Definition of certified shares


What is a certified share?

Certified stocks generally refer to commodity inventory that has been inspected by qualified representatives and determined to be of basic quality for use in the futures market. Certified stocks are an important part of futures trading, as certified stocks are considered acceptable for delivery and generally of high quality and suitable for bulk shipping.

In some cases, certified shares may also refer to stock certificates issued by corporations for their shares. Stock certificates are not commonly issued, but ownership of shares is recorded by book entries, which is why this term is more commonly related to commodity inventories.

Key takeaways

  • Certified stocks are a commodity inventory that has been confirmed by qualified inspectors and approved for futures trading.
  • Certified stocks ensure that the underlying commodity of a futures contract meets minimum specifications and is typically uniform in nature.
  • Certified shares refer less frequently to shares for which a share certificate has been issued.

Understanding of certified stocks

Certified Stock Inventory is a key component of the commodity futures market. While investors can use commodity futures solely for speculative bets, a large part of the market is based on the physical delivery of the underlying product.

Many commodity producers use the futures market to sell their inventory and hedge market volatility. In the US, popular exchanges used by commodity producers include the CME Group’s New York Mercantile Exchange, the Chicago Mercantile Exchange (CME), and the Chicago Board of Trade (CBOT), as well as the Minneapolis Grain Exchange. (acquired in 2020 by Miami International Holdings). The commodities listed on these exchanges include corn, wheat, soybeans, oats, rice, coffee, sugar, and many more.

To participate in futures market trading, producers must maintain certain licenses and ensure that their product complies with regulations. Through licensing, growers can establish relationships with local inspectors who can provide commodity inventory certification on a scheduled basis.

Certified shares can be used as delivery against futures contracts and are typically held in a designated storage facility until transfer. Certified ready-for-delivery stock is commonly referred to as “delivery position stock” or delivery stock. The exchange determines how the commodities are shipped and the warehouse location, delivery, and pickup.

Trading in the futures market

Farmers, producers, and corporations use the futures market to sell their commodities at a specified price. Buyers of commodity inventory take the opposite position. They may need the basic product to run their business or they can use the futures market as a hedge.

Speculators, which include individuals up to large hedge funds, can be buyers or sellers of commodity futures. However, they do not receive the underlying product. Rather, they close their positions before the futures expire, taking the profit or loss from the futures contracts.

The buyers and sellers of commodities in the futures market are the main influencers of supply and demand and determine the prices of commodities.

Certificates of physical shares

While certified stock is generally a term used for commodity inventory, in some cases it can also refer to paper stock certificates. Companies issue shares through an initial public offering (IPO). Once issued, the shares are traded daily on the secondary market through various exchanges.

When a company issues shares, it will be accompanied by a share certificate, also known as a share certificate. Most certificates are managed electronically. However, an investor may request a physical copy of a share certificate for administrative purposes. The share certificates will include the number of shares held, the date of ownership, identification numbers, a unique corporate seal, and management signatures.

Shares with a certificate are called certified shares, while shares without a certificate are called non-certified shares or shares written on account.

Example of certified stocks with gold futures

For gold to be used to trade on the Chicago Mercantile Exchange (CME), it must meet certain standards to be converted into certified shares. If gold does not meet these standards, it cannot be used for delivery in a futures contract.

Beginning in 2021, the CME has the following specifications for its 100 troy ounce gold futures contract.

  • The weight of the gold bar must be 5% greater than or less than 100 troy ounces.
  • Gold must have a minimum purity of 995.
  • Gold must be an exchange approved brand and have one or more of the exchange’s brands on the bar.
  • Each gold bar should also have the weight (troy ounces or grams), fineness, and the number of the bar on the bar.

The specifications also include how and where the gold can be transported, stored and delivered.

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Mark Holland

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