The Rights of Account Holders
Elgar Financial Law series
Chapter 9: Introduction to Part III
Similarly to the systems in which securities and funds circulate, systems for the holding and transferring of commodity contracts underwent a significant modernization process in which deliveries of actual commodities against immediate cash payments were replaced with an exchange of promises tradable like securities. Commodities trading became centralized and supported by webs of account relationships that facilitate transfers. Like securities markets, contemporary commodity markets for the acquisition and trading of commodity contracts are electronic, having replaced the markets populated by human traders who executed and confirmed trades by exchanging paper tickets. Commodity intermediaries execute orders of their customers on centralized exchanges and maintain commodity accounts for their customers. The essence of commodity contracts and commodity accounts is a contractual promise. Unlike in a traditional spot contract in which an asset is sold and its possession delivered to the buyer in exchange for a purchase price, the buyer of a promise embedded in a commodity contract is not acquiring an asset expecting its delivery. He is acquiring a right to demand delivery of the underlying commodity. This promise is 'delivered' to the buyer by his intermediary, which credits the buyer's commodity account. Since the establishment of centralized commodity markets, sellers no longer need to find buyers for their products and for the right price. Long before the harvest the seller may acquire a commodity futures contract to sell his corn through an intermediary who will then credit the seller's commodity account.
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