Introduction:
- Role of the central counterparty
- Commodity contracts
- Approved warehouse
- Global
- Warehouse Receipt
- LME warrant
- Proof of ownership
- LMEsword
- Secure recordings and transfer of warrants
Considerations Around Delivery
Closing Contracts
- Three choices for a buyer/long position of futures
- To close out
- To roll the position forward (beyond the expiry of a contract)
- To proceed to delivery
Delivery on Futures
Physical delivery or cash settled
- Exchange delivery settlement price (EDSP)
- Delivery methods
- Contract for differences (CFDs) *CASH SETTLED*
- Physically delivered futures
Delivery and settlement: Futures
Physically delivered futures
Invoice Amount: General
To remember :
Invoice Amount = EDSP x Number of Contracts x Contract Size
Invoice Amount: Bonds
To remember :
Invoice Amount = (EDSP x Price Factor x Scaling Factor x Number of Contracts) + Accrued Interest
In futures delivery - The SHORT has the POWER
The short will go to the broker (clearing member) with the intention to deliver
The broker will give delivery notice to the CCP
Clearing house will then randomly pick a Long
Then Clearing house will over see the exchange of asset for cash
Timetable for delivery
- E.g. ICE Futures Europe long gilt futures
Definitions
First Notice Day
The first day when a short can give notice of intention to make delivery
Last Delivery Day
Last day delivery can be made
Last Notice Day
The day after the last trading day, automatically give notice, you're going to deliver
Last Trading Day
The last opportunity to close out a position (Both Long and Short)
The only way the long can guarantee they won't be forced to take delivery, they have to close the position before First Notice Day
- If there are choices about delivery, the short has the choices:
- When to give notice
- When to deliver
- What to deliver
- Where to deliver (If option is available)
Delivery on Options
Person with the power is the holder.
Holder informs their broker of intention to exercise
Broker sends exercise notice to Central Counterparty (CCP)
CCP chooses a writer and sends an assignment notice to a writer (AT RANDOM)
Definitions
Cabinet Trade
The Closing Out of a loss-making position. Crystalizing a loss
Automatic Exercise
- A clearing house facility to exercise ITM options automatically on the last trading day
- Conditions set by the exchange
- Prevent by filing a suppression notice with the clearing house
The short can specify a delivery day all month, apart from on the last notice day, which then the delivery day is specified as (T+1)
