The mechanics of the first notice day shape the delivery window for physically settled futures and can alter price behaviour in the final trading days. Traders, hedgers and arbitrageurs watch this date closely because it marks the first day a long can be formally notified that a short intends to make delivery. Market participants who do not intend to accept or make physical delivery typically close, roll forward, or hedge positions in the days leading up to this threshold. Exchanges such as CME Group, ICE Futures and Euronext publish contract-specific calendars that determine the exact FND, while data services like Bloomberg, Reuters and TradingView distribute alerts that influence intraday flows. The interplay of open interest, liquidity and settlement rules around the first notice day often produces distinct patterns in volatility, bid-ask spreads and roll costs for futures traders and option holders. Practical management of FND risk ties directly to margin planning, execution timing and clear awareness of contract specifications.
Definition and core mechanism of First Notice Day
Definition
First notice day is the first exchange-designated day on which a holder of a long futures position may receive a notice of intent to deliver the underlying commodity or security.
What is First Notice Day?
First Notice Day (FND) is a market event tied to physically settled futures contracts that initiates the formal delivery window. It differs from the last trading day and the last notice day; FND is the earliest day the clearinghouse can assign a delivery notice, while last notice day is the final day when delivery can be issued. In practice, FND signals that the contract’s delivery logistics — including warehouse allocation, delivery location and grade specifications — begin to be actionable by the exchange and clearing members. The date is set by the exchange’s contract specifications and varies by underlying asset: agricultural, energy and metal futures commonly follow distinct notice schedules compared with financial futures. For options on futures, FND can affect exercise decisions because option exercise converts into a futures position subject to the same delivery timetable. Market participants use FND to recalibrate positions: those unwilling to accept physical settlement typically close or roll positions; commercial participants preparing for delivery must align storage, transportation and financing arrangements.
- FND is contract-specific: different contracts and exchanges (CME Group, ICE Futures, Euronext) set unique notice windows.
- It precedes last trading day: FND can occur several business days before final trading, creating a delivery window.
- Applies only to physically settled contracts: cash-settled futures and many financial futures are not subject to FND mechanics.
- Impacts options: options on futures that are physically settled may be exercised in relation to FND timing.
- Event for clearing firms: clearing members manage deliverable supply and margin implications starting at FND.
| Element | Typical value / note |
|---|---|
| Who issues FND | Exchange (e.g., CME Group, ICE Futures) |
| Applies to | Physically settled futures contracts |
| Relation to options | Affects exercise/assignment timing for options on futures |
Key takeaway: First notice day converts settlement risk into operational action, prompting position adjustments and logistical planning. The next section examines the defining features and the micro-mechanics that follow an FND announcement.
Key features and operational mechanics of First Notice Day
Key Features of First Notice Day
- Exchange-defined calendar: Each contract’s FND appears in the exchange rulebook; for example, CME Group lists delivery months and notice windows in contract specs.
- Physical delivery trigger: Only futures with physical settlement trigger notice issuance; many financial and cash-settled contracts do not use FND.
- Open interest linkage: FND often coincides with concentrated open interest flows as longs reduce positions to avoid assignment.
- Assignment mechanics: Clearinghouses assign delivery notices according to allocation rules and the standing of clearing members.
- Margin and collateral effects: Delivery obligations change margin posture — brokers and clearing firms may require additional collateral.
- Interaction with options: Options tied to futures often expire before or near FND to prevent conversion into a deliverable futures obligation.
- Liability transfer window: FND starts the period when transfers of title, storage and transport responsibilities become subject to exchange rules.
How First Notice Day works
On FND, the clearinghouse permits sellers (shorts) to issue delivery notices to holders of long positions via their clearing firms. The underlying asset may be an agricultural commodity, an energy product, a metal, or another deliverable instrument defined in the contract. Contract specifications define the deliverable grade, acceptable delivery locations, delivery unit size and the notice period. Margin requirements typically remain in place but may be adjusted by clearing members to cover delivery-related costs such as storage and transport. Settlement method is physical transfer of the specified commodity or standardized cash settlement where the contract permits; physical delivery is the default for physically settled contracts.
Example: a trader holding long crude oil futures on a contract with FND on the 15th of the month may, on the 15th, receive a delivery notice that specifies the delivery month, quantity and pipeline or terminal location. If the trader does not wish to accept physical delivery, the practical choices are to close the futures position before assignment or roll the contract to a later month using a roll-forward strategy. Resources outlining roll techniques and timing can be found in detailed guides on futures roll forward strategies and initial margin calculations.
| Specification | Typical detail |
|---|---|
| Underlying asset | Commodity or deliverable security |
| Contract size | Exchange-defined (e.g., barrels, bushels) |
| Margin | Initial and maintenance margin per clearing house rules |
| Settlement | Physical delivery unless contract is cash-settled |
- Check contract specs on the exchange website or broker platform (NASDAQ, NYSE listed derivatives or futures via CME Group/ICE).
- Monitor open interest and liquidity to estimate assignment risk.
- Incorporate delivery costs and carry in P&L forecasts using S&P Global and FIA guidance where available.
Operational insight: managing margin and logistics around FND reduces the chance of unexpected assignment and costly forced delivery.
Main uses and market impact of First Notice Day
Main Uses of First Notice Day
Although FND itself is not an instrument, it shapes three principal market behaviours: speculation, hedging and arbitrage. Each use-case has distinct mechanics driven by the delivery window and the availability of deliverable supply.
- Speculation: Traders use positioning ahead of and after FND to take views on near-term price convergence between spot, prompt futures and deferred futures. Speculators often close or roll positions prior to FND to avoid assignment.
- Hedging: Commercial hedgers use futures and options to lock in prices and, if necessary, to secure physical supply or sale. For producers or consumers of the underlying commodity, FND marks the operational point to convert paper positions into physical logistics planning.
- Arbitrage: Basis traders and calendar spread managers exploit price differences between delivery months. FND can widen or compress basis spreads, creating temporary arbitrage opportunities for well-funded participants.
Impact of First Notice Day on the Market
First Notice Day materially influences liquidity distribution and price discovery in the delivery month. As FND approaches, the front-month contract can experience thinning liquidity as market makers reduce risk of holding deliverable positions. This thinning may widen bid-ask spreads and increase intraday volatility, particularly in smaller or less liquid contracts. Conversely, contracts with deep deliverable supply (e.g., benchmark crude oil hubs or major grain elevators) may absorb delivery obligations with limited price disruption.
FND also affects how news and fundamental reports are priced. Market data providers — Bloomberg, Reuters and exchange portals — emphasize FND-related metrics such as open interest concentrated in the delivery month and registered warehouse stocks. For example, registered stocks reported for a delivery location on Euronext or CME Group-linked terminals can tangibly affect prompt-month spreads. Clearing firms and brokers often report increased activity around FND to FIA and S&P Global analysts; this information feeds into risk models and margin setting that further influence market behavior.
- Liquidity migration: Front-month thinning shifts activity to nearby months;
- Price discovery: FND forces convergence considerations between futures and spot;
- Volatility spikes: Delivery uncertainty and lower liquidity can increase realized volatility;
- Behavioral effects: Retail and institutional traders often adjust positions to avoid operational complexity.
| Market effect | Typical observation |
|---|---|
| Bid-ask spreads | Widen near FND in thin markets |
| Open interest shifts | Decline in front-month, rise in next-month |
| Volatility | Temporary spikes in prompt contracts |
Practical point: monitor registered stocks, open interest and exchange notices from CME Group, ICE and Euronext when assessing FND risk. The next section shifts focus to the benefits and risks of managing positions around FND and offers preparation strategies for traders and hedgers.
Benefits, risks and preparation strategies around First Notice Day
Benefits of First Notice Day
- Operational certainty: FND makes the path to delivery explicit for supply chain participants.
- Price convergence: Encourages convergence of futures and spot, improving long-term price discovery.
- Hedging efficiency: Allows commercial actors to convert futures hedges into physical operations.
- Arbitrage windows: Short-term basis movements around FND can present exploitable trades for sophisticated funds.
Risks of First Notice Day
- Assignment risk: Holders of long positions face potential assignment and unexpected physical delivery obligations.
- Amplified losses: Thinner liquidity can magnify execution costs and slippage.
- Margin calls: Delivery-related margin adjustments can trigger funding stress during tight markets.
- Logistical cost: Unexpected delivery forces can impose storage, transport and insurance costs.
- Early assignment for options: Holders of in-the-money options may face early exercise that converts to deliverable futures.
Brief history and evolution of FND practice
First Notice Day emerged as exchanges standardized delivery procedures for physically settled contracts through the 20th century. Major exchanges, including the predecessors of today’s CME Group and ICE Futures, codified notice windows to provide orderly settlement and to protect clearing integrity. Over decades, refinements have included clearer warehouse receipts, electronic notice systems and enhanced reporting by institutions such as the FIA (Futures Industry Association) and data vendors like S&P Global. These changes reduced dispute frequency and improved transparency for market participants.
How to prepare for First Notice Day
Preparation is a mix of operational readiness and market execution discipline. The following steps are essential for both professional and retail participants:
- Verify contract specifications: Consult exchange rulebooks (CME Group, ICE Futures, Euronext) and broker contract notes for deliverable grades, notice deadlines and delivery locations.
- Monitor open interest and register stocks: High concentration of long positions in deliverable months increases assignment probability.
- Plan margin and financing: Assess margin exposure and prepare liquidity buffers to meet potential margin calls.
- Decide on roll or close: Use roll-forward strategies to maintain market exposure without delivery; see detailed procedures on futures roll forward strategies.
- Coordinate logistics: For participants intending to deliver or accept delivery, confirm warehousing, inspection and transport arrangements.
| Preparation step | Practical action |
|---|---|
| Check specs | Exchange rulebook and broker confirmations |
| Assess open interest | Use TradingView, Bloomberg or Reuters data |
| Plan funding | Collateral availability and margin buffers |
Management insight: integrating operational checklists with trading signals reduces the chance of a disruptive assignment.
Practical calendar, examples, tools and common mistakes around First Notice Day
Key dates and practical calendar management
Each futures contract publishes a schedule indicating its delivery months and the associated notice period. Typical workflow for a trader managing FND risk:
- Identify the delivery month for the contract.
- Locate the exchange-declared FND in the contract specifications.
- Account for business-day conventions and local holidays that affect notice timing.
- Plan position actions (close, roll, exercise) at least several business days prior if liquidity is a concern.
Example case: A commercial grain buyer with long December wheat futures watches the FND published by the exchange. If open interest is concentrated in December and on-exchange warehouse stocks are low, basis might strengthen as FND approaches. The buyer elects to roll to the March month to avoid taking delivery and to preserve trading exposure to seasonal price changes.
| Event | Practical implication |
|---|---|
| FND announcement | Start of delivery notification window — traders reassess positions |
| Last trading day | Final chance to exit without delivery |
| Last notice day | Final day deliveries can be accepted |
Common mistakes to avoid
- Ignoring contract details: Failing to read the deliverable grade or warehouse list can cause costly mismatches on delivery.
- Underestimating liquidity impact: Closing a large position on FND or shortly after can incur wide execution costs.
- Not planning margin: Unexpected margin calls tied to delivery obligations can force liquidations.
- Assuming cash settlement: Mistaking a physically settled contract for cash settlement leads to operational surprises.
Tools and resources
Leverage a combination of market data, exchange notices and calculators to quantify FND exposure. The following resources are useful:
- Physical delivery process guide
- Futures expiration schedules
- Initial margin calculation methods
- Roll-forward strategies
- Futures glossary