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What is the meaning of the terms Exchange for Physicals and Alternative Delivery Procedure?

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posted Jul 4 by Deepak Jangid

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Exchange for Physicals
The exchange for physicals (EFP) facility is an off-market trading mechanism that enables customers to swap futures and options exposure for an offsetting physical position. It offers the flexibility and certainty of an over-the-counter (OTC) market, plus the counterparty guarantee of an exchange market. EFPs are approved on the basis of the notional value of the offsetting physical and futures legs being equal.

The EFP mechanism is an invaluable tool for all types of investors, from fund managers equitising cash to arbitrageurs taking advantage of pricing anomalies. Customers are afforded the benefits of an ASX off-market trading facility, such as pre-trade price and execution certainty.

Alternative Delivery Procedure
A clause in a futures contract which allows either party to choose a method of making or receiving delivery of the commodity which deviates from the method specified in the contract. This clause is utilized when changing the delivery system has an impact on one of the party's financial investments, though agreement to change delivery methods must be bilateral.

answer Jul 4 by Mukul Chag
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