INSCX™exchange © 2012. All Rights Reserved.
Interpretation of Contracts
Procedure and Obligations
A contract is a term used to refer to a material grade or specification listed for trade on a commodity exchange. The “Contract” will detail the material and financial aspects of the listed material such as its physical characteristics, unit of trade, payment method and qualifying criteria such as governing law, mandatory inspection, reporting, registration and authority to supply or import.
Users of INSCX™ wishing to purchase or supply to a particular grade place instruction according to their intention with a non-commercial user member of the Exchange. The instruction is subsequently conveyed to the Exchange specialist who places the instruction to buy or sell anonymously onto the market where other users of the Exchange can view the grade, price and quantity details pertaining to the trade opportunity. On execution [when a buyer and seller are matched] the trade is confirmed by the specialist to all parties relevant to the transaction.
The trade is then classed as filled. A trade fill obligates all relevant parties to perform as agreed: A producer [selling] is legally committed to deliver product to specification on the agreed delivery date, while a principal user [buying] is legally committed on delivery to make
good payment. The Exchange acts to underwrite the performance obligation of both parties to one another and maintain a confidential record of the transaction enabling a “Track and Trace” for administrative clearing accessible to insurers and regulation agencies where ordered.
A buyer on agreeing an Exchange trade is required to prove authority to “lift” and issue the specified financial commitment to the Exchange clearing agent transferable to the seller to secure transfer of title on delivery in their favour. This must be done within a predetermined period following trade execution before a producer is instructed to supply. Equally, a producer [selling] must prove authority to supply [regulatory compliance] and insure against non-performance in delivery and commercial risk. On delivery to the point of loading, the commodity is inspected independent of the producer and buyer to establish conformity to specification. On passing inspection certified good quality the trade is permitted to settle. Settlement occurs when title to the commodity passes from the seller to the buyer in return for payment.
Contracts can be exchanged on a Spot [immediate delivery] and on a Forward [future delivery] basis, the latter to support producer capacity to upscale while enabling effective price risk management.
Without order there can be but chaos. Across the array of commodities used in the
world economy we contrast the order between those commodities that are long exchange
listed and those traded off-exchange.
Assurances: A commodity exchange operates to defined procedures which are non-negotiable.
These procedures are designed to safeguard the integrity and efficiency of trade
for all participants. The objective is certainty: price discovery, best execution,
proof of material quality, regulatory compliance, assurance of supply and delivery
versus payment in good order. Prior to being granted the right to place any instruction
for trade on the Exchange, similar to all formal rule-bound exchanges, users of INSCX™
exchange must prove their ability to perform their obligations in any subsequent
trade.
Performance: The ability to perform to make good supply or purchase of the part of
an Exchange user is never assumed. On an Exchange the ability to perform to buy or
sell is proven before access is granted to the market.
Obligations: Users of the Exchange are bound to abide by their word, or face sanction
on occasion of failing to do so. Producers are invited to understand their obligations
on placing any trade instruction, while Principal buyers are expected to prove an
ability to fund a purchase instruction. Non-Commercial user members [merchants and
affiliates] are expected to adhere to principal of best execution for any Commercial
user [producer or trade user] opting to enlist their services.
Spirit of the Rules: The purpose of Exchange rules are to maintain an orderly market
in listed commodities to the benefit of all participants. Any exchange user: commercial
or non-commercial, found transgressing the “Spirit” of the rules will face disciplinary
proceedings which may result in expulsion from the Exchange.
Purpose and “Spirit” of the Rules
Users of formal exchange systems are long-accustomed to comply with rules and procedures to ensure participant ability to perform in trade.
