A non-deliverable swap is a derivative contract that settles in cash rather than requiring physical delivery of the underlying commodity or asset. These swaps allow participants to gain price exposure and manage risk without handling logistics, storage, or transportation requirements. Cash settlement makes these instruments accessible to financial participants without physical market capabilities.

Non-deliverable swaps are particularly useful for commodities with complex delivery requirements or for participants seeking pure price exposure without operational complications. These instruments often reference published price indices or assessments for settlement calculations. Understanding cash settlement mechanisms helps assess contract risks and opportunities.

Real-world example: A financial institution enters a non-deliverable oil swap referencing Brent crude prices, receiving monthly cash payments based on price differences without any obligation to handle physical oil delivery or storage.