Entire Section

  • AMI App 3 AMI App 3 Contract Delivery Specifications

    • AMI A3.1 AMI A3.1 Application

      • AMI A3.1.1

        This Appendix applies to an Authorised Market Institution which trades, or clears or settles, on its facilities Commodity Derivative contracts which require physical delivery of the underlying commodity.

        Derived from RM118/2013 [VER15/07-13]

    • AMI A3.2 AMI A3.2 Deliverability of the Underlying Commodity

      • AMI A3.2.1

        An Authorised Market Institution referred to in A3.1.1 must, for the purposes of meeting the requirement in Rule 6.3.2(1)(b), ensure that the terms and conditions of the Commodity Derivative contracts which are to be traded, or cleared or settled, on its facilities, are designed to include the matters specified in Rules A3.2.2A3.2.9.

      • Quality or Deliverable Grade

        • AMI A3.2.2 AMI A3.2.2

          A Commodity Derivative contract must include specifications of commodity characteristics for par delivery, including those relating to grade, class, and weight. The quality or grade specified must conform to the prevailing practices in the underlying physical market relating to the relevant commodity.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.2 Guidance

            1. Par delivery envisages delivery of commodities which are of a comparable quality or grade as specified in the contract. Contracts that call for delivery of a specific quality of commodity may provide commercial participants with a clearer, more efficient hedging and price-basing contracts than a contract that permits delivery of a broad range of commodity grades or classes.
            2. However, as contracts that permit delivery of only a specific grade of commodity may be susceptible to manipulation if that grade of the commodity is in short supply or controlled by a limited number of sellers, an Authorised Market Institution should require appropriate measures to mitigate such risks.
            Derived from RM118/2013 [VER15/07-13]

      • Size of Delivery Unit

        • AMI A3.2.3 AMI A3.2.3

          A Commodity Derivative contract must contain provisions relating to size or composition of delivery units which conform to the prevailing market practice in the underlying physical market to ensure that it does not constitute a barrier to delivery or otherwise impede the performance of the contract.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.3 Guidance

            An Authorised Market Institution should, where the provisions relating to size and delivery units of the Commodity Derivatives contract deviate from the underlying physical market, examine the reasons for such deviation and ensure that the risks arising from such deviation can be effectively addressed by the contract parties.

            Derived from RM118/2013 [VER15/07-13]

      • Delivery Instruments

        • AMI A3.2.4 AMI A3.2.4

          A Commodity Derivative contract must specify the acceptable form or type of delivery instruments, and whether such instruments are negotiable or assignable and, if so, on what conditions.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.4 Guidance

            Acceptable delivery instruments include warehouse receipts, bills of lading, shipping certificates, demand certificates, or collateralized depository receipts.

            Derived from RM118/2013 [VER15/07-13]

      • The Delivery Process and Facilities

        • AMI A3.2.5 AMI A3.2.5

          A Commodity Derivative contract must specify:

          (a) the delivery process, including timing, location, manner and form of delivery, and
          (b) the delivery and/or storage facilities available,

          which conform to the prevailing practices in the underlying physical market to permit effective monitoring and to reduce the likelihood of disruption.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.5 Guidance

            1. An Authorised Market Institution should consider issues associated with the delivery process, including those relating to acceptable delivery locations. Such issues include:
            a. the level of deliverable supplies normally available, including the seasonal distribution of such supplies;
            b. the nature of the physical market at the delivery point (e.g., auction market, buying station or export terminal);
            c. the number of major buyers and sellers; and
            d. normal commercial practices in establishing cash commodity values.
            2. The delivery months specified in the Commodity Derivative contract should take into account cyclical production and demand and accord with when sufficient deliverable supplies are expected to exist in the underlying physical market. Seasonality of a commodity should also be taken into account in relation to transport and storage, as it may affect the availability of warehouse space and transportation facilities.
            3. Consistent with the grade differentials noted above, Commodity Derivative contracts that permit delivery in more than one location should set delivery premiums or discounts consistent with those observed in the underlying physical market. The adequacy of transportation links to and from the delivery point should also be taken into account when setting delivery premiums.
            4. The delivery facilities available can include oil or gas storage facilities, warehouses or elevators for agricultural commodities and bank or vault depositories for precious metals.
            5. An Authorised Market Institution should consider issues relating to the selection of delivery facilities under the contract which include:
            a. the number and total capacity of facilities meeting contract requirements;
            b. the proportion of such capacity expected to be available for short traders who may wish to make delivery against Commodity Derivative contracts and seasonal changes in such proportions;
            c. the extent to which ownership and control of such facilities is dispersed or concentrated; and
            d. its ability to access necessary information from such facility.
            Derived from RM118/2013 [VER15/07-13]

      • Inspection and Certification Procedures

        • AMI A3.2.6 AMI A3.2.6

          A Commodity Derivative contract must specify applicable inspection or certification procedures for verifying that the delivered commodity meets the quality or grade specified in the contract, which conform to the prevailing practices in the underlying physical market.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.6 Guidance

            If the commodity is perishable, the Commodity Derivative contract should specify if there are any limits on the duration of the inspection certificate and the existence of any discounts applicable to deliveries of a given age.

            Derived from RM118/2013 [VER15/07-13]

      • Payment for Transportation or Storage

        • AMI A3.2.7

          A Commodity Derivative contract must specify:

          (a) the respective responsibilities of the parties to the contract regarding costs associated with transporting the commodity to and from the designated delivery point and any applicable storage costs; and
          (b) how and when title to the commodity transfers, including from any short to long position holder.
          Derived from RM118/2013 [VER15/07-13]

      • Legal Enforceability

        • AMI A3.2.8 AMI A3.2.8

          A Commodity Derivative contract must, where any one or more of the activities of trading, clearing or settlement under the contract take place in different jurisdictions, contain adequate arrangements to mitigate risks arising from any disparity between governing laws applicable in the relevant jurisdictions.

          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.8 Guidance

            An Authorised Market Institution should, when assessing whether the contractual terms adequately provide for addressing jurisdictional risks, take into account whether the contract:

            a. clearly identifies the different legal requirements applicable in the relevant jurisdictions and any differences, including those relating to the manner in which standard clauses are interpreted; and
            b. the impact such differences may have in dealing with matters such as delivery disputes, and determination of rights in insolvency proceedings; and
            c. contains effective measures to address risk of unenforceability of the contractual terms, particularly those relating to cargos and storage where jurisdictional differences could have a significant impact on the deliverability.
            Derived from RM118/2013 [VER15/07-13]

      • Default Provisions and Force Majeure

        • AMI A3.2.9 AMI A3.2.9

          A Commodity Derivative contract must specify:

          (a) the rights and obligations of the parties to the contract in the event of default by the parties, or in the event of frustration of the contract due to force majeure or other specified event; and
          (b) whether any Clearing House or Exchange guarantees the settlement of the transaction in an event specified in (a), and if so, the manner in which such settlement will occur.
          Derived from RM118/2013 [VER15/07-13]

          • AMI A3.2.9 Guidance

            1. An Authorised Market Institution when considering whether a Commodities Derivative contract adequately provides for contract certainty in the event of default or force majeure, should take into account:
            a. whether any collateral provided by the contracting parties would be sufficient to address the replacement risk in the performance of the contract; and
            b. whether there are any monetary consequences attaching to defaulting parties that would act as a disincentive against default.
            2. The contract terms should clearly specify which jurisdictional laws are applicable to the governing law, including where there are any significant variations in the rights and liabilities attaching to the contracting parties for the event that occur in the relevant jurisdiction.
            Derived from RM118/2013 [VER15/07-13]