cash settlement

Cash Settlement

The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.

Cash Settlement Contracts

Futures or option contracts in which the counterparties agree that instead of delivering the underlying assets at the execution of the contract, one delivers their cash equivalent. For example, suppose someone bought a call contract taking on the obligation to buy a certain number of barrels of oil, should the option be exercised. If/when the option is exercised, the call holder pays the strike price. In exchange, the counterparty delivers the cash value of the agreed upon number of barrels of oil. Such a transaction is usually netted between the parties so that cash only changes hands once.

cash settlement

Settlement of a futures contract in cash rather than in the asset underlying the contract. For example, stock index futures call for cash settlement because it is not feasible actually to deliver an index or the securities constituting an index.

Cash settlement.

To settle a futures contract where the underlying asset is a financial instrument, such as a stock index or interest rate rather than a physical commodity, you deliver cash.

In contrast, when you settle a futures contract on other commodities, you deliver the physical product. But because index values or interest rates are intangible, physical delivery is not possible.

The way you calculate the amount due is defined in the contract. When the underlying instrument is an index, this usually involves multiplying the value of the index times a fixed amount. For example, the cash settlement of a contract on the Standard & Poor's MidCap 400 Index is determined by multiplying the value of the index times $500.

However, in the vast majority of cases, futures contracts are offset before the settlement date, and no delivery is required.

cash settlement

purchases of FINANCIAL SECURITIES which have to be paid for immediately rather than being settled after the end of the stock exchange ACCOUNT PERIOD.
References in periodicals archive ?
Hoag, recently started offering Personalized Cash Settlement Blueprint Sessions for community residents.
Dubai Financial Market (DFM) announced that it will implement the new procedures of Buyer Cash Settlement for trades as of 5 May 2013 onwards, pursuant to Resolution No.
Dubai Financial Market (DFM), one of Arab world's leading bourses, is set to implement the new procedures of Buyer Cash Settlement for trades starting from May 5 pursuant to Resolution No.
Global Banking News-13 July 2010-BOC to offer Yuan cash settlement services to Taiwan(C)2010 ENPublishing - http://www.
Club spokesman Martin Perry said: "At the time we were fighting for the stadium and the club's future, and opted for a cash settlement with Aston Villa.
ATHENS, March 5 /PRNewswire/ -- Following communication with the top management of the Bank of Greece, and due to the continuing inability of the Bank of Greece to accomplish the cash settlement of transactions, the ATHEX Chairman decided not to begin today's trading session.
FASB has issued new guidance addressing the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event, amending paragraphs 32 and A229 of FASB Statement No.
Beginning in March 2002, the parties engaged in protracted negotiations using the services of a nationally recognized mediator, eventually achieving an $80 million cash settlement in January 2003.
The site was initiated and named by a Livonia high school graduate--who later demanded a cash settlement to end the harassment--and the district tried everything it could legally to shut the site down.
In recent years, classification and measurement of pensions have been complicated by the growth of pension arrangements that combine aspects of both types of plans--particularly defined benefit plans with a specified cash settlement option in lieu of regular retirement payments, such as in a cash balance plan.