An investor who has acquired a futures contract may be obligated to take physical delivery of the contract’s underlying commodity on a First Notice Day (FND). The first notification day varies by contract and is also subject to exchange regulations.
What happens on the day that futures contracts expire?
Futures and Options are the two types of derivatives traded on the market. Both are contracts that can be bought and sold on the exchange. The contract buyer agrees to buy or sell the underlying assets (in this case, stocks) at a predetermined price at a later date. If this is a futures contract, the buyer must adhere to the terms of the deal at all costs. However, if the contract is an Options contract, the buyer might let it expire without completing the requirements of the agreement.
The derivatives expiry is the future date by which the contracts must be fulfilled. The exchange has decided that contracts can only expire on the final Thursday of each month to minimize confusion. If this is a trading holiday, the prior trading day will be used as the expiration date.
Contracts are concluded on the day they expire (or simply get expired in case of Options). You can do this in one of two ways: buy another contract that nullifies your current one, or settle in cash. For example, if you buy a futures contract that allows you to buy 100 shares of ABC firm, you can then buy another futures contract that allows you to sell 100 shares to close the contract. After that, you’ll have to pay the difference in the contract’s price. Each contract is valued at a certain amount. The price of the underlying stock on the secondary stock market (cash market), where you buy and sell stocks directly, is linked to this. As a result, each contract’s settlement value is determined by the stock’s last-day closing price.
The value of futures and options contracts is determined by the underlying equities or indices. Derivatives contracts, on the other hand, can alter stock values over short periods of time. Assume that investors are bullish on the near-term outlook. As a result, the amount of ‘Buy’ contracts in the futures market rises in contrast to ‘Sell’ contracts. As a result of this, cash market investors may begin to buy shares in anticipation of rising prices. When enormous amounts of money are spent in a short period of time, the stock price rises.
Traders assess their derivatives holdings a few days or a week before expiration to see if they are genuinely lucrative or not. These traders frequently hold stock in both the secondary stock market and the derivatives market. To make money, they may buy on the stock market and then sell on the derivatives market. Arbitrage trading is the term for this type of trading. To avoid losses, such traders may elect to terminate or unwind their bets near the expiration date. In this instance, they may be able to sell the stocks directly on the secondary market. Other traders may act in the exact opposite manner. In either case, price changes result from the unexpected increase in activity. The secondary market becomes more volatile as a result of this. This, however, is just for a limited time. After the expiry, markets frequently regain their losses.
Can we sell futures on the day they expire?
Purchasing and selling futures contracts is similar to purchasing and selling a number of units of a stock on the open market, but without the need to take immediate delivery.
The level of the index moves up and down in index futures as well, reflecting the movement of a stock price. As a result, you can trade index and stock contracts in the same way that you would trade stocks.
How to buy futures contracts
A trading account is one of the requirements for stock market trading, whether in the derivatives area or not.
Another obvious prerequisite is money. The derivatives market, on the other hand, has a slightly different criteria.
Unless you are a day trader using margin trading, you must pay the total value of the shares purchased while buying in the cash section.
You must pay the exchange or clearing house this money in advance.
‘Margin Money’ is the term for this upfront payment. It aids in the reduction of the exchange’s risk and the preservation of the market’s integrity.
You can buy a futures contract once you have these requirements. Simply make an order with your broker, indicating the contract’s characteristics such as theScrip, expiration month, contract size, and so on. After that, give the margin money to the broker, who will contact the exchange on your behalf.
If you’re a buyer, the exchange will find you a seller, and if you’re a selling, the exchange will find you a buyer.
How to settle futures contracts
You do not give or receive immediate delivery of the assets when you exchange futures contracts. This is referred to as contract settlement. This normally occurs on the contract’s expiration date. Many traders, on the other hand, prefer to settle before the contract expires.
In this situation, the futures contract (buy or sale) is settled at the underlying asset’s closing price on the contract’s expiration date.
For instance, suppose you bought a single futures contract of ABC Ltd. with 200 shares that expires in July. The ABC stake was worth Rs 1,000 at the time. If ABC Ltd. closes at Rs 1,050 in the cash market on the last Thursday of July, your futures contract will be settled at that price. You’ll make a profit of Rs 50 per share (the settlement price of Rs 1,050 minus your cost price of Rs 1,000), for a total profit of Rs 10,000. (Rs 50 x 200 shares). This figure is adjusted to reflect the margins you’ve kept in your account. If you make a profit, it will be added to the margins you’ve set aside. The amount of your loss will be removed from your margins if you make a loss.
A futures contract does not have to be held until its expiration date. Most traders, in practice, exit their contracts before they expire. Any profits or losses you’ve made are offset against the margins you’ve placed up until the day you opt to end your contract. You can either sell your contract or buy an opposing contract that will nullify the arrangement. Once you’ve squared off your position, your profits or losses will be refunded to you or collected from you, once they’ve been adjusted for the margins you’ve deposited.
Cash is used to settle index futures contracts. This can be done before or after the contract’s expiration date.
When closing a futures index contract on expiry, the price at which the contract is settled is the closing value of the index on the expiry date. You benefit if the index closes higher on the expiration date than when you acquired your contracts, and vice versa. Your gain or loss is adjusted against the margin money you’ve already put to arrive at a settlement.
For example, suppose you buy two Nifty futures contracts at 6560 on July 7. This contract will end on the 27th of July, which is the last Thursday of the contract series. If you leave India for a vacation and are unable to sell the future until the day of expiry, the exchange will settle your contract at the Nifty’s closing price on the day of expiry. So, if the Nifty is at 6550 on July 27, you will have lost Rs 1,000 (difference in index levels – 10 x2 lots x 50 unit lot size). Your broker will deduct the money from your margin account and submit it to the stock exchange. The exchange will then send it to the seller, who will profit from it. If the Nifty ends at 6570, though, you will have gained a Rs 1,000 profit. Your account will be updated as a result of this.
If you anticipate the market will rise before the end of your contract period and that you will get a higher price for it at a later date, you can choose to exit your index futures contract before it expires. This type of departure is totally dependent on your market judgment and investment horizons. The exchange will also settle this by comparing the index values at the time you acquired and when you exited the contract. Your margin account will be credited or debited depending on the profit or loss.
What are the payoffs and charges on Futures contracts
Individual individuals and the investing community as a whole benefit from a futures market in a variety of ways.
It does not, however, come for free. Margin payments are the primary source of profit for traders and investors in derivatives trading.
There are various types of margins. These are normally set as a percentage of the entire value of the derivative contracts by the exchange. You can’t purchase or sell in the futures market without margins.
When do futures contracts come to an end?
Many futures contracts expire on the third Friday of the month, but contracts vary, therefore read the contract specifications for any and all contracts before trading. It’s January, for example, and April contracts are selling at $55.
What is the notice period rule?
- For convenience, ‘workmen’ (as defined in the Industrial Disputes Act, 1947) that is, employees whose position is not primarily supervisory, administrative, or managerial) are subject to a 30- to 90-day notice period, with 15 days’ salary required for each year worked. Termination for convenience requires previous government approval in the case of manufacturing enterprises, plantations, and mines with 100 or more workers; in other sectors, it merely requires government notification.
- Non-performance is not included in termination for cause; only behavior that qualifies as misconduct is included.
- According to the ‘last in, first out’ principle, the employer must fire the last people to enter the organization in the same function for the sake of convenience. This need, however, can be contracted out of. Workmen who were fired for convenience should be given the opportunity to re-join the organization when hiring for the same position.
- Generally, state regulations provide for roughly 15 days of earned/regular leave per year. Employees are also entitled to up to ten days of sick leave and an additional ten days of ‘casual leave.’ This is typically more than most organizations would choose to supply.
- Most state laws allow employees to take ‘casual leave,’ which allows them to skip work on a given day without having to register for leave in advance. This is disruptive to many businesses.
- Most state regulations prohibit women from working at night, and if they do, they must acquire special permission. Only a few types of businesses are eligible for this exemption (eg, IT sector). In addition, the employer must provide door-to-door transportation and meet certain security requirements.
- Overtime is required by most state legislation for any hours worked beyond 48 in a week. This is, however, a rare occurrence.
- Contract employees are regulated and, in some situations, prohibited under Indian law. The contractor must be licensed, and the employer must be registered as a “primary employer” in order to hire contract workers.
- Non-compete agreements are not enforceable in India, while non-solicitation clauses are only partially implemented.
- Employers in India are required by law to keep a multiplicity of registers and notices. Such standards are difficult to meet, and complete compliance is uncommon.
Some of the aforementioned points are exclusive to India. Furthermore, while most states have a Shops and Establishments Act, while Indian employment law is mostly federal in origin. These laws are similar, but they are not the same. Furthermore, some states have been given the authority to change central legislation, which are then applied in a different way in those states.
The labour market in India is highly controlled. In the case of employment contracts and employment terms of service, legal counsel should be sought. So that rules are both HR-friendly and legally compliant, practical guidance on best practices and common practices should be obtained. Employers should seek advice on areas where compliance is challenging so that they can take positions that combine convenience with risk.
The government has proposed that the federal labor laws be amended and maybe combined into two or three labor regulations in order to make it easier to do business in India. The filing requirements will be simplified if this is realized. Some federal legislation relating to industries and the use of apprentices have also been recommended to be amended. There has been no progress in moving these ideas ahead, and the administration appears unlikely to do so.
A significant alteration to the Maternity Benefit Act 1961 was made in recent months by the Maternity Benefit (Amendment) Act 2016. The following are some of the key features of this amendment:
- If a female employee has fewer than two children, paid time off will be increased from 12 to 26 weeks for eligible female employees. She is entitled to 12 weeks of leave if she has two or more children.
- The introduction of the ideas of a’commissioning mother’ and an’adopting mother,’ which broadens the law’s scope. These moms are entitled to a 12-week maternity leave.
- the opportunity, based on an agreement with the employer, to work from home once the paid maternity leave period has expired; and
- requires a crche facility to be set up in any business with 50 or more employees.
The amendments are, on the whole, progressive. The higher maternity leave payment, as well as the benefits to be paid to the new categories of qualified female employees, will have larger financial ramifications for employers.
After decades of adopting a relatively socialist mindset by the government and judges, there has been a move to a more realistic, business-friendly approach. The old model, which centered on low-wage workers, has been replaced with a concentration on India’s burgeoning service economy. Rewriting employment regulations to make them more business-friendly has sparked renewed interest. India’s newest employment law against sexual harassment is resulting in an increase in sexual harassment accusations and the need to follow additional procedures.
Another key factor is the shift toward e-governance in the field of labor law. The government has launched a new web portal that gives users a unique labor identification number and allows them to register online, file self-certified, simplified, and single online returns for specific federal laws, and participate in a transparent labor inspection scheme based on risk-based criteria. In terms of employment law compliance, some exceptions have also been made for new businesses.
Some states require employers to create an appointment order for new recruits, however this is rarely followed. In India, there are no specific rules dealing with probation in general, yet it is a regular practice. The (federal) Industrial Employment (Standing Orders) Act 1946 (which applies to workers) allows for a three-month probationary term. Certain states have included the concept of probation into their local legislation in an indirect manner, ranging from three to six months. A probation period should ideally not exceed 240 days, as employees who have worked for that long are subject to many statutory social assistance laws. The Industrial Disputes Act of 1947 (which applies to workers) states that if some terms of employment change, the employee must be given notice. It also specifies the conditions for a convenient termination, such as notice and compensation.
There are two kinds of employers and two kinds of employees. Employers might be one of two types:
- Employees whose principal duty is neither supervisory, managerial, or administrative (as specified in the Industrial Disputes Act, 1947).
- appoint a committee to hear allegations of sexual harassment The committee must be chaired by a woman, have at least half of its members be women, and have one independent member who is knowledgeable in sexual harassment or women’s issues.
Many forms of sexual harassment, such as making sexually implied statements, are also punishable under the Indian Penal Code. The threshold for conduct that constitutes a crime, on the other hand, are slightly higher.
Other types of workplace harassment are not covered by law, and employers are free to set their own policies in this area.
Inside the government, whistleblowers are protected. For listed corporations, securities regulations establish a voluntary whistleblower protection policy. The Reserve Bank of India, India’s central bank, mandates that private and international banks have a whistleblower policy that protects staff against reprisal.
It is illegal to gain access to a computer system without the consent of the network owner or administrator. In the employment scenario, the network is owned by the employer. When it comes to campaigns that encourage people to bring their own devices, the situation is less clear. Before monitoring electronic behaviour, it is advised that companies get employee consent. Other than that, Indian law does not safeguard employees’ rights to privacy when it comes to electronic use.
Employers’ rights to regulate off-duty behavior are largely unaffected by the law. Employers frequently stipulate in employment contracts/terms of service that employees are prohibited from working for another company, and courts have supported such prohibitions. Bringing the employer into discredit may be grounds for disciplinary action in some employment contracts. Employer-provided device policies will extend to use of those devices outside of the workplace as well.
Are there any rules in place to secure employee social media passwords and/or to allow employers to monitor employee social media accounts?
It is illegal to gain access to a computer, computer system, or computer network without the authorization of the owner or person in authority. It should be acceptable to access a computer given by the employer while it is connected to the company’s network. When it comes to accessing password-protected social media accounts, the law is murky. This would almost certainly be considered illegal.
Although there is no bar against monitoring employees’ social media accounts without signing in, employers should be wary of some overbroad regulations on cyberstalking.
Employees are not able to enforce non-compete agreements once they have left their jobs. Post-employment non-solicitation agreements have limited enforcement between two companies, but not against employees. The legislation on non-solicitation agreements, on the other hand, is not well developed. Employees can be required to sign an employee bond if they are given extensive training at a large cost, and the employer can force them to stay with the company for a fair period of time. If the employee leaves before the end of the training period, he or she will be responsible for the employer’s actual or reasonable training costs.
A post-termination non-compete agreement is not enforceable against an employee under Indian law. This is true for all employee classes, without exception.
Is there a set of rules that employers must follow when it comes to disciplinary and grievance procedures?
When executing a disciplinary or grievance procedure, an employer must adhere to natural justice standards. The Industrial Employment (Standing Orders) Act of 1946 and the Industrial Disputes Act of 1947 are two federal statutes that deal with disciplinary and grievance procedures. The employee must be given the opportunity to be heard in all circumstances, and the process must be reasonable and fair. Under the statute, if an enterprise employs 20 or more “workmen” (as defined in the Industrial Disputes Act, 1947), it must set up a grievance redressal committee or a comparable system to address employee problems.
No, although some areas are more unionized than others – for example, the industrial sector has more union involvement. Although there has been some momentum toward unionization in the IT industry in recent years, union action in the services sector remains limited.
Although there are requirements on trade union registration, Indian federal law does not oblige an employer to recognize a trade union. Seven or more members of a trade union can apply for registration under the Trade Unions Act of 1926, provided that at least 10% or 100 employees in the establishment are members of the trade union, whichever is lower. A labor union must also meet certain criteria, according to the law. While trade union registration is not required, a registered trade union is considered a legal body.
It is up to the employer to recognize a trade union once it has been registered. Local regulations on trade union recognition exist in some states, such as Maharashtra, Kerala, and West Bengal. In general, most industrial institutions follow a voluntary code of discipline that contains conditions for trade union recognition. The code, which was adopted at a meeting of the Indian Labour Conference in 1957, stipulates that a trade union must meet specific conditions in order to be recognized by the employer, including:
claiming the recognition of at least 15% of the establishment’s membership; and
An employer’s failure to bargain collectively in good faith with a recognized trade union is considered an unfair labor practice under Indian law.
Employers must offer 30 days’ notice for termination for convenience or make a payment in lieu of the notice period in the event of ‘workmen’ (as defined in the Industrial Disputes Act, 1947). Most states also require 30 days’ notice for other employees to be terminated for convenience, with a comparable provision for payment in place of notice.
The employer must provide 30 days’ notice or payment in lieu of notice to a ‘workman’ (as defined in the Industrial Disputes Act, 1947) who has completed one year of continuous service, as well as the reasons for termination and severance compensation of 15 days for each year worked or a part thereof in excess of six months. The government must be notified as well.
The termination of a manufacturing facility, plantation, or mine with 100 or more employees requires prior government consent. Furthermore, workmen must be given three months’ notice or payment in place of notice, as well as the grounds for termination and severance pay of 15 days for each year worked or a portion thereof in excess of six months.
Most states additionally require 30 days’ notice for other employees, or a payout in lieu of notice. For each year worked or a portion thereof in excess of six months, a gratuity of 15 days is payable to any employee who has completed five years of continuous service. Statutory gratuity is normally required unless the following conditions are met:
- the employment was terminated for a variety of reasons, including an act or negligence that resulted in the loss, damage, or destruction of the employer’s property; or
- When an employee’s employment has been terminated due to riotous or violent behavior on the part of the employee, or any act constituting moral turpitude while on the job.
Depending on the situation, gratuity may be forfeited partially or totally in any of the aforementioned cases.
The ‘last in, first out’ principle, which applies to workers, requires the employer to fire the last worker to join the company in the same position. It is possible to contract out of this rule. The business must also offer reemployment to the retrenched employee who is an Indian citizen first.
An employee who is fired, whether for reason or convenience, has the right to appeal the dismissal to the competent authorities usually the jurisdictional labor authorities on statutory or contractual grounds. The following are some of the grounds for appealing the dismissal:
The redressal process normally begins with a request for conciliation from the proper labor authorities, followed by adjudication if the labor authorities agree that it is necessary.
Industrial conflicts are governed by the Industrial Disputes Act 1947, which establishes a system of adjudicatory authorities such as jurisdictional conciliation officers, labor courts, and industrial tribunals to hear and resolve disputes between ‘workmen’ (as defined in the Act) and management.
In the event of dismissal, retrenchment (termination for convenience), or any other type of termination of service, a worker can bring a dispute directly before a conciliation officer. If conciliation fails, the Ministry of Labour sends a report to the appropriate state government. The Ministry will either refer the issue for adjudication or refuse to do so after reviewing this report.
In all other cases, whether it’s a rights dispute (e.g., the loss of a customary concession or privilege, or the legality of a strike or lock-out) or an interest dispute (e.g., issues relating to wages, compensation, and other allowances, or leave), the dispute must be brought by a trade union or duly-authorized representatives, or by management, if the dispute involves an act committed by a ‘workman’ (as defined in the
The adjudication process begins after the case is referred to the labor court. The presiding officer of the court issues an award at the conclusion of the proceedings. Within 30 days of receiving the award, the Ministry of Labour will publish it in the Official Gazette. The award takes effect 30 days after it is published in the Official Gazette.
Cases can take anywhere from six months to over two years to complete, as Indian litigation is notoriously long.
Appeals against verdicts of labor courts or industrial tribunals are filed with the individual state High Court, which subsequently appeals to the Supreme Court of India.
Is four weeks’ notice excessive?
The manner in which you leave a job, as well as the amount of notice you give before leaving, can have long-term consequences for your career. In a 2015 OfficeTeam poll, 86 percent of 600 HR managers reported that how people quit influences their future career possibilities either slightly (53 percent) or considerably (33 percent).
While the industry standard is two weeks’ notice, you can potentially give less “According to Phyllis Hartman, founder of the human resources firm PGHR Consulting, “unless you signed some contractual arrangement stating otherwise, you don’t have to give any notice at all.” “Is that a good idea? “Unlikely,” she added. “In some ways, leaving without notice carries a major risk.”
“What you always need to keep in mind,” Hartman added, “is that no matter how much you despise that employer or how delighted you are to be leaving, burning bridges is really dangerous because you never know.”
Here’s some expert advise from Hartman and others on what to think about when giving your employer notice and how to spend your final weeks and days on the job:
Consider your position on the corporate ladder. If you’re in an entry-level position, you must give at least two weeks’ notice “As a professional courtesy, it’s still the standard,” said Rebecca Barnes-Hogg, CEO of YOLO Insights and a small-business hiring expert. However, she continued, if you’re in a management position, “You should certainly start looking at three to four weeks.” Barnes-Hogg suggests at least four weeks, if not more, for executive-level or senior management positions.
“People, on average, expect you to provide two weeks’ notice,” Hartman concurred. If you’re in a hurry, you should give greater notice “However, it is a “very responsible position” that is critical to the corporation. In that instance, Hartman recommends giving as much notice as possible even as much as a year “Because you have more on your plate and are tougher to replace, you could be out for up to a month or six weeks.”
Meanwhile, career consultant Roy Cohen advises that the notice you offer is crucial “Depending on what is normal for your firm and your rank in the organization, it may be anywhere from two weeks to two or three months.” “It all has an impact on the relationships you have, the scope of responsibility you manage, and any essential tasks you’re working on,” he explained.
How long can you keep futures in your possession?
A demat account is not required for futures and options trades; instead, a brokerage account is required. Opening an account with a broker who will trade on your behalf is the best option.
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) both provide derivatives trading (BSE). Over 100 equities and nine key indices are available for futures and options trading on the NSE. Futures tend to move faster than options since they are the derivative with the most leverage. A futures contract’s maximum period is three months. Traders often pay only the difference between the agreed-upon contract price and the market price in a typical futures and options transaction. As a result, you will not be required to pay the actual price of the underlying item.
Commodity exchanges such as the National Commodity & Derivatives Exchange Limited (NCDEX) and the Multi Commodity Exchange (MCX) are two of the most popular venues for futures and options trading (MCX). The extreme volatility of commodity markets is the rationale for substantial derivative trading. Commodity prices can swing drastically, and futures and options allow traders to hedge against a future drop.
Simultaneously, it enables speculators to profit from commodities that are predicted to increase in value in the future. While the typical investor may trade futures and options in the stock market, commodities training takes a little more knowledge.
How do futures contracts work?
Traders roll over futures contracts to move from a near-expiring front month contract to a futures contract in a later month. Futures contracts have expiration dates, whereas equities trade indefinitely. To avoid the fees and obligations involved with contract settlement, they are rolled over to a different month. Physical settlement or cash settlement are the most common methods of settling futures contracts.
What if you don’t sell your futures contract?
It will not be rolled-over if you do not square-off futures. The payment will be made in cash. If you want to roll over, you must square-off manually and then buy stock futures for the next month.