Delivery Notice

What Is a Delivery Notice?

In the commodities futures markets, delivery notices are a document given by the seller of a futures contract. The document fills in as confirmation that the seller expects to respect their contract by physically delivering the underlying commodity to the futures holder. On the other hand, when a futures contract is cash settled no physical delivery at any point happens.

Delivery notices are one of the key components remembered for all futures contracts. These incorporate the subtleties of the quantity, grade, delivery location, and delivery date of the commodity.

How Delivery Notices Work

Commodities futures markets are an important part of the financial system. Institutional customers, for example, manufacturing companies can purchase commodities futures to supply their daily operations. Simultaneously, financial buyers use commodities futures to speculate on commodity prices and take part in different activities, for example, hedging risk.

One advantage of the commodities futures markets is they are run through a clearinghouse system. Instead of dealing straightforwardly with each other, buyers and sellers submit orders to a central exchange which then pairs viable transactions. To increase speed and limit costs, these transactions follow a standard contractual layout, where subtleties, for example, the commodity's type, quantity, quality, delivery date, and delivery location are determined in a single configuration.

In the event that two parties consent to a commodities futures contract and choose not to get comfortable cash, then, at that point, the seller of the contract — for example the person who has vowed to deliver the physical commodity to the buyer — should give their counterparty with a delivery notice as the contract approaches its delivery date.

This document just illuminates the buyer that the seller expects to satisfy their obligations by physically delivering the underlying commodity as opposed to settling the contract in cash. The specific subtleties of how and when the goods will be not entirely settled ahead of time by the exchange.

Certifiable Example of a Delivery Notice

Contingent upon the rules of the commodities futures exchange, a given delivery notice might be transferable or non-transferable. Transferable delivery notices can be sold to another party, so the right to receive delivery of goods is moved to another person. This provision is valuable for speculative buyers who have no aim of physically getting and putting away the goods, for example, a gold speculator who essentially needs to profit from the anticipated rise in the price of gold.

Non-transferable delivery notices are generally purchased by commercial customers who need for their business operations the commodity being traded. For instance, a coffee cooking company could purchase coffee bean futures with non-transferable delivery notices, since they will have no difficulty getting and utilizing the underlying commodity.

Features

• Some delivery notices are transferable, meaning they can be sold to another party. This is helpful for buyers who wish to theorize on commodity prices without taking physical delivery themselves.
• It informs the beneficiary that the contract seller will make physical delivery of the underlying commodity.
• A delivery notice is a standard part of commodities futures contracts.