Guidelines for the Determination of the Daily Settlement Price. of Commodity Futures

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1 Readers should be aware that only the original Thai text has legal force and that this English translation is strictly for reference. Thailand Futures Exchange Public Company Limited cannot undertake any responsibility for its accuracy nor be held liable for any loss or damages arising from or related to its use. Guidelines for the Determination of the Daily Settlement Price of Commodity Futures Pursuant to Clause of the Procedure concerning Daily Settlement Price, TFEX shall determine such price based on the principles described below. 1. Volume-weighted average of futures trading during the last five minutes Where there is no trading during the last five minutes, but there are outstanding best bids and best offers after the market close: 2. Trading prices shall be determined as follows: 2.1The latest trading price shall be applied if the latest trading price is between the best bid and the best offer. 2.2 The best bid price shall be applied if the latest trading price is lower than the best bid. 2.3 The best offer price shall be applied if the latest trading price is higher than the best offer. Where there is no trading during the last five minutes, and there are no outstanding best bids or best offers after the market close: 3. Either of the following prices shall be applied: 3.1The daily settlement price of the nearest contract month plus the difference of the daily settlement price on the previous business day, between the nearest contract month and the contract in the month in which such daily settlement price shall be determined; 3.2 The daily settlement price on the previous business day; or 3.3 The theoretical price of the contract in the month in which such daily settlement price shall be determined. Therefore, for clarity in the operation, TFEX deems it appropriate to determine the guidelines on the calculation of theoretical price to determine the daily settlement price of commodity futures, i.e. energy futures and precious metal futures, based on the principles described below. 1. With regards to futures which are due in the nearest month (Nearest Contract Month Series), the daily settlement price shall be determined by using the theoretical price based on the Cost of Carry Model. Thailand Futures Exchange Public Company Limited Page 1/5

2 2. With regards to futures contract in the next series following the Nearest Contract Month Series, the daily settlement price shall be determined by using the daily settlement price of the Nearest Contract Month Series, plus the difference between the theoretical price of the Nearest Contract Month Series and the theoretical price of the contract in the month in which such daily settlement price shall be determined. However, if TFEX deems that the determined daily settlement prices are not consistent with the normal condition of the market, TFEX may consider changing the daily settlement price as it deems necessary. Enforcement These guidelines shall come into force as of 31 March 2014 onwards. Thailand Futures Exchange Public Company Limited Page 2/5

3 Examples of Daily Settlement Prices Calculations of Commodity Futures Formula for the calculation of the theoretical price based on the Cost of Carry Model (in Thai baht) or F = S x e (r x t/365) x THB/USD F = [S + Basis(t)] x THB/USD Whereas F t r S is the theoretical price of the futures based on the Cost of Carry Model; is the time to maturity of the contract (days); is the annual interest rate (%) i.e. the 1-Year Government Zero Coupon Bond on ThaiBMA; is the price of the underlying asset after the adjustment for the purity as specified in the contract specification. For example, the London Fixing (LBMA) will be used for precious metals, and the ICE Brent Index will be used for crude oil; THB/USD Basis(t) is the THB/USD exchange rate, based on Thomson Reuters; is the difference between the futures price of the equivalent contract and the underlying asset price. Calculation examples 1. The daily settlement price of the Nearest Contract Month Series Assuming GFJ14 is the Nearest Contract Month Series and on day T there is no trade during the last five minutes, and also no best bid or best offer after the market closes. The Cost of Carry Model will be used to determine the daily settlement price where: The latest gold price is 1,348 US dollars per troy ounce The 1-Year Government Zero Coupon Bond rate is 2.15% The time to maturity is 30 days The exchange rate is baht per 1 US dollar Plugging in all the corresponding value and adjusting for the gold purity and unit, the formula becomes: F = S x e (r x t/365) x THB/USD F = {1,348 x (15.244/ ) x (0.965/0.995)} x e ( x 30/365) x = 20, baht Therefore, the daily settlement price of GFJ14 is 20,860 baht. Thailand Futures Exchange Public Company Limited Page 3/5

4 2. The daily settlement price of the next series following the Nearest Contract Month Series Assuming GF10J14 is the Nearest Contract Month Series and on day T there are trades during the last five minutes, and the daily settlement price is calculated as 20,870 baht. The next two series are GF10M14 and GF10Q14 and assuming that there is no trade during the last five minutes, and there is no best bid or best offer after the market closes. From the example above, the following principles shall be applied in determining the daily settlement price. Contract GF10J14 GF10M14 GF10Q14 Principle Volume-weighted average of the trading during the last five minutes Daily Settlement Price of the nearest contract + Theoretical Spread Daily Settlement Price of the nearest contract + Theoretical Spread Where The latest gold price is 1,348 US dollars per troy ounce The 1-Year Government Zero Coupon Bond rate is 2.15% The remaining terms of GF10J14, GF10M14 and GF10Q14 are 30, 90 and 150 days, respectively The exchange rate is baht per 1 US dollar Based on the above information, the theoretical prices, the difference of the theoretical prices, and the daily settlement prices can be calculated as follows: Contract Theoretical Price (baht) Difference of theoretical price comparing to the Nearest Contract Month Series (baht) Daily Settlement Price (baht) GF10J14 20, ,870 GF10M14 20, ,940 GF10Q14 21, ,020 Thailand Futures Exchange Public Company Limited Page 4/5

5 3. The daily settlement price using the Cost of Carry Model with the basis approach. When the price movement of a futures contract is in backwardation (the futures price is lower than the price of an underlying asset), the daily settlement price will be calculated using the second Cost of Carry model with the basis (the difference between the futures price and the price of an underlying asset) approach. For example, on day T, the Brent Crude Oil Futures have trades during the last five minutes, the following principles shall be applied in determining the daily settlement price. Contract Daily trading Principle BRJ14 BRK14 BRM14 There is trading during the last five minutes and the daily settlement price is calculated as 3,479 baht. There is trading during the last five minutes and the daily settlement price is calculated as 3,472 baht There is no trading during the last five minutes and there is no best bid or best offer after the market close. Volume-weighted average of the trading during the last five minutes Volume-weighted average of the trading during the last five minutes Daily Settlement Price of the nearest contract month + Theoretical Spread Assuming that the exchange rate equals baht per 1 US dollar (THB/USD) and that BRJ14 is the Nearest Contract Month Series. The daily settlement price of BRM14 can be calculated from the difference of the theoretical price as follows: Type Market price (USD) Basis (USD) Basis Theoretical price Brent Crude Oil , BRJ14 BRK14 BRM14 Difference of theoretical price compared to the Nearest Contract Month Series Daily Settlement Price , , , , , , Thailand Futures Exchange Public Company Limited Page 5/5