay-in [Funds] if any T+1(11.00AM) T+8(01.00 PM) T+9(12.00 noon) Pay-out of funds MTM Pay-out Funds Pay-out (Regular) Funds pay-out (Auction) T+1(12.00 noon) T+8 (5.30 PM) T+9 (03:00 PM) Delivery center Delivery will be from Exchange designated warehouse at various centers across Maharashtra & Mumbai. www.nationalspotexchange.com

Procedure for deposit and sampling One day prior intimation, to the warehouse for necessary storage arrangements. Based on the intimation received from the depositor, delivery schedule will be intimated by the warehouse supervisor. Loading and Unloading of Cotton Bales will be done on first cum first serve basis. Members and their respective Clients willing to deposit Cotton for “PRE- CERTIFICATION” in the Exchange accredited Warehouse will require to contact Warehouse Manager in advance for availability of space for necessary storage and Certification arrangements. Cotton Bales (Lot of 100 bales) to be deposited in the warehouse shall be weighed individually / separately on the weighing scale. The process will be monitored and certified by the Exchange nominated independent International Controllers / Surveyors. www.nationalspotexchange.com

Cont… It is to be ensured that the Cotton bales delivered at the warehouse should comply strictly with the acceptable limits as prescribed by the Exchange in the contract specification. On receipt of Cotton Bales at the warehouse and during unloading the same, minimum 2 % of the lot (2 out of 100 Bales) will be selected at random for Moisture Testing and 2 % of the lot (2 out of 100 bales) as samples, for quality analysis of physical properties. If required, samples may be drawn from hard, soft and middle part of bales will be opened for verification/analysis. www.nationalspotexchange.com

Details of Exchange Designated Warehouses and Approved Quality Assayer with Charges. Name of the Warehouse Warehouses of CWC & MSWC situated in Yeotmal WH address Detailed address will be intimated separately Contact Person E-mail Storage charges* Rs.2.00 per Bale per day Quality Certificate Agency SGS India Pvt. Ltd. Mumbai Delivery Charges The delivery charges @Rs. 40 per bale i.e. Rs. 4000/- per lot of 100 bales for actual deliveries. The delivery charges are inclusive of charges towards Loading / sampling / Testing charges, Insurance and free warehousing for five days while withdrawals of Commodities. www.nationalspotexchange.com

Auction Procedure on Buyer/Seller Default The Exchange will initiate the buy-in and/or sell-out auction in case a member fails to honour its obligation of pay-in of funds or commodities by the due date within the scheduled time in full or in part. Exchange will impose penalty of 1% on each defaulting parties and differential rate of auction price and settlement price shall be distributed proportionately to all the sellers or buyers depending upon the Buying in/Selling out auction for the quantity. Participation in the Buying in/Selling out Auction The members who desires to participate in buy-in and/or sell-out auction must have certified quality stocks in the Exchange approved Warehouse and/or the funds in their settlement accounts. www.nationalspotexchange.com

Cont… Acceptance of Bids Bids will be accepted within the range of 10% of the closing price of the trading day. prior to the date of auction. Auction on NET basis In case there is a simultaneous default by seller and buyer, then the Exchange will conduct the Buying in/Selling out Auction for the net quantity. Auction Price Auction price is computed at be the weighted average price of all the bids accepted for the contract. www.nationalspotexchange.com

Auction Settlement Schedule Particulars Day Pay-in Pay-out Delivery of Commodities - auction T+1 Up to 11.00 am At 1.00 pm Funds - auction Up to 12.00 pm At 3.00 pm www.nationalspotexchange.com

Advantage of National Spot Exchange Platform For Exporters - Ensures 100 % hedging facility for ready shipments export contracts. Ready shipments contracts – immediate month shipment is substantial quantity of total export turnover of an average exporter. Assured Quality: As per Contract specification assured. As per the current trade practice - 2 % sampling Quality checks done after complete lot received at exchange nominated warehouse and random Third Party Inspection ensures genuine quality. Assured Timely Delivery: Can assure the buyer for Just in Time Delivery - Minimum turn over time / trading cycle. Can enter into export contract and complete the order by delivered at port of loading within 15 days. www.nationalspotexchange.com

Minimum Administrative work Cont… Minimum Administrative work Can develop more markets and customers as back hand is completely taken care by the systems. Can avail the readily available warehousing facility at minimal cost for short term warehousing needs. Can avail 70 % finance facility against warehousing receipts at most competitive rates. www.nationalspotexchange.com

Advantage to Ginners / Sellers Elimination of credit risk in physical trade will be the real boon to the Ginners Ginners will get a bigger market, where they can sell huge quantity. Elimination of counter party defaults, which will be totally guaranteed on National Spot Exchange platform. A settlement guarantee fund would be maintained for this purpose. Increases the price realization by the ginners with assured and timely payment. It will provide a platform through which Ginners will be able to negotiate price of their commodity with the end users spread across the country at negligible cost. Once delivery is accepted by the Exchange, after the quality certification process, Ginners need not be concerned about any quality related rejection by the buyer or weight loss reported at buyer’s destination. www.nationalspotexchange.com

Advantage to Suppliers Ensures best / optimum prices for their produce No payment risk as Payment is assured by Exchange and not by buyer. Exchange’s Trade guarantees Fund of Rs. No weight loss / shortages at Buyers end. Third Party Quality inspection ensures unbiased quality evaluations. No fraudulent claims against market fluctuations between the deal and the time material reaches for approval of quality or once dispatched and before getting payment. No unknown deductions from the value of goods on any account. Minimum overhead expenses for selling the produce. www.nationalspotexchange.com

Cont… Saves administrative expenses - sampling loss / courier expenses of samples to diff brokers / buyers / no bank charges for receiving payments / reduced manpower / reduced banking transactions as payments received in full and final. Can avail warehousing facility for short term needs at minimal costs and also avail 70 % financing at least rate of interest against warehousing receipts issued by Exchange. Gives you freedom to work on your strength of sourcing seed cotton at cheapest price and concentrating on improving the process of ginning to get the best cotton produced from your factories. The marketing side is taken care by Exchange ensuring you get the best price for your produce with 100 % payments guaranteed on time www.nationalspotexchange.com

Advantages to the exporters Exporters can buy certified quality material through a secured platform. Hassles relating to procurement of material in physical market is totally avoided. They can save brokerage or commission payable to procurement agents Looking at the price available at National Spot Exchange, they can make export commitment and cover themselves immediately by buying at National Spot Exchange Customized services regarding logistics can be provided by National Spot Exchange. www.nationalspotexchange.com

Advantages to the traders Traders would get a bigger market, where they can sell huge quantity. Elimination of counter party defaults, which will be totally guaranteed on National Spot Exchange platform. A settlement guarantee fund would be maintained for this purpose. Realize better price for their product due to wider market availability. Traders get the alternative platform for buying and selling various commodities. They can expand their activities to multiple commodities, because of operational ease, availability of finance and absence of counter party risk under National Spot Exchange system. www.nationalspotexchange.com

Against hedging on futures market buying on NSEL platform and storing at NSEL accredited warehouse ensures any profits /loss accrued will be considered as a business profits / loss and not the speculative profit / loss. www.nationalspotexchange.com

Cotton Trading strategy at NSEL Cotton Trading startegy at NSEL www.nationalspotexchange.com

Thank You National Spot Exchange Limited 102A, Landmark, Suren Road, Chakala, Andheri (East) Mumbai - 400093. Tel: +91-22-67619900 Fax: +91-22-67619031  E-mail: info@nationalspotexchange.com www.nationalspotexchange.com