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CONTRACTS | What is a 'Same Day' contract, who uses it and why?


In earlier posts within our Library we talk about 'Forward' and "spot' contracts.

The reason this is going to be a slightly briefer post is simply because a 'Same Day' contract is rather like the other two, except that our client has made an express request to have at least the ability to receive their currency on the same day they bought it.

Let's explain:

The 'Spot' contract is the standard one used in most capital markets transactions. It prices a rate or an asset in real-time, but it allows for two days between the purchase and the settlement from you the client.

This two day period allows you to get your ducks in a row, liquidate your assets to pay for what you've bought, instruct your bank to send money to the right place...generally to give you a bit of breathing space after you've instructed us to buy your currency.

One of the caveats of downsides of the spot contract is that, in the same way that you are given up to 2 days to get you settlement sum to us, we are limited in our ability to send out the purchased currency until two days hence.

In effect we are saying to whichever institution we have bought your currency from

'We will have the customer's money in our GBP account for you to debit two days from now'...

conversely, the institution we are buying your currency from says

'we will have the currency the customer has bought, credited to your foreign currency account two days from now'.

So, with a spot contract we don't actually have your currency with us until two days from the booking...on the 'value date'.

Whilst this is generally not a problem for companies like Prime Cap and our partners (because we hold enough currency that we can release what you've bought before our source suppliers it to us physically) it is sensible to contractual commit both parties, you and the source, to providing the settlement amount and the foreign currency amount, on the same day. It basically just makes for a smoother ride and gives you some assurance/reassurance that funds couldn't be available any quicker.

If you didn't send the settlement sum on the 'same day' then, obviously, we would not be able to send the funds out until your settlement arrived. Furthermore, we are not going to hunt you down if you settlement doesn't arrive on the same day.

One thing worth noting about a 'Same Day' contract is that it can come at a fractional premium. The rate offered on it might not be quite as competitive as that of a Spot contract...and this is because it is not the standard contract. To have access to the currency you've bought 'Same Day' you are asking the institutions involved to do something atypical.

The cost difference really isn't sufficiently great to dissuade one from considering a same day contract, but also, if you're not absolutely sure you can get us yours settlement same day, or you don't have funds on account already, why pay more?

www.primecappayments.com | 0203 172 8193 | brokers@primecappayments.com

#samedaycontract #settlement #clearance

Prime Cap Payments Limited (T/A Prime Cap | Prime Cap Payments | Prime Cap Global Payments) is registered in England and Wales No: 10755730. Registered address: 27 Old Gloucester Street, London, WC1N 3AXPrime Cap is partnered with, and a programme manager of, Ebury Partners UK Limited who provide Prime Cap's FX and payment services.  Ebury Partners UK Limited is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Financial Services Register No. 900797) and is registered in England and Wales (registered no. 7088713). Registered office: 3rd floor, 100 Victoria Street, Cardinal Place, London, SW1E 5JL.  Ebury Partners UK Ltd is registered with the ICO with registration numnber ZA345828.