Quick Answer
A delivery notice is the short's written notice of intent to deliver, submitted to the clearinghouse, which assigns it to a long. A transferable notice lets the assigned long pass it on by retendering, selling an offsetting futures contract. A non-transferable notice locks delivery to the first long assigned, who must take the commodity.
The delivery notice is the paperwork that turns a short's intent into an actual delivery. The tested wrinkle is that not every notice can be passed along; it depends on whether the notice is transferable.
What a Delivery Notice Is
The notice is the formal trigger for delivery, and it flows in a set path from short to clearinghouse to long.
- Delivery notice (notice of intention to deliver): the short's written notice of intent to make delivery against an open short position, submitted to the clearinghouse, which then assigns it to a long.
- What it does: it converts a short's paper obligation into an actual delivery to a specific long. Until the notice is issued, nothing has to move.
Transferable vs Non-Transferable Notices
The two notice types split on one question: can the assigned long hand the delivery obligation off to someone else?
| Notice type | What the assigned long can do | Result |
|---|---|---|
| Transferable notice | A long who does not want the physical can pass it along by selling (retendering) an offsetting futures contract, handing the notice to another long | The commodity ends up with whoever is left holding the notice; retendering must happen quickly, within a short, exchange-set window |
| Non-transferable notice | The long must accept the notice and take delivery of the commodity | No passing it on; delivery is locked to that long |
- Retendering: reselling an offsetting futures contract to hand a transferable notice down the line to another long. The obligation keeps moving until someone finally accepts delivery.
- The window is short: exchanges give a long only a brief, set period to retender a transferable notice, so the decision has to be made fast.
- Non-transferable means stuck: with a non-transferable notice, the first long assigned cannot pass it on and must take delivery.
Think of it this way: a transferable notice is a hot potato. A long who does not want the commodity can quickly toss it to the next long by retendering, and the potato keeps moving until it lands with someone willing to hold it. A non-transferable notice is a potato glued to your hand; whoever is assigned first has to keep it.
Exam Tip: Gotchas
- Only a transferable notice can be retendered. Do not assume every delivery notice can be passed on. A long handed a non-transferable notice is committed to taking delivery, with no option to hand it off.
- Retendering means selling an offsetting futures contract, not refusing the notice. The long passes the obligation along by trading, and only within the exchange's short retendering window.