Settlement in commodity trading involves tallying raised and pending buy and sell instructions, and subsequently transferring the ownership of said commodities from the seller to the buyer in lieu of the funds exchanged. The commodity trading settlement process includes the following steps:
- The relevant trade details are sent to the clearing corporations by the applicable commodity exchanges
- Thereafter, the clearing corporation informs the buyers and sellers regarding their obligations and pay-in advice on funds
- The underlying clearing banks are sent a communication to ensure that they make funds available by the pay-in time
- The clearing banks debit the account of the clearing member and credit the same amount to the account of the clearing corporation to complete the pay-in of funds for executed trades
- In the case of pay-out of funds, the clearing bank credits the account of clearing member upon the instructions of the clearing corporation