The closing out of a futures position off the exchange floor. Effected when two hedgers, one long and one short, make a private deal in the cash market, and no longer need their (equal and opposite) futures contracts to hedge. The hedgers contact the exchange and request the contracts be nullified without making a trade on the floor. This must be done (1) to ensure neither contract results in delivery/the requirement to deliver; (2) to properly reflect open interest; and (3) to eliminate the uncertainty of the fill price should a trade actually be done to offset the positions. Extremely rare. Also known as an EFP transaction, an exchange-for-physicals transaction or an against-actuals transaction.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A futures transaction that does not occur on the trading floor. These transactions are called ex-pit because the futures trading floor is informally called the pit.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved