First Notice Day

Once a contract nears its delivery month, the delivery machinery switches on. The one fact that drives every question here is that the seller, not the buyer, holds the delivery decision.

What First Notice Day Is

First notice day marks the moment the delivery process can begin, so it is the deadline a long has to beat.

• First notice day (FND): the first day on which notices of intent to deliver the actual commodity can be issued, from shorts through the clearinghouse to longs.
• When it falls: FND is set by the exchange's contract rules and lands near the start of the delivery (spot) month, ahead of the last trading day.

Who Controls Delivery: The Short

The short runs the delivery decision, and this is the direction the exam most often tries to reverse.

• The short (seller) initiates delivery: a delivery notice is the seller's written notice of intent to make delivery against an open short position. The short decides whether to deliver and, within the contract rules, the timing, the deliverable grade, and the approved delivery location.
• The long (buyer) is the passive recipient: a long still holding on or after first notice day can be assigned a delivery notice and obligated to take, and pay for, the physical commodity.

Think of it this way: the seller is the one with grain in the silo, so the seller decides when to ship it, which approved grade to send, and from which approved warehouse. The buyer just agreed to take delivery at the contract price; within the rules, the buyer takes what the seller tenders.

Exam Tip: Gotchas

• The short controls the delivery decision, not the long. A common trap flips it and says the long "declares delivery" or "chooses the grade." The seller issues the notice and picks the timing, grade, and location within contract rules; the buyer can only offset beforehand or else be assigned.

What a Long Who Does Not Want Delivery Must Do

For a speculative long, avoiding delivery comes down to timing the exit.

• Offset before first notice day: a long who does not want the physical must offset (sell) before first notice day to be safely out ahead of any delivery assignment.
• Waiting is the risk: holding on or after FND risks being matched to a delivering short and handed a delivery notice, which turns a paper position into an obligation to receive and pay for the actual commodity.

Exam Tip: Gotchas

• To avoid delivery, a long must be flat before first notice day. Offsetting on or after FND may be too late, because a delivery notice can already be on its way. The safe deadline is before first notice day, not the last trading day.

Memory Aid: Flat before First notice day. Both start with F, so a long who wants nothing to do with the commodity gets flat before the first F.