Module-4 - Clearing Settlement and Risk Management of Commodity Derivatives

4.1 Clearing and Settlement

4.2 Delivery Process

4.3 Entities Involved in the Clearing and Settlement Process

4.4 Premium/Discount

4.5 Penalty for Delivery Default by the Seller

4.6 Deliveries in the Case of Physical Delivery

4.7 Risk Management for Exchange Traded Commodity Derivatives Markets

4.8 Position Limits and Computation of Open Position

4.9 Salient Features of Risk Containment Measures and Margin Mechanism

Reference:

Model Questions:

4.1 Clearing and Settlement

Clearing is the procedure by which financial trades settle; that is, the correct and timely transfer
of funds to the seller and securities to the buyer. Often with clearing, a specialized organization
acts as the intermediary and assumes the role of tacit buyer and seller to reconcile orders
between transacting parties.

Clearing is necessary for the matching of all buy and sell orders in the market. It provides
smoother and more efficient markets as parties can make transfers to the clearing corporation
rather than to each individual party with whom they transact.

Clearing is the process of reconciling purchases and sales of various options, futures, or
securities, and the direct transfer of funds from one financial institution to another. The process
validates the availability of the appropriate funds, records the transfer, and in the case of
securities, ensures the delivery of the security to the buyer. Non-cleared trades can result in
settlement risk, and, if trades do not clear, accounting errors will arise where real money can
be lost.

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An out trade is a trade that cannot be placed because it was received by an exchange with
conflicting information. The associated clearinghouse cannot settle the trade because the data
submitted by parties on both sides of the transaction is inconsistent or contradictory.

Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, have
clearing firms. They ensure that stock traders have enough money in their account, whether
using cash or broker-provided margin, to fund the trades they are taking. The clearing division
of these exchanges acts as the intermediary, helping facilitate the smooth transfer of funds.

When an investor sells a stock they own, they want to know that the money will be delivered
to them. The clearing firms make sure this happens. Similarly, when someone buys a stock,
they need to be able to afford it. The clearing firm makes sure that the appropriate amount of
funds is set aside for trade settlement when someone buys stocks.

4.2 Delivery Process

Commodities: Cash Settlement vs Physical Delivery

The modes of settlement for most options and futures contracts can be either of the following
two methods:

1. Cash Settlement

The cash settlement method of settling commodities does not involve the physical delivery of
the asset(s) under consideration. It instead involves the settlement of net cash on the settlement
date. Cash settlement involves the purchaser or the contract holder to pay the net cash amount
on the settlement date and execute the commodity settlement. The net cash amount is the
difference between the spot price (SP) and the futures price (FP) of the underlying(s).

2. Physical Delivery

The physical delivery method of settling commodities involves the literal physical delivery of
the underlying asset(s) on the settlement date of the contract. The physical delivery settlement
process is coordinated and settled via a clearing broker or a clearing agent. If the contract holder
opts to take a short position, they are responsible for the physical delivery of the commodity.
If the holder opts to take a long position, they will be taking, i.e., receiving physical delivery
of the commodity.

Cash Settlement vs Physical Delivery: Popularity and Additional Costs

Cash settlement is the more popular settlement method for commodities because of the
convenience and instantaneity the method offers. In addition, cash settlement is the more
popular method of settlement because of the liquidity it brings to the market.

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In addition, because of its popularity, most financial derivatives, especially options and futures
contracts, are cash-settled. Cash settlement is the more simple and convenient mode of
settlement, as it only involves the upfront net cash amount as the total cost. Settlement
transactions do not come with additional costs or fees.

Finally, cash settlement is one of the prime reasons for the increased entry of speculators in the
derivatives market. It consequently amplifies the liquidity of the derivatives market, making it
a more sought-after mode of settlement.

Unlike most options and futures contracts that, as mentioned earlier, are cash-settled, physical
delivery is the more popular mode of settlement for equity options contracts. Physical delivery
involves a number of additional costs, including delivery costs, transportation costs, brokerage
fees, and so on.

4.3 Entities Involved in the Clearing and Settlement Process

The Indian stock market is a complex ecosystem where multiple players work together to
ensure that the transfer of securities is conducted smoothly and efficiently. From investors and
stockbrokers to exchanges and depositories, each entity plays a crucial role in maintaining the
integrity and functionality of the market.

One of the most important processes that keeps the Indian stock market running is clearing and
settlement. Clearing and settlement in the stock exchange is a fundamental mechanism that
ensures the proper execution of trades and the smooth transfer of securities and funds between
buyers and sellers.

In this article, we are going to focus on settlement and clearing in the stock exchange, explore
how the process works, and discuss its significance.

Clearing and Settlement Process

The process of clearing and settlement in the stock exchange refers to a series of activities that
take place after a trade is executed. Clearing involves the reconciliation of both buy and sell
trades, whereas settlement involves the transfer of securities and funds between the respective
parties. The process ensures that buyers receive the stocks they purchased, and sellers receive
the appropriate payment for the stocks sold.

The clearing member (CM) is the entity behind the settlement and clearing in stock exchanges.
CMs are typically banks or financial institutions and act as intermediaries between the stock
exchange and the trading members.

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How Does the Clearing and Settlement Process Work?

The clearing and settlement of trades happen in the back end and are usually not visible or
apparent to the trader or investor. The settlement cycle in the stock market follows a well-
defined sequence of steps. Here is a brief systematic overview of the entire process.

Step 1: Trade Execution

The clearing and settlement process begins once stock exchanges execute a trade. A trade is
executed by matching a buy order with a respective sell order. After the execution, both the
buyer and the seller receive a confirmation from the exchange with the details of the trade.

Step 2: Trade Reporting and Confirmation

Once a trade is executed, the stock exchange reports it to the clearing corporation and its
members. The clearing corporation then confirms the trade details with the parties involved in
the transaction before proceeding to the next step.

Step 3: Determination of Obligations Through Netting of Trades

The clearing corporation, through its clearing members, performs a netting process to calculate
each party's net obligations to the transaction. This step helps reduce the number of settlements
required by offsetting both buy and sell positions for the same security.

Based on the netting process, the clearing corporation determines the obligations of each party.
This includes the securities to be delivered and the funds to be paid or received. Here is an
example to help you understand how netting works.

Assume there are two parties: A and B. A buys 100 shares of a company from B. Within a few
minutes, A proceeds to sell 100 shares of that company to another party, C. Since A bought
and sold the shares on the same day, the netting process eliminates the need to transfer the
shares from B to A and then to C. Instead, the shares are directly transferred from B to C. As
you can see, the netting process reduces the number of settlements required.

Step 5: Pay-in of Funds and Stocks

On settlement day, the respective parties are required to fulfil their obligations. Sellers must
deliver the stock, while buyers must transfer the funds to the clearing corporation.

Step 6: Payout of Funds and Stocks

Once the pay-in is completed, the clearing corporation initiates the pay-out process. It transfers
the securities to the buyers and the funds to the sellers. The current equity settlement cycle in
India is T+1, meaning that funds and shares are credited to the respective sellers' and buyers'
accounts within one day from the transaction date.

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Step 7: Reporting and Reconciliation

Once the entire process of clearing and settlement in the stock exchange is complete, the
clearing corporation generates a statement of the transaction. This statement is shared with the
parties to the transaction. Simultaneously, the accounts of both the seller and the buyer are
updated to reflect the change in their holdings.

Significance of the Clearing and Settlement Process

The clearing and settlement cycle in the stock market is very important for a number of different
reasons. Here is a quick overview of the significance of this process.

1. Maintains Market Integrity

The process helps maintain the integrity of the market by ensuring that all trades are cleared
and settled as agreed upon. This builds trust among market participants and attracts more
investors.

2. Mitigates Risk

By taking up the responsibility of fund and stock pay-ins and pay-outs, the clearing corporation
significantly reduces counterparty risk. The clearing and settlement process is structured in a
way that ensures that neither party defaults on their obligations. In the rare cases of default, the
affected party will still receive their dues.

3. Enhances Liquidity

Efficient settlement and clearing in the stock exchange contribute to market liquidity. Investors
are more likely to participate in a market where they can be confident that their trades will be
settled promptly and accurately.

4. Enhances Efficiency

The netting process significantly reduces the number of settlements required. This not only
enhances operational efficiency but also reduces transaction costs for all parties concerned.

5. Stabilizes the Market

By ensuring the smooth and hassle-free settlement of trades, the process manages various risks
effectively and contributes to overall market stability, which is crucial for the proper
functioning of the Indian stock market.

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6. Protects Investors

The clearing and settlement in the stock exchange protects investors by including mechanisms
to handle defaults by parties and shortages in funds or stocks.

4.4 Premium/Discount

In the context of clearing and settlement in India, "premium/discount" refers to an adjustment

made to the settlement price of a commodity based on its quality, location, or other factors that
may deviate from the standard grade, essentially meaning the buyer might pay a higher price
(premium) for a superior quality good or a lower price (discount) for a lower quality one, all
within the clearing and settlement process managed by the Clearing Corporation of India
(CCIL).

Key points about premium/discount in clearing settlement:

1. Commodity specific:

Different commodities will have different parameters considered for premium/discount

calculations, such as moisture content in cotton, oil content in castor seeds, or geographical
origin of a product.

2. Quality based:

The main factor influencing premium/discount is the quality of the commodity compared to
the standard grade specified in the contract.

3. Location based:

Sometimes, the delivery location can also impact the price, with a premium for a more
convenient location and a discount for a less accessible one.

4. Contract specifications:

The specific details about premium/discount calculations are defined within the contract
specifications of each commodity on the exchange.

5. Clearing Corporation role:

The Clearing Corporation, like CCIL in India, is responsible for determining and applying the
appropriate premium or discount based on the quality assessment of the commodity being
delivered. Example: If a farmer delivers a batch of wheat with a higher protein content than the
standard grade, they might receive a "premium" price during settlement. Conversely, if a trader
delivers a batch of rice with a slightly higher moisture content than permitted, they might
receive a "discount" on the settlement price.

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4.5 Penalty for Delivery Default by the Seller

Trading in futures and options (F&O) has grown in popularity due to its potential for large
returns. F&O trading does, however, come with risks, such as the potential for a margin charge.
The F&O margin penalty is a fee the stock exchange charges for failing to maintain the required
margin. Understanding the F&O margin penalty is crucial for traders to avoid incurring
additional costs and potential investment loss. One can use the F&O Margin calculator when
required. The fundamentals of F&O trading, the idea of margin in F&O trading, the F&O
margin penalty, and advice on how to avoid it are all covered in this article.

Margin in F&O Trading

Margin is an essential concept in F&O trading that traders must understand to make informed
decisions.

What is Margin?

Margin is the amount of money or securities a trader must deposit with their broker to initiate
and maintain a position in F&O trading. It serves as collateral and protects the broker from
potential losses incurred by the trader.

Types of Margin

There are two types of Margins in F&O trading:

Initial Margin: The initial margin is the amount of money or securities a trader needs to deposit
with their broker to initiate a position in F&O trading.

Maintenance Margin: The maintenance margin is the minimum amount of money or securities
a trader must maintain in their account to hold a position in F&O trading.

Calculation of Margin

The calculation of margin in F&O trading depends on several factors, including the underlying
asset, the contract size, and the broker's margin requirements. Margin is calculated using a
formula that considers the underlying asset's price, the number of contracts, and the margin
percentage set by the broker.

Importance of Margin in F&O Trading

Margin is critical in F&O trading because it determines the leverage a trader can use. Leverage
allows traders to control a large position with a small amount of capital. However, leverage
also amplifies losses if the position moves against the trader. Therefore, maintaining the
required margin is essential to avoid margin calls, which occur when a trader's account falls
below the maintenance margin. Before entering a trade in equity, F&O, commodity, or

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currency trading, you can use the F&O margin calculator to calculate the comprehensive
margin requirements for option writing/shorting or for multi-leg F&O strategies. Gone are the
days of taking trades just to figure out the margin that will be blocked!

F&O Margin Penalty

The F&O margin penalty is a fee the stock exchange charges for failing to maintain the required
margin. It is calculated as a percentage of the shortfall in the margin amount and is levied daily
until the required margin is restored.

Reasons for F&O Margin Penalty

There are several reasons why a trader may be subjected to an F&O margin penalty. Using an
F&O margin calculator helps you avoid these unforeseen circumstances. Let's take a look at
some of them. Failure to maintain the required margin is the most common reason for an F&O
margin penalty. In order to cover potential losses, traders must maintain a certain amount of
margin, and failing to do so can result in a fine.

Market volatility: Sudden market movements can result in the underlying asset's price moving
significantly, leading to a margin shortfall.

Overleveraging: Overleveraging occurs when a trader uses too much leverage, leading to a
margin shortfall.

Consequences of F&O Margin Penalty

The consequences of an F&O margin penalty can be severe. If a trader fails to pay the penalty,
the exchange may take legal action to recover the amount owed. In addition, the trader's trading
account may be frozen, preventing them from opening new positions until the penalty is paid.
If the margin shortfall is not corrected, the exchange may close out the trader's position,
resulting in a loss. It is for these reasons the F&O margin calculator was developed.

How to Avoid F&O Margin Penalty?

In F&O trading, the margin is a critical aspect that traders must understand and manage
effectively to avoid penalties. The best way to avoid them is to use an F&O margin calculator.
Until you do not get one yourself, here are some ways to avoid F&O margin penalties:

1. Regular Monitoring of the Margin

Traders must monitor their margin requirements regularly to maintain the required margin
levels. They can do this by setting up alerts or notifications to keep track of the margin levels.
This will help traders be aware of potential margin shortfalls and take necessary corrective
measures to avoid a penalty.

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2. Setting Stop Loss

Setting stop-loss orders is an essential strategy to limit potential losses in F&O trading. It helps
traders exit a position when the underlying asset's price reaches a specific level. This will
prevent the trader from incurring further losses and reduce the risk of a margin shortfall that
may result in a penalty.

3. Avoiding Overleveraging

Overleveraging is one of the common causes of a margin shortfall in F&O trading. Traders
should limit the leverage used in their trades to avoid this situation with an F&O margin
calculator. With reasonable leverage, traders can prevent the account from reaching the margin
limit and avoid penalties.

4. Diversifying the Portfolio

Traders must diversify their portfolios to reduce the risk of losses due to market fluctuations.
Investing in various assets will protect traders from a single asset's volatility, reducing the risk
of a margin shortfall that could lead to a penalty. This strategy can also help traders to manage
risks better and ensure long-term profitability.

4.6 Deliveries in the Case of Physical Delivery

In the derivatives market, physical delivery is when a seller transfers a commodity to a buyer
on the expiration date of a contract. The buyer then takes delivery of the commodity.

How does physical delivery work?

 At expiration, positions are matched between buyers and sellers with opposite
positions.
 The seller transfers the commodity to the buyer.
 The buyer pays the seller in full.
 The buyer can store the commodity at a warehouse for a fee, or arrange for it to be
transported to another location.

Physical delivery is a term in an options or futures contract which requires the actual underlying
asset to be delivered upon the specified delivery date, rather than being traded out with
offsetting contracts.

Understanding Physical Delivery

Derivatives contracts are either cash-settled or physically delivered on the expiry date of the
contract. When a contract is cash-settled, the net cash position of the contract on the expiry
date is transferred between the buyer and the seller. For example, assume two parties enter into
an E-mini S&P 500 futures contract to be settled in six months for $2,770 (the futures price).

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If the value of the index on the day the contract expires is higher than the futures price, the
buyer gains; otherwise, the seller profits. The difference between the spot price of the contract
as of the settlement date and the futures price agreed on will be credited or debited from the
accounts of both parties. Say, the closing value of the index six months from now is $2,900,
the long futures holder’s account will be credited ($2,900 - $2,770) x $50 = 130 x 50 = $6,500.
This amount will be debited from the account of the party shorting the position. [Note that $50
x S&P 500 index represents 1 contract unit for E-mini S&P 500 futures contract.]

With a physical delivery, the underlying asset of the option or derivatives contract is physically
delivered on a predetermined delivery date. Let’s look at an example of physical delivery.
Assume two parties enter into a one-year (March) crude oil futures contract at a futures price
of $58.40. Regardless of the commodity’s spot price on the settlement date, the buyer is
obligated to purchase 1,000 barrels of crude oil (unit for 1 crude oil futures contract) from the
seller. If the spot price on the agreed settlement day sometime in March is below $58.40, the
long contract holder loses and the short position gains. If the spot price is above the futures
price of $58.40, the long position profits, and the seller records a loss.

Exchanges specify the conditions of delivery for the contracts they cover. The exchange
designates warehouse and delivery locations for many commodities. When delivery takes
place, a warrant or bearer receipt that represents a certain quantity and quality of a commodity
in a specific location changes hands from the seller to the buyer who then makes full payment.
The buyer has the right to remove the commodity from the warehouse or has the option of
leaving the commodity at the storage facility for a periodic fee. The buyer could also arrange
with the warehouse to transport the commodity to another location of their choice, including
their home, and pays any transportation fees. In addition to delivery specifications stipulated
by the exchanges, the quality, grade, or nature of the underlying asset to be delivered are also
regulated by the exchanges.

Most derivatives are not exercised but are traded out before their delivery date. However,
physical delivery still occurs with some trades—it is most common with commodities and
bonds but can also occur with other financial instruments. Settlement by physical delivery is
carried out by clearing brokers or their agents. Promptly after the last day of trading, the
regulated exchange's clearing organization will report a purchase and sale of the underlying
asset at the previous day's settlement price. Traders who hold a short position in a physically
settled security futures contract to expiration are required to make delivery of the underlying
asset. Those who already own the assets may tender them to the appropriate clearing
organization. Traders who do not own assets are obligated to purchase them at the current price.

4.7 Risk Management for Exchange Traded Commodity Derivatives Markets

Effective risk management in exchange-traded commodity derivatives markets is essential to

ensure market integrity, protect participants, and maintain financial stability. Key components
of this risk management framework include:

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1. Regulatory Oversight and Frameworks:

Comprehensive Risk Management Frameworks: Regulatory bodies, such as the Securities and
Exchange Board of India (SEBI), have established detailed risk management guidelines for
commodity derivatives exchanges. These frameworks encompass aspects like margin
requirements, position limits, and surveillance mechanisms to monitor and mitigate potential
market abuses.

European Market Infrastructure Regulation (EMIR): In the European context, EMIR mandates
reporting of all derivatives, whether over-the-counter (OTC) or exchange-traded, to trade
repositories. It also sets forth obligations for clearing, reporting, and risk mitigation to enhance
transparency and reduce systemic risk.

2. Margin Requirements:

Initial and Variation Margins: Exchanges require participants to deposit initial margins as a
buffer against potential losses. Variation margins are collected to account for daily fluctuations
in market prices, ensuring that positions remain adequately collateralized.

Dynamic Adjustments: Margin requirements are subject to change based on market volatility.
For instance, during periods of heightened volatility, exchanges may increase margin
requirements to safeguard against potential defaults.

3. Clearing and Settlement Mechanisms:

Central Counterparty Clearing (CCP): CCPs interpose themselves between buyers and sellers,
assuming the counterparty risk. This mechanism ensures that the default of one participant does
not cascade through the financial system.

Settlement Risk Mitigation: Techniques such as netting transactions, requiring collateral

deposits, and maintaining guarantee funds are employed to reduce settlement risks.

4. Position Limits and Monitoring:

Preventing Market Manipulation: Position limits restrict the maximum number of contracts a
participant can hold, deterring attempts to corner the market or manipulate prices.

Continuous Surveillance: Exchanges and regulators employ real-time monitoring systems to

detect unusual trading activities, ensuring prompt intervention when necessary.

5. Technological Advancements in Risk Management:

Machine Learning Algorithms: The adoption of machine-learning-based algorithms aids in

developing dynamic hedging strategies and managing risks in complex and volatile markets.

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4.8 Position Limits and Computation of Open Position

In derivatives trading, position limits are regulatory measures that cap the maximum number
of derivative contracts a market participant can hold on a single underlying asset. These limits
aim to prevent excessive speculation, reduce market manipulation risks, and ensure orderly
market functioning.

Key Aspects of Position Limits:

Market-Wide Position Limits (MWPL):

Definition: The total permissible open interest for a derivative contract on a particular
underlying asset across all market participants.

Monitoring Mechanism: Exchanges monitor aggregate open interest daily. If it exceeds a

specified threshold (e.g., 95% of MWPL), restrictions are imposed, allowing only offsetting
positions until open interest falls below a certain level (e.g., 80% of MWPL).

Participant-Specific Limits:

Trading Members/Foreign Portfolio Investors (FPIs)/Mutual Funds:

Index Derivatives: Limits are set as a percentage of total market open interest or a fixed
monetary value, whichever is higher. For instance, in India, the limit is ₹75 billion or 15% of
total open interest, per index futures or options contract.

Stock Derivatives: Limits are a percentage of the MWPL for individual stocks, typically around
20%.

Clients/FPIs (Category III)/Mutual Fund Schemes:

Limits: Capped at a percentage of the free float market capitalization or a portion of total open
interest, whichever is higher.

Computation of Open Positions:

Open Position (Open Interest): The total number of outstanding derivative contracts on a given
underlying asset that have not been settled.

Calculation: Each contract has a buyer and a seller; thus, open interest counts either the total
long or total short positions, not both.

Monitoring: Exchanges track open positions in real-time to ensure compliance with position
limits and maintain market integrity.

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Adherence to position limits is crucial. Violations can lead to regulatory actions, including
fines. For example, in August 2024, Vitol SA agreed to pay $500,000 to settle charges for
exceeding position limits in certain commodity contracts.

By enforcing position limits and diligently monitoring open positions, regulatory bodies and
exchanges strive to foster a balanced and transparent derivatives market, mitigating systemic
risks and protecting all participants.

4.9 Salient Features of Risk Containment Measures and Margin Mechanism

Effective risk containment and margin mechanisms are essential components of derivatives
markets, ensuring financial stability and protecting market participants.

Salient Features of Risk Containment Measures:

1. Central Counterparty Clearing (CCP):

Role of CCPs: CCPs act as intermediaries between buyers and sellers in derivative transactions,
assuming counterparty credit risk. This arrangement mitigates the risk of default by either
party, as the CCP becomes the buyer to every seller and the seller to every buyer.

Risk Management by CCPs: To manage potential defaults, CCPs employ measures such as
requiring collateral deposits (margins), conducting independent valuations, and maintaining
guarantee funds. These practices help in mutualizing and managing counterparty credit risk
among members.

2. Alternative Risk Transfer (ART):

Definition: ART involves using non-traditional methods, beyond conventional insurance and
reinsurance, to provide coverage or protection against risks.

Techniques: This includes mechanisms like risk securitization, catastrophe bonds, and forming
captive insurance companies. ART allows entities to transfer risks to the capital markets,
thereby diversifying risk exposure and enhancing financial resilience.

3. Credit Default Swaps (CDS):

Function: CDS are financial derivatives that function as a form of insurance against the default
of debt issuers.

Risk Mitigation: By purchasing a CDS, a lender can hedge against potential losses from a
borrower's default, effectively transferring the credit risk to the CDS seller. This instrument
provides a mechanism for managing credit exposure in financial markets.

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Salient Features of Margin Mechanisms:

1. Initial Margin:

Purpose: This is the upfront collateral required to enter into a derivative contract, serving as a
buffer against potential future losses due to market movements.

Determination: The amount is typically calculated based on the volatility and liquidity of the
underlying asset, ensuring sufficient coverage for potential adverse price movements.

2. Variation Margin:

Purpose: Variation margin involves regular (often daily) settlements to reflect gains or losses
in the market value of a derivative position.

Process: If the market moves unfavourably, the holder of the position must provide additional
funds to cover the loss; conversely, if the market moves favourably, the holder may receive
funds. This practice ensures that losses are promptly addressed, reducing the accumulation of
risk.

3. Margin Calls:

Trigger: A margin call occurs when the account's equity falls below a specified maintenance
margin level due to adverse price movements.

Requirement: The account holder must deposit additional funds or securities to restore the
account to the required margin level, ensuring the position remains adequately collateralized.

These risk containment measures and margin mechanisms collectively contribute to the
robustness and stability of derivatives markets, safeguarding against systemic risks and
promoting confidence among market participants.

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Reference:

1. [Link]
cash-settlement-vs-physical-delivery/
2. [Link]
3. [Link]
4. [Link]

Terminal questions

Section-A 5 Marks

1. Define the term Premium/Discount in the context of commodity derivatives.

2. Describe the penalty imposed on a seller for delivery default in exchange-traded
commodity derivatives.
3. Elaborate the margin mechanism contribute to risk management in commodity
derivative markets.
4. Explain the ways to determine whether a commodity is being traded at a premium or
discount.

Section-B 9 Marks

1. Differentiate between physical and cash settlement in the clearing process.

2. Calculate the open position limit for a trader given specific trading data.

Section-C 12 Marks

1. Compare the risk containment measures of different commodity exchanges.

2. Examine how physical delivery risks differ from cash-settled contracts in commodity
trading.

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