What Is Retender?
Retender (also spelled re-tender) is the sale of a delivery notice for the underlying asset in a futures contract. A retender occurs when the buyer of a futures contract doesn't want to keep the underlying asset, which could be a complicated commodity such as corn or oil. By retendering the delivery, or tender notice, they assure that the assets get delivered to the buyer of the notice instead.
How Retender Works
A retender is required when a futures contract holder does not wish to remain in ownership of the commodity stock they receive from a futures contract position. Generally, most futures contract holders who do not wish to receive the stock pertaining to their futures contract will sell the contract on the open market prior to expiration to avoid the need for retender. Some scenarios however may result in commodity delivery and retender by the receiver.
Some contracts allow the receiver of a delivery notice certain provisions. A contract holder in receipt of delivery is responsible for the goods they have contracted to purchase. With the delivery notice they have full ownership to use the goods however they would like. With ownership they can relist the goods by writing a new contract. Certain stipulations will apply as outlined in the delivery notice which may require resale by a specific time. The delivery owner is responsible for all costs associated with delivery and resale. Generally retendering can be an unnecessary expense that is better managed by rolling a contract or selling it in the open market before expiration.
- Retender is the sale or assignment of the ownership of a commodity stock for delivery resulting from a futures or forward contract.
- If a futures contract owner does not close their long position, they will receive a notice of delivery for the underlying asset.
- A retender mainly occurs when the owner of a long futures contract does not desire to take physical delivery of the underlying asset, which could be a complex commodity such as corn or crude oil.
Procedures for Commodity Delivery
Many traders of futures contracts bet on the direction in which they think the price of a particular commodity is going to move. They do not want to actually buy or receive the tangible asset that the contract is based on. However, a great deal of the commodities market is used for buying and selling goods to support and hedge costs for both producers and manufacturers. As such, procedures are in place to facilitate the delivery of goods after a contract’s expiration.
All commodities available for sale must be certificated by an inspector in order for producers to write contracts against their stock. When a contract is transacted it is backed by a warehouse receipt which provides details on the underlying goods including information about their construction, location and storage.
Prior to expiration, holders who will receive commodity stock from their futures contract will begin to receive notices. Several notices are provided leading up to expiration to allow the contract holder to exit the contract if they do not want delivery. They will usually also have the option to roll the contract to a new term. Contract holders receive notice from the first notice day to the last notice day. The seller of the goods can elect the number of notices the contract holder receives. If the holder to receive the goods does not sell the contract by the end of the last notice day then they will receive a delivery notice.