Exchange Delivery Settlement Price (EDSP): The Official Price Used to Settle Futures and Options Contracts

In futures and options trading, the final value of a contract at expiry must be determined fairly and consistently.
This value — known as the Exchange Delivery Settlement Price (EDSP) — is the official price set by an exchange to settle open contracts on their expiry date.

In simple terms, the EDSP is the price the exchange uses to calculate who made a profit and who incurred a loss when a derivative contract expires.

Core Idea

The Exchange Delivery Settlement Price ensures that the settlement process for expiring futures and options contracts is transparent, accurate, and free from manipulation.
It represents the final valuation of the underlying asset at expiry, typically calculated using a predefined formula or price-averaging method determined by the exchange.

The EDSP is crucial because it decides the cash settlement amount or delivery obligation for all traders holding open positions when the contract ends.

In Simple Terms

Think of the EDSP as the “final score” in a derivatives trade.
When a futures or options contract expires, the exchange uses this price to settle the trade.
If you bought a futures contract and the EDSP is higher than your entry price, you make a profit. If it’s lower, you take a loss.

Example

Suppose you hold a crude oil futures contract on a major exchange that expires on the last trading day of the month.
The exchange determines the EDSP based on the average price of crude oil trades between 2:55 PM and 3:00 PM on expiry day.

If your contract price was $80 per barrel and the EDSP is $83, you gain $3 per barrel.
If the EDSP is $77, you lose $3 per barrel.
All cash settlements and deliveries are based on that official settlement price.

How Exchanges Determine the EDSP

The method varies depending on the exchange and the underlying asset, but common approaches include:

Volume-weighted average price (VWAP): Calculated over a set time window on expiry day.

Official closing price: Taken directly from the underlying market at the end of trading.

Special opening or closing auctions: Used to determine an unbiased settlement price through transparent market activity.

Major exchanges like the London Metal Exchange (LME), Intercontinental Exchange (ICE), and Chicago Mercantile Exchange (CME) each have their own published procedures for calculating EDSPs.

Real-Life Application

The EDSP is used to:

Settle futures contracts — determining whether positions are settled in cash or through physical delivery.

Settle options contracts — establishing the final value used to exercise or expire options.

Ensure market fairness — preventing traders from influencing closing prices during the final minutes of trading.

For example, the FTSE 100 Index futures traded on ICE Futures Europe use the average of index values during a specific period on expiry day to calculate the EDSP.

Common Misconceptions and Mistakes

“EDSP is the same as closing price”: Not always — the EDSP can be based on an average of prices during a specific period, not just the last traded price.

“EDSP is arbitrary”: It follows strict, transparent rules published by each exchange.

“It only applies to futures”: EDSP is used for both futures and options, depending on how the contracts are settled.

“All exchanges use the same method”: Each exchange defines its own calculation formula and timing window.

Related Queries Traders Often Search For

How is the Exchange Delivery Settlement Price calculated?

What is the difference between EDSP and closing price?

How does EDSP affect futures and options expiry?

What is the EDSP procedure on the London Metal Exchange (LME)?

Can traders influence the EDSP?

Summary

The Exchange Delivery Settlement Price (EDSP) is the official price set by an exchange to settle all open futures and options positions on expiry.
It ensures that all traders are settled fairly, based on transparent market data, and prevents price manipulation during contract expiration.
Understanding how the EDSP is calculated is essential for anyone trading derivatives, as it directly determines profits, losses, and delivery obligations.