RING SETTLEMENT
11. At the close of the day, settlements for grain purchases are made between brokers at an agreed settlement price. If brokers have bought and sold to each other in varying amounts, only the difference in the price is adjusted with each other. What are called ring settlements save considerable time, money, and labor. The ring settlement is a settlement between three or more parties without the necessity of margining and may be illustrated in this manner:
A has bought 50,000 bushels of wheat of B, and has sold 50,000 bushels to C. By inquiry, it is found that C has sold 50,000 bushels to B. It is ascertained that the transactions between A, B, and C offset each other, and instead of each party being obliged to put up margins upon each transaction, a settlement may be effected by paying the difference in price, as the sale from C to B may be at a different price from the sale made by B to A, and the sale made by A to C, may have been at a still different price. By the adjustment between the different parties of the difference in price, the necessity of margining by A, B, or C is rendered unnecessary.
ILLUSTRATION
A bought 50,000 bushels of wheat of B at $1.23; A sold 50,000 bushels of wheat to C at $1.23½. By making up the ring it was found that C has sold to B 50,000 bushels at $1.22½. In making the settlement it is found that C is indebted to B ½ cent per bushel for the amount sold, as B sold at ½ cent advance; C is also indebted to A ½ cent per bushel as he purchased of A at a ½ cent advance on the price A bought from B. The settlement of this deal would be made by C giving his check for the amount due to B and to A, and there would be no necessity for any one of the three brokers putting up a margin on the deals. The amount of grain is offset one by the other, and the difference in price has been adjusted by payment of cash.