Delivery Process in Physically Delivered Futures Contracts in CME, USA
As a futures contract nears its delivery month, those who are still holding open positions are notified by their Futures Commission Merchant (FCM) or broker that they must either close out their positions or be prepared to go through the delivery process, which is facilitated by CME Clearing.
A short position holder must be prepared to deliver the underlying commodity. The delivery instrument for grain and oilseed futures is either a shipping certificate or a warehouse receipt. Only warehouses approved by the exchange can register and deliver these certificates or receipts. Therefore, a short position holder looking to deliver must be an approved warehouse or already own a certificate or receipt previously registered by an approved warehouse.
A long position holder must be prepared to take delivery of the commodity and pay the full value of the underlying futures contract. The long position holder receives either a warehouse receipt or a shipping certificate which entitles them to obtain the physical commodity from an approved warehouse.
While the holder of a futures contract is obligated to fulfill the terms of the contract, most futures contracts are closed out well before delivery may occur. In fact, less than 3% of futures contracts going into final delivery. To avoid delivery, traders need to fully understand First Notice Day (FND) and Last Trading Day (LTD).
First Notice Day (FND)
The first day the exchange can assign delivery to accounts that are long futures contracts.
For physically settled contracts, exchanges such as the four CME Group exchanges, assign delivery starting on first notice day and every day thereafter to Last Trading Day. The market participant who is short the futures contracts may request delivery starting on First Notice Day. For every short who initiates the delivery process, the exchange will assign delivery to the long contract. The exchange assigns deliveries to the futures contracts that have been open the longest.
To avoid delivereies, market participants, who are long futures, must be out by the close of the day before FND. If you are not flat heading into the close of the day before FND, you will be long teh futures on the statement heading into FND, and the exchange can assign delivery.
Last Trading Day (LTD)
For both physically settled and cash settled contracts, LTD is the last day the futures contract will trade at the exchange. For cash-settled contracts, like the E-mini S&P 500 or Lean Hogs, market participants who hold long or short futures contracts into the close of LTD will have their positions cash-settled based on the day's settlement price. For physically settled contracts, any trader holding a long or short contract into the close will enter the delivery process. If you wanted to continue to hold a position, you can offset the position that is close to the delivery first notice day and roll your contract forward. This would entail selling your current position before delivery or cash-settlement period and reestablishing a position in a more deferred contract month.
Some cash-settled and physically-settled contracts
| Cash-Settled Futures Contracts |
Physically Delivered Futures Contracts |
| Eurodollars |
Crude Oil Futures |
| E-mini S&P 500 futures |
Treasury Bond & Treasury Note Futures |
| E-mini Nasdaq 100 futures |
Soybean futures |
| E-mini Russell 2000 futures |
Corn futures |
| E-mini Dow futures |
Live Cattle futures |
The delivery process can seem intimidating to new futures traders. However, there are procedures in place to prevent accidental delivery of a physical commodity. It is important for all traders to know and understand the settlement process for the product they are trading.
Less than 3% of the futures contracts result in physical delivery.
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