Delivery Notices in Cotton Futures Markets

Excerpts from the report: The delivery of cotton in settlement of futures contracts is an important part of the cotton futures trading system. The right of the seller to give "notice" and make delivery of actual cotton, and the right of the purchaser to require delivery, are fundamental in maintaining balance between spot and futures prices. Broadly speaking, if the price of the maturing future is too high, as compared with spot prices in the delivery month, traders will deliver cotton on futures contracts. If the maturing future is priced below prevailing spot values, futures will be bought and delivery taken. In either case, the effect is to bring futures and spots together. The right of conversion of futures contracts into actual cotton during the delivery period is the basic tie-up between the two. This study is an analysis of the transferable-notice system as employed by the New York Cotton Exchange, with emphasis upon the problems that have developed through the use of the transfer provision in delivery notices.