What is In Specie?
261 reads · Last updated: December 5, 2024
The phrase in specie describes the transfer of an asset in its current form rather than in the equivalent amount of cash. In specie distributions are usually made when cash isn’t readily available or when it’s simply more practical to hand over the asset rather than cash. There also are tax benefits to some in specie transactions.In specie is a Latin phrase and can be translated as "in its actual form."
Definition
Physical delivery refers to the transfer of an asset in its current form rather than in equivalent cash. It is often used when cash is not readily available or when it is more practical to transfer the asset itself. Some physical transactions also offer tax advantages. The term 'physical delivery' is derived from a Latin phrase meaning 'in its actual form'.
Origin
The concept of physical delivery originated in early commodity trading markets where traders exchanged goods directly instead of using currency. This form of trading has existed throughout history, especially during times when currency circulation was inconvenient or unstable.
Categories and Features
Physical delivery can be categorized into two main types: commodity physical delivery and financial instrument physical delivery. Commodity physical delivery typically involves the delivery of tangible goods such as agricultural products and metals, while financial instrument physical delivery involves the transfer of financial assets like stocks and bonds. The characteristics of physical delivery include directness and transparency of the transaction, but it may also face challenges related to logistics and storage.
Case Studies
A typical example is the crude oil futures contracts on the Chicago Mercantile Exchange, which allow traders to opt for physical delivery, meaning they actually receive crude oil upon contract expiration. Another example is the gold futures market, where investors can choose to receive physical gold instead of cash settlement upon contract expiration.
Common Issues
Investors opting for physical delivery may face challenges such as logistics costs, storage issues, and lack of market liquidity. Additionally, there is a common misconception that physical delivery is always more advantageous than cash settlement, which actually depends on specific market conditions and individual needs.
