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Brian, thanks, the approach we took at
EFET has been perhaps less analytical than the FpML approach, but hopefully the
experience can contribute to FpML in the commodities area. Certainly EFET is keen
to support further development of FpML into the commodities area. Rgds Hugh Managing Director EFETnet B.V. Keizersgracht 62-64 1015 CS Tel: +31 (0) 20 - 301 13 98 Mob: +44 (0) 7767 27 27 26 Fax: +31 (0) 20 - 520 75 10 From: 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: 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 Managing Director EFETnet B.V. Keizersgracht 62-64 1015 CS Tel: +31 (0) 20 - 301 13 98 Mob: +44 (0) 7767 27 27 26 Fax: +31 (0) 20 - 520 75 10 From: 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 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. |