InvestorQ : How is the mark to market settlement for futures done?
Arya Nanda made post

How is the mark to market settlement for futures done?

Archita Jajjoo answered.
3 years ago

The positions in the futures contracts for each member are marked-to-market to the daily settlement price of the futures contracts at the end of each trade day. The profits/ losses are computed as the difference between the trade price or the previous day's settlement price, as the case may be, and the current day's settlement price. The CMs who have suffered a loss are required to pay the mark-to-market loss amount to NSE Clearing which is passed on to the members who have made a profit. This is known as daily mark-to-market settlement.

Theoretical daily settlement price for unexpired futures contracts, which are not traded during the last half an hour on a day, is currently the price computed as per the formula detailed below:

F = S * e rt

where :

F = theoretical futures price

S = value of the underlying index

r = rate of interest (MIBOR)

t = time to expiration

Rate of interest may be the relevant MIBOR rate or such other rate as may be specified. After daily settlement, all the open positions are reset to the daily settlement price. CMs are responsible to collect and settle the daily mark to market profits / losses incurred by the TMs and their clients clearing and settling through them. The pay-in and pay-out of the mark-to-market settlement is on T+1 days (T = Trade day). The mark to market losses or profits are directly debited or credited to the CMs clearing bank account.

Option to settle Daily MTM on T+0 day

Clearing members may opt to pay daily mark to market settlement on same day. The option can be exercised once in a quarter (Jan-March, Apr-June, Jul-Sep & Oct-Dec). Clearing members who wish to opt to pay daily mark to market settlement on T+0 basis shall intimate the Clearing Corporation as per the format specified in specified format. Clearing members who opt for payment of daily MTM settlement amount on a T+0 basis shall not be levied the scaled up margins. The pay-out of MTM settlement shall continue to be done on T+1 day basis.