Is physical delivery of commodities a mandatory requirement?
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Yes, SEBI has made mandatory for taking or giving delivery of commodities upon the completion of the trade.
There are three types of delivery mechanisms that are prevalent in the commodity market. These are compulsory delivery, sellers’ option, and intention matching.
In compulsory delivery, all open positions, upon expiry of contracts, need to be settled physically.
In the sellers’ option, sellers will have an edge while selecting the delivery location and quantity.
In intention matching, physical delivery of commodities happens only when both buyer and seller agree to exchange the physical commodity.
Traders are advised to check and understand the applicable delivery mechanism before going ahead with the trade.