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Futures Dictionary Series: Approved Delivery Facility

Introducing a brand new series in our blog, Futures Dictionary where we will explain futures trading terms every Wednesday. For a starter, today’s term is “Approved Delivery Facility”.

Port Kelang and Pasir Gudang are listed as the delivery points for Crude Palm Oil and Crude Palm Kernel Oil

Approved Delivery Facility

Also known as Delivery Points, Approved Delivery Facility is a facility authorized by futures exchange where the delivery of commodities takes place upon the expiration of a futures contract.

Banks, storehouses, grain elevators and livestock exchanges are generally the approved delivery facilities. In Malaysia, ports such as Port Kelang and Pasir Gudang are listed as the delivery points for Crude Palm Oil and Crude Palm Kernel Oil.

This is typical for futures contracts with physical commodities as the underlying such as crude palm oil, corn, wheat and sugar where the contracts specify physical delivery as the settlement type.

Example of Approved Delivery Facility

For example, let’s say Ali sells one Crude Palm Oil Futures (FCPO) contract to Bala on the tender period (1st to the 20th Business Day of the spot month). Ali is obligated to deliver 25 metric tons of crude palm oil at any approved delivery facilities or delivery points as stated in the contract which in this case are Port Kelang, Penang/Butterworth or Pasir Gudang ports. Bala on the other hand is also obligated to take the delivery of 25 metric tons of crude palm oil at any of the delivery points chosen by Ali and pay for any transaction costs that could include transportation, storage, inspections and insurance.

Stay tuned for our next Futures Dictionary Series where we will explain the term “Associated Person”.

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1 Comment to Futures Dictionary Series: Approved Delivery Facility

  • July 5, 2012 at 6:31 AM | Permalink

    That’s a nice post.

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