Delivery Notice
Categories: Company Management, Metrics
If you ever received a shipment that had several different items, you probably had a packing list inside it. In the case of commodity futures. a delivery notice is a document listing the specs and terms of the item being delivered at the designated date and location. It's sent from the selling party, who holds the short position on the contract, to the clearinghouse for settlement to the party on the buying side, who is long the contract.
The exchange then designates whether or not a notice is transferable, or whether it's subject to physical delivery. If a trader doesn’t plan to take delivery, there is a purchase of an offsetting position with the same details so the trade will zero out the trader’s account and transfer the delivery details onto the new buyer.
One can liken this scenario to playing “hot potato,” where only one party ultimately plans to eat it and the rest of the players keep passing it on.