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DELIVERY SOLUTION
 
EXCHANGE OF FUTURES FOR PHYSCIAL (EFP)
 
The demanding commitments and costs that buyers and sellers must endure when conducting exchange delivery prompts most exchanges to offer their trade and industry hedgers several alternate mechanisms to settle outstanding futures positions. The Exchange of Futures for Physical, or EFP, is the most widely used of these mechanisms as it enables delivery without resorting to the expense, inconvenience and rigidity of the strict exchange delivery procedures.

EFPs enable buyers and sellers to swap a position in the futures market for a physical position in the physical market by submitting a notice to the exchange. EFPs can also be used to either initiate or liquidate a futures position.
 
allow flexibility in the choice of delivery location and product specification, both of which may not necessarily conform to the futures contract;
allow traders a choice of trading partner rather than a randomly matched partner (as occurs in the exchange delivery process); and
encourage the physical supply chain to operate as normal without large amounts of the underlying product being delivered across the exchange.
 
Essentially, EFP mechanisms make DGCX commodities futures much more user-friendly and are tailor-made to suit buyer and seller requirements more efficiently.
 
ALTERNATIVE DELIVERY PROCUDEURES
 
In the hour after the expiry of a DGCX commodities derivative contract being allocated to sellers, the exchange will duly advise each party. For futures contracts, the exchange will randomly match all open positions. Buyers should consider the example of a buyer in location X being matched with a seller also in location X. It may not make sense for the seller to make delivery of the underlying product to the point of delivery or for the buyer to go to the point of delivery to collect it. An ADP allows the buyer and the seller 48 hours to speak with one another and perhaps simply to decide to transfer the rebar from the seller’s premises to the buyer’s premises in Abu Dhabi.

They may decide to transfer the rebar of different diameters than the exchange specification, or indeed a different but price-correlated steel of the same value as the futures contracts.

As with EFPs and EFSs, there are strict ADP rules that govern such transactions. Details of these rules, and more examples of ADPs in action, can be found on the DGCX website.
 
 
 
   
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