Raising of Bill for Delivery

The term Bill for Delivery (also called a Delivery Notice) is a formal instruction issued by the buyer of a futures contract to the clearing corporation, indicating the intention to take physical delivery of the underlying commodity.

This bill must be raised within the stipulated period defined by the exchange’s contract specifications – typically a few days before the contract’s expiry. Failure to raise the bill results in automatic cash settlement, and the buyer may lose the right to receive the commodity.

For the NISM exam, remember that the bill is not the same as the trade confirmation; it is a separate document that triggers the delivery logistics, including warehouse allocation and quality verification.

• The buyer’s broker forwards the bill to the clearing corporation.
• The clearing corporation matches the buyer’s bill with the seller’s delivery notice.

Step 1: The buyer decides to take delivery and informs his broker at least two business days before the contract’s expiry. The broker verifies that the buyer has sufficient margin and that the underlying commodity is available for delivery.

Step 2: The broker prepares the Bill for Delivery in the format prescribed by the exchange, capturing details such as contract month, quantity, warehouse code, and quality specifications.

Step 3: The broker submits the bill electronically to the clearing corporation. The clearing corporation validates the bill against the seller’s corresponding delivery notice and checks that the buyer’s account meets the required margin.

Step 4: Upon successful validation, the clearing corporation forwards the bill to the designated warehouse. The warehouse then prepares the commodity for physical hand‑over on the agreed delivery date.

• All communications are time‑stamped, creating an audit trail for regulatory compliance.
• Any discrepancy in quantity or quality triggers a dispute resolution process as per SEBI guidelines.

Exchanges follow a T+2 settlement cycle for commodity futures. The critical dates are:

Last Trading Day (LTD) – the final day on which the contract can be traded. After this, positions are either settled in cash or moved to delivery.

Bill Raising Deadline (BRD) – usually two business days before LTD. The buyer must raise the bill by this date to be eligible for delivery.

Delivery Date – the day on which the physical commodity is transferred from the seller’s warehouse to the buyer’s designated location, as per the exchange’s delivery schedule.

Understanding these dates helps you answer timing‑related questions, especially those that ask what happens if a bill is raised late.

The clearing corporation acts as the central counterparty (CCP) for all delivery‑related transactions. It guarantees that the seller will receive payment and the buyer will receive the commodity, thereby mitigating counter‑party risk.

When a bill is raised, the clearing corporation checks that the buyer’s margin account holds the required funds. If the margin is insufficient, the clearing corporation issues a margin call, and failure to meet it can result in forced liquidation of the position.

For the exam, remember that the clearing corporation’s guarantee is unconditional; the exchange’s rules, not the individual contract parties, dictate the settlement outcome.

When a contract is earmarked for delivery, the buyer must maintain both Initial Margin (IM) and Variation Margin (VM). IM is a percentage of the contract’s notional value, set by the exchange, while VM reflects daily price movements.

The notional value is calculated as Settlement Price × Contract Size. The clearing corporation may also require a specific Delivery Margin to cover logistics and quality assurance costs.

Failure to maintain the required margin results in a margin call. Repeated defaults can lead to the clearing corporation invoking its default fund, which is a key risk‑management mechanism examined in NISM questions.

Raising a bill locks the trader into a physical position, exposing them to storage, quality, and transportation risks that are absent in cash‑settled contracts.

To mitigate these risks, participants often hedge the delivery exposure using related spot market contracts or enter into warehouse receipt agreements. The clearing corporation’s margin system also acts as a first line of defense against price volatility.

Exam questions may ask you to identify the additional risk factors introduced by delivery and the appropriate mitigation techniques, such as using a Warehouse Receipt or a Forward Contract to lock in price.