Approved Delivery Facility

Definition

The term approved delivery facility refers to a location authorized to receive the underlying commodity specified in a futures contract. The commodity exchange approves delivery facilities, which can include a diverse set of locations such as banks, depository institutions, warehouses, stockyards, operating plants, and grain mills.

Explanation

If a futures contract is closed out before delivery, there is no need to exchange the underlying commodity. However, if the counterparties to a futures contract wish to exchange the underlying asset, the buyer will deliver those assets to the seller at a facility approved by the futures exchange. The approved delivery facilities are published and maintained by the exchange so traders have a good understanding of these locations, and the costs associated with delivery can be readily determined. Typically, a notice of intent to deliver is provided by the holder of the short position, informing the clearing house the commodity will be physically delivered to the buyer.

Related Terms

option writeroption buyerapproved warehousealternative delivery procedure