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Hugh – Thanks for the update on EFET;
that’s very interesting news. I was not familiar with this
latest update to EFET, but I am somewhat familiar with previous versions, which
as I recall focused more on physical trades, especially in the European power
markets. From my previous reviews I
regard the EFET standard as a very fine standard, comparing favorably with FpML
in a number of respects. I hope that we can work out how to best leverage
the two standards working together. - Brian From: commwg@xxxxxxxx
[mailto:commwg@xxxxxxxx] On Behalf Of H Brunswick Hi all, EFET extended the XML standard used for confirmation
matching to cover financials last year and addressed many of the issues below
in a pragmatic way and I have added comments in Brian’s text. FYI we included the following instruments: 1)
Swaps – fixed/float and float/float 2)
Physically settled indexed deals (for electricity, gas and emissions
but not oil or coal etc – as they are not really standardized on the
physical side) 3)
Swaptions 4)
Options on physically settled index deals 5)
Options on financial indexes We included baskets of indexes and covered Electricity, Gas,
Emissions, Oil & refined products, Coal, Freight (Wet & Dry) and Time
Charter. We did include FX and Unit of Measure conversion as well as look
back averaging and FX pricing periods with FX averaging methods. We also tried to address caps/floors/collars and capped and floored
indexes especially for the physically settled. We did not cover cross commodity. More comments below… A Question: regarding the treatment of Float/Float
swaps and the fact that they are often booked as Fixed/Float with a
differential on the floating leg and the spread as the fixed leg. Does the
group have any views on the most appropriate method for confirmation and the
practicality of converting from one approach to the other if the trading system
books one way and the confirmation process works in the other way? Rgds Hugh Hugh Brunswick Managing Director EFETnet B.V. Keizersgracht 62-64 1015 CS Amsterdam Tel: +31 (0) 20 - 301 13 98 Mob: +44 (0) 7767 27 27 26 Fax: +31 (0) 20 - 520 75 10 From: commwg@xxxxxxxx
[mailto:commwg@xxxxxxxx] On Behalf Of Brian Lynn Here is a list of the issues we’re currently planning
to cover in the FpML commodities offsite next week. Could you please send
comments to the commodities list by Tuesday morning if there are any issues
that we’ve missed that you would like to cover, or if you have any
comments on the priority of the issues we’ve identified? The issues include, in priority order: 1) definition of the commodity underlyer, to be used in
products such as commodity swaps and total return swaps. (review existing
draft FpML model, recent JP Morgan proposal, and Goldman Sachs proposal). HB: INTERESTED TO SEE THE JPMC/GS PROPOSAL 2) amount of detail needed to define a commodity index
in a commodity swap
- is ISDA reference price enough, or do we need additional information defining
the pricing dates (e.g. first nearby except 5, last 3 business dates of the
month, etc.), the averaging rules, etc.? HB: EFET REPEATED INFORMATION ABOUT THE INDEX I.E. THE
“COMMODITY”, “UNIT OFD MEASURE” ETC, JUST TO BE SURE
THAT THESE ITEMS WERE EXPLICITLY STATED – IN FACT A GENERAL RULE WAS TO
EXPLICITLY STATE INFORMATION LIKE DATES RATHER THAN IMPLICITLY STATE THEM (E.G.
DD/MM/YYYY RATHER THAN 5TH DAY OF MONTH). THE EXCEPTION TO THIS RULE
WAS IN THE DEFINITION OF PRICING DATES! WHERE WE IMPLICIT DATES LIKE
“EACH COMMODITY BUSINESS DAY” ETC. ON AVERAGING RULES WE USED
SPECIFIED PRICE AS DEFINED BY ISDA 3) Do we need to consider support for multi-asset swaps,
e.g. crack spreads? How important are these? HB: AS STATED ABOVE WE DID NOT AS THEY ARE NOT SO HEAVILY TRADED IN
ELECTRICITY, GAS, EMISSIONS – BUT WOULD BE IMPORTANT FOR OIL &
REFINED PRODUCT MARKETS I THINK. 4) Do we need to consider FX translation? How
important is this? Is the existing definition in the draft
commodities model (based on equity definitions) sufficient, or do we need to be
able to specify FX rate observation dates, averaging rules, and conversion methods
(e.g. FX convert then average vs. average then convert)? HB: THE EFET APPROACH DID EXPLICITLY ALLOW FOR FX PRICING PERIODS
AND METHODS FOR AVERAGING ETC 5) Units and notional questions. What volumes/notional
quantities do we need to capture? For example, for swaps whose notional
is expressed in volume per day, do we need to list total volume per month (or
other calculation period)? Do we need to record total volume for
the whole transaction? Do we need to consider conversions between weight
and volume measures (e.g. specific gravity)? HB: WE ACTUALLY SPLIT OUT THE CALCULATION PERIOD FROM THE DELVIERY
PERIOD TO ALLOW FOR THE CALCULATION PERIOD TO SPECIFY AN INDEPENDENT DATE RANGE
TO THE DELIVRY (OR SETTLEMENT) PERIOD. WE HAD TOTAL NOTIONAL QUANTITY BUT ALSO INCLUDED
NOTIONAL QUANTITY IN EACH DELLIVERY PERIOD – ALONG WITH FIXED PRICE
– SINCE BOTH VALUES COULD CHANGE FROM ONE DELIVERY PERIOD TO THE NEXT.
HOWEVER WE WORKED IN VOLUMES AND NOT RATES OF DELVIERY SO IN A DELVIERY PERIOD
YOU WOULD INCLUDE THE VOLUME DELIVERED IN THAT PERIOD NOT THE DAILY VOLUME FOR
INSTANCE. 6)
Overall priorities. What are the top priorities
in terms of products (i.e. commodities), trade types (swaps, options, etc.),
etc.? HB: EFET COVERED A LOT OF GROUND
BUT THE MAIN REQUIREMENT IS REALLY FOR THE HIGH VOLUME INSTRUMENTS INSOFAR AS
THE XML IS USED TO, SAY CONFIRM DEALS. MORE GENERALLY A STRUCTURE IS NEEDED TO
MODEL ALL INSTRUMENTS SO THAT THE MORE EXOTIC CAN BE BOOKED MORE EASILY. Some of the areas that we DON’T currently have on the list
of topics to be covered (except as above) include: a)
topics related to physical delivery. – INCLUDE THE COMMODITIES WHERE PHYSICAL DELIVERY IS
STANDARDISED BUT LEAVE THE OTHERS b)
non-energy products –
EFET INCLUDED FREIGHT AND TIME CHARTER, BUT THERE IS INTEREST IN METALS AND
PERHAPS GRAIN TOO c)
options – THESE ARE
COMPARATIVELY EASY TO INCLUDE UNTIL THEY BECOME MORE EXOTIC, THEN YOU HAVE THE
TROUBLE TO FIND SOMEONE WHO REALLY KNOWS WHAT IS NEEDED IN A STANDARD FPML
STRUCTURE. |