Spot Contracts / Markets
The term “spot contracts” are used in India in the context of identifying the regulatory jurisdiction for exchange traded securities / commodities. The term is defined in both Securities Contracts (Regulation) Act 1956 (in short SCRA) and Forward Contracts (Regulation) Act 1952 (in short FCRA) in order to exempt them from the purview of regulations.
Spot contracts are also known as Ready delivery Contracts in the context of contracts covering commodities.
Under the FCRA, a ready delivery contract is one, which provides for the delivery of goods and the payment of price therefore, either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the Central Government. A ready delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. In market parlance, the ready delivery contracts are commonly known as "spot" or "cash" contracts. This definition is used by FCRA for defining the forward contracts on which Forward Markets Commission has been given regulatory powers. Thus, FCRA defines a commodity derivative / forward contract as “a contract for delivery of goods which is not a ready delivery contract".
When FCRA was repealed on 29 September 2015 for merging commodities market with securities market, vide Finance Act 2015, a new modified definition of 'ready delivery contract' was inserted in the SCRA as Section 2(ea) as given below, to take care of the legal infirmities that existed hitherto (people extending delivery beyond 11 days through mutual consent and other contractual arrangements): "ready delivery contract" means a contract which provides for the delivery of goods and the payment of a price therefor, either immediately, or within such period not exceeding eleven days after the date of the contract and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in respect of any goods, the period under such contract not being capable of extension by the mutual consent of the parties thereto or otherwise:Provided that where any such contract is performed either wholly or in part;
- (I) by realisation of any sum of money being the difference between the contract rate and the settlement rate or clearing rate or the rate of any offsetting contract; or
- (II)by any other means whatsoever, and as a result of which the actual tendering of the goods covered by the contract or payment of the full price therefor is dispensed with, then such contract shall not be deemed to be a ready delivery contract;
SCRA separately defines a “spot delivery contract” with respect to securities in its Section 2(i) as a contract which provides for,— (a) actual delivery of securities and the payment of a price therefor either on the same day as the date of the contract or on the next day, (the actual period taken for the dispatch of the securities or the remittance of money therefore through the post is excluded from the computation of the period if the parties to the contract do not reside in the same town or locality); (b) transfer of the securities by the depository from the account of one person to another.
A spot market is a place where sellers and buyers meet face-to-face and conclude a sale with settlement mostly in cash. The grain & vegetable market on the road side is an example. This kind of arrangement provides both seller and buyer an opportunity to do their trade at the negotiated price.