First Notice Day

Please, could somebody explain this for me.
IB's policy is not to allow trading on physically-settled products beyond FND.
Their explanation to me is as follows:


"The first day on which a notice of intent to deliver a commodity in fulfillment of a futures contract can be made by the clearinghouse to a buyer."

What this means is that this is the first date a buyer of a commodity can be called upon to take delivery of the future.

We do not accept physical delivery so to avoid this possibility you are not allowed to be long a commodity contract past the first notice date.


If I was long (say) CL on FND+1, does that mean that I could be called upon (in theory) to take delivery by a seller of CL and that I would have no choice in the matter?

As far as I am aware, most traders don't roll over their positions until close to contract expiry. And we know that the volume of oil represented by CL longs each month is far far in excess of deliverable physical product, hence they are rolled over in the week before expiry. Furthermore "According to a recent survey by Futures Industry Association, approximately 3% of all transactions are actually settled by a customer making or taking delivery of physical commodities."

I wouldn't mind but this policy of IB's (to not allow trading in physically settled futures past FND) forces me onto the next contract month *before there is any liquidity in that contract month*. Do all brokers do this?

Thanks in advance.

 

1) It's a good policy for speculative traders.
2) If you carry a "long" position beyond FND, first notice day, and get assigned delivery before offsetting your "long" position, you can accept delivery or re-deliver the delivery assignment back into the market. Keep in mind, your delivery will probably have been made at a disadvantageous location for you AND your clearing firm firm can and will impose "heavy" fees on you for cleaning up that mess on your statement. :eek:
3) The "3%" number should be related to open interest at FND and not the entire trading volume during the lifetime of the contract.
4) During rollover, liquidity is fine in the second month. Volatility may be slightly exaggerated.
5) Some firms allow trading beyond FND but again, they are within their right to make it "expensive" for you to trade there.

 

If you find yourself wanting to hold past FND (and a lot of us do, for spread reasons et al):

1. Keep a fresh date if long, (in applicable mkts, my knowledge is in grains and cattle)

2. know your cost to re-tender. I've seen $200-$400 per contract typically

3. Most important imo...have a good relationship not only with your FCM, but with your personal account rep, and/or the POC in your FCM's delivery dept, and keep them abreast of what you are doing until they are comfortable knowing you're not a crazy fool lol.

 

btw...your concern about lack of volume is completely invalid. There will be a lack of volume in the front month post FND. Actually, the combination of fund roll and options ex prior to FND will cause a volume / OI shift to the 2nd month a few days / wk prior to FND.

 

Guys, thanks for the replies.

You talk a lot of jargon that frankly I am unfamiliar with. I've many years' experience trading futures but only with IB hence I have zero relationship with anybody, account manager or otherwise! You know what IB are like: don't call us, we don't want to speak to you, just do your trading with our cheap fees and don't bother us.

Sounds like a lot more hassle than it's worth to trade past FND (changing broker, ringing people up to inform them etc etc). I think I'll just let this one go.

Thanks.

 

I have questions regarding delivery process.

-I read somewhere that some futures contracts do not accept re-tendering to avoid physical delivery. Do you know what they are? Is it accepted on all CME/CBOT ags and ICE softs?

-If a contract is suddenly delisted ( liquidity dries up or the exchange decides to delist for whatever reason...), are you stuck with your positions and you actually have to deliver/take delivery? I read a story once about this. Don't remember why the contract was delisted...

Thanks. I am worrying about physical worst case scenarios.

 

1) ? ..... ! ...... who's "digging up" old threads?
2) Contact your clearing firm about re-tendering / re-delivery.
3) Contracts are not suddenly delisted. There's months and months of notice beforehand.
4) The simple way to avoid delivery scenarios is to be out before FND and/or trade a cash-settled market instead.

 

Thanks Nazz,

I was just searching for threads about re-tendering, and decided to post here instead of creating a new one. I know and do everything to avoid long positions after FND, but I make errors like everybody, I sometimes have 50+ positions across numerous markets... So I am just evaluating worst case scenarios.

Regarding sudden delisting, I remember reading a story about the delisting of an illiquid market where the MM immediately disappeared after the notice of the delisting, and I believe some small retail traders ended up stuck with physical positions and no MM to offset. I can't remember which market it was.

 

I have a question regarding deliveries. In the case of a contract like crude oïl where First notice happens after the last trading day, how does it work if you have forgotten a long position( and the market doesn't exist anymore )? Can you re-tender? Do you have to do an OTC EFP to sell your long position to someone seeking delivery? Thanks...