Sections Overview
Applicable to trading on the Multi Commodity Exchange (MCX) as prescribed by SEBI and the Commodity Exchanges.
The Exchange does not expressly or impliedly guarantee, nor make any representation concerning the completeness, adequacy or accuracy of this disclosure document, nor has the Exchange endorsed or passed any merits of participating in Commodity Derivatives trading. This brief statement does not disclose all the risks and other significant aspects of trading. You should therefore study derivatives trading carefully before becoming involved in it.
In light of the risks involved, you should undertake transactions only if you understand the nature of the contractual relationship into which you are entering and the extent of your exposure to risk. Investment in commodity futures contracts / derivatives is generally not an appropriate avenue for someone of limited resources, limited investment/trading experience, and low risk tolerance.
If you trade on the Exchange and suffer adverse consequences or loss, you shall be solely responsible for the same. The Exchange shall not be responsible in any manner whatsoever, and it will not be open for you to take the plea that adequate disclosure of risks was not made. The Client shall be solely responsible for the consequences and no contract can be rescinded on that account.
You must acknowledge and accept that there can be no guarantee of profits, nor any exception from losses, while executing orders for purchase and/or sale of commodity derivatives traded on the Exchange.
Your dealings on the Exchange through a Member shall be subject to fulfilling certain formalities set out by the Member — including filing the Know Your Client (KYC) form — and are subject to the Rules, Bye-laws and Business Rules of the Exchange, and guidelines prescribed by SEBI from time to time.
The Exchange does not provide or purport to provide any advice and shall not be liable to any person entering into a business relationship with any Member and/or third party based on information in this document. Nothing herein should be construed as business/investment advice. If unsure, seek professional advice.
1. Basic Risks in Trading Commodity Futures & Derivatives Contracts
Volatility refers to the dynamic changes in price that commodity derivative contracts undergo during trading. Generally, the higher the volatility, the greater the price swings — and there is normally greater volatility in thinly traded contracts than in actively traded ones. As a result, your order may only be partially executed, not executed at all, or executed at a price substantially different from the last traded price, resulting in real losses.
Liquidity refers to the ability to buy and/or sell a contract quickly, at a competitive price, with minimal price difference. More available orders generally means greater liquidity. Where liquidity is lower, your order may only be partially executed, executed with a relatively greater price difference, or not executed at all.
Buying or selling without the intention of giving/taking delivery may also result in losses, since contracts may have to be squared off at unfavourable prices to avoid delivery obligations.
Spread is the difference between the best buy price and best sell price. Lower liquidity and higher volatility may result in wider-than-normal spreads for less liquid or illiquid contracts, hampering better price formation.
- "Stop loss" or "limit" orders intended to cap losses may not always be effective, as rapid market movement can make them impossible to execute.
- A market order is executed promptly (subject to availability) without regard to price — the execution price may differ significantly from the last traded price.
- A limit order executes only at the specified price or better; you get price protection, but there's a chance it may not execute at all.
- A stop loss order is placed away from the current price and converts to a market/limit order once triggered — there is no assurance it will be executed, as the price may move straight through the trigger point.
News announcements by traders/manufacturers may impact prices. Combined with lower liquidity and higher volatility, these can cause sudden, unexpected price movements.
Rumours about commodity prices circulate through word of mouth, newspapers, websites, and news agencies. Investors should be wary and avoid acting on rumours.
- High volume trading — often at market open/close or at any point in the day — may cause delays in order execution or confirmation.
- During volatile periods, continuous order modification by participants may cause execution/confirmation delays.
- Under certain conditions it may be difficult or impossible to liquidate a position at a reasonable price — e.g. no outstanding orders, trading halts, or circuit filters.
Trading is electronic, relying on satellite/leased-line communication and computer systems. Communication failures, system problems, slow response, or trading halts — though usually temporary — represent a real risk when you have open positions or unexecuted orders, given your obligation to settle all executed transactions.
2. Additional Features — Futures Commodity Derivatives
2.1 Effect of "Leverage" or "Gearing"
- Margin is small relative to contract value, so transactions are "leveraged" — offering the possibility of great profit or loss compared to the principal invested. Understand this fully and trade with caution.
- Futures trading involves daily mark-to-market settlement. If the closing price moves against you, you must deposit the notional loss as margin — generally before trading begins the next day.
- Failure to deposit additional margin, or an outstanding debit balance, may lead the Member to liquidate/square-up part or all of your position, and you remain liable for resulting losses.
- Under certain conditions (illiquidity, circuit breakers, suspension of trading), it may be difficult or impossible to execute transactions.
- Margin rates may change to maintain market stability, applying even to existing open positions — requiring additional margin or reduced positions.
- Ask your Member for full contract specifications and associated obligations before trading.
3. Trading Through Wireless or Other Technology
Any additional provisions defining the features, risks, responsibilities, obligations and liabilities associated with trading through wireless technology or any other technology shall be brought to your notice by the Member.
4. General
- Deposited cash and property: Familiarize yourself with the protections accorded to money/property you deposit, particularly if the firm becomes insolvent or bankrupt. Disputes with a Member are subject to arbitration under the Exchange's Rules, Bye-laws and Business Rules.
- Commission and other charges: Obtain a clear explanation of all commissions, fees and other charges before you begin trading — these affect your net profit or increase your loss.
- For rights and obligations of Members/Authorised Persons/Clients, refer to Annexure 3.
- Constituent means a Client, Customer or Investor dealing with a Member to trade commodity derivatives through the Exchange mechanism.
- Member means a Trading Member or Member/Broker admitted as such by the Exchange and registered with SEBI.
Additional Risk Disclosure for Options Trading
Risks of Option Holders
- An option holder risks losing the entire premium paid within a relatively short period — an option is a wasting asset that becomes worthless on expiry if neither sold nor exercised in time.
- Exchanges may impose exercise restrictions and have absolute authority to restrict exercise of options in specified circumstances.
Risks of Option Writers
- If the underlying moves against expectations, the option writer risks losing a substantial amount.
- Spread or hedging positions may reduce — but not eliminate — this risk; a spread position isn't necessarily less risky than a simple long/short position.
- Combination transactions (multiple options, or options with underlying positions) add complexity, which is itself a risk factor. Consult an experienced professional before using combination strategies.
Of Members, Authorised Persons and Clients, as prescribed by SEBI and the Commodity Exchanges.
General Obligations (Clauses 1–7)
- The client shall invest/trade only in commodities, contracts and instruments admitted to dealing on the Exchanges, as per Exchange/SEBI Rules and circulars.
- The Member, Authorised Person and client shall be bound by all Rules, Bye-laws, Business Rules and circulars of the Exchange, and Rules/Regulations of SEBI, as in force from time to time.
- The client shall satisfy itself of the Member's capacity to deal in derivatives on an ongoing basis before and while executing orders through the Member.
- The Member shall continuously satisfy itself about the genuineness and financial soundness of the client and the investment objectives relevant to services provided.
- The Member shall make the client aware of the precise nature of the Member's liability for business conducted, including any limitations, and the capacity in which the Member acts.
- Professional diligence — the Member must exercise the standard of skill and care reasonably expected, commensurate with honest market practice, good faith, the client's knowledge/experience, the risk of the product, and the client's dependence on the Member.
- The Authorised Person shall provide necessary assistance and co-operate with the Member in all dealings with clients.
Client Information (Clauses 8–16)
The client shall furnish complete details in the Account Opening Form as mandated by exchanges/SEBI, and familiarize themselves with all mandatory provisions (additional clauses added by a Member are non-mandatory and need specific client acceptance). Any change in information — including winding-up/insolvency petitions or material litigation — must be notified to the Member in writing immediately, with periodic updates of financial information.
An unfair term in a non-negotiated (standard-form) contract is void. A term is unfair if it causes a significant imbalance to the client's detriment and isn't reasonably necessary to protect the Member's legitimate interests. Fairness considers the nature of the product, transparency, comparability with similar contracts, and the contract as a whole. A term is "transparent" if it's in plain language, legible, and readily available. If a term is ruled unfair, the rest of the contract remains binding. The onus of proving a contract is negotiated (not standard-form) rests on the Member. This protection doesn't apply to terms defining the subject matter, clearly disclosed pricing, or terms required by law — except where payment is contingent on a particular event occurring.
Confidentiality: Members must keep client details confidential, disclosing only as required by law/regulation or with the client's express consent. "Personal information" covers name/contact details, biometrics, transaction/holding data and service-usage data. A Member must not over-collect personal information, must keep it accurate and up to date, must allow clients reasonable access, and may only disclose it to a third party with informed written consent, client direction, regulatory order, legal requirement, or to prevent fraud — with confidentiality obligations passed on to that third party.
Margins: The client shall pay applicable initial, withholding, special or other margins as required by the Member, Exchange or SEBI — the Member may also collect additional margins at its discretion. Paying margins does not necessarily satisfy all dues; further sums may become payable (or receivable) on settlement.
Fair Disclosure Obligations (Clauses 14A–14B)
Members must ensure fair disclosure of information a client needs to make an informed decision — given with reasonable time to understand it, in writing, in a manner understood by that category of client, and in a way that enables comparison with similar products. Disclosure should cover the product's features/benefits/risks, pricing, key contract terms, the Member's identity/regulatory status, contact/communication details, and the client's rescission and other legal rights.
Ongoing disclosures are required for any material change to previously disclosed information, and any information needed to assess the client's rights/interests in a held product — provided in writing, within a reasonable time or at reasonable periodic intervals.
Transactions, Settlements & Brokerage (Clauses 17–22)
- Orders must be given in writing or a mutually agreed form, and the Member shall execute trades only under the client's Unique Client Code (UCC).
- The Member shall keep the client informed of trading/settlement cycles, delivery/payment schedules and any changes; the client must comply with these schedules.
- Client money must be kept in a separate account, distinct from the Member's own funds, and used only for permitted purposes.
- If the Exchange cancels trades suo moto, related client trades stand cancelled and the Member may cancel the corresponding contract(s).
- Transactions are subject to the Rules, Bye-laws and Business Rules of the Exchange where executed, and parties submit to the relevant jurisdiction specified therein.
- The client shall pay brokerage and statutory levies as applicable; the Member shall not charge more than the maximum permissible brokerage under Exchange/SEBI rules.
Liquidation, Close-Out & Dispute Resolution (Clauses 23–30)
- The Member may liquidate/close out a client's positions for non-payment of margins or other dues, adjusting proceeds against liabilities — with resulting losses and charges borne by the client.
- On death or insolvency of the client (or incapacity to fulfil obligations), the Member may close out transactions and claim losses against the client's estate; any surplus goes to nominees/heirs.
- The Member shall co-operate in redressing client grievances for transactions routed through it, and must maintain an effective, accessible grievance redress mechanism — informing clients of their right to redress and the process to follow.
- Claims/disputes over deposits, margin money etc. are referred to arbitration per Exchange Rules and Bye-laws; instructions from an authorised representative are binding per their letter of authority.
- Suitability of advice: Clients have a right to advice suited to their personal financial circumstances. Members must gather adequate information, warn clients if information is incomplete/inaccurate, and — if a requested product is deemed unsuitable — communicate that clearly in writing and obtain a written acknowledgement before proceeding.
- Conflict of interest: Where a Member's interests conflict with a client's, the client's interests must be prioritised. Members must disclose any conflicted remuneration in writing and obtain acknowledgement of receipt.
Termination of Relationship (Clauses 31–33)
The relationship terminates if the Member ceases to be an Exchange member (default, death, resignation, expulsion, or certificate cancellation). Either party may terminate without cause on not less than one month's written notice — obligations arising before termination continue to bind both parties, their heirs, executors or successors.
If an Authorised Person's registration is withdrawn or their agreement with the Member ends, the client is informed and becomes a direct client of the Member; existing Rights & Obligations terms continue to apply unless the client gives one month's written notice to terminate.
Additional Rights & Obligations (Clauses 34–41)
- Accounts are reconciled and settled per SEBI/Exchange Rules, Circulars and Guidelines.
- A contract note with full trade details (order/trade number, time, price, quantity, brokerage, charges, UCC etc.) must be issued within 24 hours of execution, in hard copy or digitally signed electronic form.
- Funds/commodities pay-out follows Exchange Rules on receipt of pay-out from the Exchange, unless the client specifies otherwise.
- A complete Statement of Accounts (funds and commodities) is sent at prescribed periodicity; errors must be reported within the prescribed time.
- Daily margin statements are sent, detailing collateral deposited/utilised and status across cash, FDRs, bank guarantees, warehouse receipts and securities.
The client must have and confirm the legal capacity to enter this relationship and complete all compliance actions before entering transactions. If a Member surrenders membership, a public notice invites investor claims — clients with claims relating to Exchange-executed trades must lodge them with the Exchange within the stipulated period, with supporting documents.
Unfair conduct — acts or omissions that significantly impair a client's ability to make an informed decision — is prohibited, and includes:
- Misleading conduct: providing inaccurate information, information the Member doesn't believe true, or accurate information presented deceptively — regarding a product's features/risks, suitability, pricing, material terms, the Member's status, or the client's legal rights.
- Abusive conduct: use of coercion or undue influence — considering timing/persistence, threatening language, exploitation of a client's misfortune, or barriers to exercising contractual rights (e.g. termination or switching providers).
Electronic Contract Notes — ECN (Clauses 42–48)
- A client opting for electronic contract notes provides a valid email ID; changes to it must be communicated via physical letter (or securely, if using internet trading).
- ECNs must be digitally signed, encrypted and non-tamperable, complying with the IT Act, 2000.
- Non-receipt of a bounce notification is deemed delivery at the client's email ID.
- The Member retains ECNs, acknowledgements and delivery logs as prescribed, and must take steps to promptly detect bounced emails.
- Clients who don't opt for ECNs continue to receive physical contract notes; if an ECN bounces, a physical note follows within the stipulated time.
- ECNs are also published on the Member's secure website via a unique client login, with options to save or print.
- The ECN declaration remains valid until revoked by the client.
Law & Jurisdiction (Clauses 49–55)
Beyond the rights set out here, Members, Authorised Persons and clients may exercise any other rights available under Exchange Rules, Bye-laws and Business Rules, and SEBI Rules. This document is always subject to prevailing Government notifications and SEBI/Exchange rules, guidelines and circulars.
Both parties shall abide by arbitration awards under the Arbitration and Conciliation Act, 1996, with a right of appeal if dissatisfied. Undefined terms take the meaning assigned in Exchange/SEBI Rules and circulars.
Any voluntary/non-mandatory clauses added by a Member must not contravene Exchange/SEBI Rules, and changes to them require 15 days' prior notice. Regulatory changes to rights and obligations are deemed automatically incorporated. Members must send account statements to clients every month.
Internet & Wireless Trading Facility
All standard Rights & Obligations clauses apply equally to Internet-Based Trading (IBT) and trading via wireless technology (mobile, laptop with data card, etc.), in addition to the following:
- The Member must comply with all SEBI/Exchange requirements for IBT and wireless trading, and disclose associated features, risks, responsibilities and liabilities to the client.
- The Member's system generates the initial password per prescribed password policy.
- The client is solely responsible for keeping their username/password confidential and for all activity conducted under them, whether or not authorised — and must not reveal credentials to any third party, including the Member's own staff.
- The client must immediately notify the Member in writing of a forgotten password, discovered security flaws, or suspected unauthorised access, with full details.
- Order/trade confirmations are available on the web portal, sent by email on request, or to the client's device for wireless trading.
- The client acknowledges that internet trading involves inherent technical uncertainties; neither the Member nor the Exchange warrants uninterrupted availability, and the client has no claim for suspension, interruption or non-execution caused by factors beyond the Member's/Exchange's control.
Guidance note for clients trading in the commodity derivatives market.
Do's
- Trade only through Members registered with the Exchange — verify on the MCX Member/AP notice board.
- Insist on filling a standard Know Your Client (KYC) form before commencing trading.
- Insist on getting a Unique Client Code (UCC) and ensure all trades are done under it.
- Insist on reading and signing a standard Risk Disclosure Agreement.
- Obtain a copy of your KYC and other executed documents from the Member.
- Cross-check trade genuineness via the Exchange's trade verification facility (available up to 5 working days from the trade date).
- Insist on a duly signed Contract Note within 24 hours of every executed trade, showing your UCC.
- Ensure the Contract Note contains Member Registration Number, Order No./Date/Time, Trade No., Trade rate, Quantity, Arbitration Clause, etc.
- Obtain a receipt for collateral deposited towards margins.
- Go through the Exchange's and Regulators' Rules, Bye-laws, Circulars and Notifications to know your rights and duties.
- Ask all relevant questions and clear doubts with your Member before transacting.
- Insist on receiving bills for every settlement.
- Insist on monthly ledger statements; report discrepancies to the Member within 7 working days, escalating to the Exchange within 15 working days if unresolved.
- Scrutinise both transaction and holding statements from your Depository Participant.
- Keep your Delivery Instruction Slip (DIS) book in safe possession.
- Ensure DIS numbers are pre-printed and your UCC is mentioned in the DIS book.
- Freeze your Demat account if unused for a long duration.
- Pay required margins on time, only by cheque, and obtain a receipt.
- Deliver commodities (on sale) or pay money (on purchase) within the prescribed time.
- Understand and comply with applicable accounting standards for derivatives.
- Read, understand and sign voluntary clauses before agreeing — these can't be changed without your consent.
- Get a clear picture of all brokerage, commissions, fees and charges, per SEBI/Exchange guidelines.
- Pay by account-payee cheque in the Member's favour and keep documentary proof of every payment/deposit.
- If you've authorised a running account, understand it: the authorisation must be dated and signed by you, revocable anytime; raise disputes in writing within 7 working days; without a running-account authorisation, escalate delayed pay-outs to the Member and, if unresolved, to the Exchange's Investors Grievance Cell; register your mobile number and email with the Member for trade alerts.
- Familiarize yourself with the protection accorded to money/property deposited, particularly if the Member defaults, or becomes insolvent/bankrupt.
- Keep documentary proof of every deposit made with the Member.
- If a grievance isn't resolved by the Member/Authorised Person, escalate to the Commodity Exchange, and then to SEBI if still unresolved.
Don'ts
- Do not deal with any unregistered intermediaries.
- Do not undertake off-market transactions — these are illegal and outside the Exchange's jurisdiction.
- Do not enter into an assured-returns arrangement with any Member.
- Do not get carried away by luring advertisements, rumours, hot tips, or explicit/implicit promises of returns.
- Do not make or accept cash payments toward margins or settlement.
- Do not start trading before reading and understanding the Risk Disclosure Agreement.
- Do not neglect to put higher-value phone orders in writing.
- Do not accept an unsigned or duplicate contract note/confirmation memo.
- Do not accept a contract note/confirmation memo signed by an unauthorised person.
- Do not share your internet trading account password with anyone.
- Do not delay payments or deliveries of commodities to the Member.
- Do not forget to take note of the risks involved in your investments.
- Do not sign blank Delivery Instruction Slips (DIS), or leave them with your DP or Member to save time.
- Do not pay brokerage in excess of Exchange-prescribed rates.
- Do not issue cheques in the name of an Authorised Person.