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6.2.3.1 Sample Confirmation for fixed forward commodity contracts for cash settlement with commentar

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Following is a sample confirmation for fixed forward commodity contracts for cash settlement, with commentary included in footnotes to the confirmation. 

***

Sample Confirmation for fixed forward commodity contracts for cash settlement. (Paragraph (4) of June 2006 Australian Electricity Addendum contains some definitions relevant to this type of contract.)

 

 [Date]

 

 Reference Number [ ]

 

[Name and address of counterparty]

Fixed forward commodity contract

The purpose of this letter is to confirm the terms and conditions of the fixed forward commodity contract for electricity entered into between us on the Trade Date specified below ("Transaction").

1. For the purpose of the particular Transaction to which this Confirmation relates, the term "Pricing Date" for a Calculation Period means that Calculation Period.[1]

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

Notional Quantity per Calculation Period:[2] The quantity set out in the attachment for that Calculation Period.

Trade Date:[3]

Effective Date:[4]

Termination Date:[5]

Calculation Period(s):[6] Each period of 30 minutes set out in the third column of the attachment.

[Settlement Date(s):] [7] 

[Business Days:] [8] 

Fixed Amount Details:

Fixed Price Payer:[9] Party [ ]

Fixed Price:[10] For each Calculation Period, the price set out in the attachment for that period.

Floating Amount Details:

Floating Price Payer:[11] Party [ ]

[Commodity Reference Price: [12]

Commodity: Electricity

Unit: MWh

Price Source: NEMMCO]

Specified Price: The spot price as at the (#) [13] regional reference node as determined under the National Rules][14]

[Commodity Reference Price:377 Spot Price

Regional Reference Node: 378][15]

[16]

[17][Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this Confirmation enclosed for that purpose and returning it to us.

 

Yours sincerely

[name of party preparing Confirmation]

By:

Name:

Title:

 

Confirmed as of the date first written:

[name of other party]

 

By:

Name:

Title:]

 

382[Please confirm that the foregoing correctly sets forth the terms of our agreement by sending us a Confirmation substantially the same as this Confirmation or by sending us a Confirmation in the following terms:

"We acknowledge receipt of your Confirmation dated [date] with respect to the transaction with reference no [          ]. We confirm that the Confirmation correctly sets forth the terms of our agreement.

Yours sincerely

[name of party preparing reply]

By:

Name:

Title:"]

Attachment

 

Date

Calculation Period

(Number)

Calculation Period

(Eastern Standard Time)

Capacity

(MW)

Notional Quantity

(MWh)

Fixed Price

(A$/MWh)

#

1

0000 - 0030

 

 

 

 

2

0030 - 0100

 

 

 

 

3

0100 - 0130

 

 

 

 

4

0130 - 0200

 

 

 

 

5

0200 - 0230

 

 

 

 

6

0230 - 0300

 

 

 

 

7

0300 - 0330

 

 

 

 

8

0330 - 0400

 

 

 

 

9

0400 - 0430

 

 

 

 

10

0430 - 0500

 

 

 

 

11

0500 - 0530

 

 

 

 

12

0530 - 0600

 

 

 

 

13

0600 - 0630

 

 

 

 

14

0630 - 0700

 

 

 

 

15

0700 - 0730

 

 

 

 

16

0730 - 0800

 

 

 

 

17

0800 - 0830

 

 

 

 

18

0830 - 0900

 

 

 

 

19

0900 - 0930

 

 

 

 

20

0930 - 1000

 

 

 

 

21

1000 - 1030

 

 

 

 

22

1030 - 1100

 

 

 

 

23

1100 - 1130

 

 

 

 

24

1130 - 1200

 

 

 

 

25

1200 - 1230

 

 

 

 

26

1230 - 1300

 

 

 

 

27

1300 - 1330

 

 

 

 

28

1330 - 1400

 

 

 

 

29

1400 - 1430

 

 

 

 

30

1430 - 1500

 

 

 

 

31

1500 - 1530

 

 

 

 

32

1530 - 1600

 

 

 

 

33

1600 - 1630

 

 

 

 

34

1630 - 1700

 

 

 

 

35

1700 - 1730

 

 

 

 

36

1730 - 1800

 

 

 

 

37

1800 - 1830

 

 

 

 

38

1830 - 1900

 

 

 

 

39

1900 - 1930

 

 

 

 

40

1930 - 2000

 

 

 

 

41

2000 - 2030

 

 

 

 

42

2030 - 2100

 

 

 

 

43

2100 - 2130

 

 

 

 

44

2130 - 2200

 

 

 

 

45

2200 - 2230

 

 

 

 

46

2230 - 2300

 

 

 

 

47

2300 - 2330

 

 

 

 

48

2330 - 2400

 

 

 

 



[1]  participants need not include this paragraph if they have agreed the meaning of Pricing Date in part 5 of the Schedule (see the second footnote in 3.8.5  "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement".

[2]  The quantity of electricity in MWh should be specified in the attachment for each period the subject of the swap. The parties may specify a different Notional Quantity for each party (this may require separate attachments for each party).

To assist parties participating in the physical electricity market to calculate the correct quantity, an additional column has been incorporated in the attachment relating to the capacity for a one hour period that is the subject of the swap.  The Notional Quantity will then be one half of that amount. For example, for a 660MW generating unit to be fully hedged, the Notional Quantity for a Calculation Period will generally be 330MWh.

Participants may provide for different Notional Quantities for different types of day (eg  Mondays, weekdays (other than Mondays and public holidays), Saturdays, Sundays and public holidays) by incorporating different columns of Notional Quantities for each type of day. See the last footnote in 3.8.7 "Additional Credit Support".

[3]  The date the parties enter into the contract.

[4]  The first day of the Term of the Transaction.  This is the day on which the first trading interval of 30 minutes occurs that is to comprise a Calculation Period. Whilst a trading day commences at 0400 EST, it is not necessary to specify that a swap commences at that time. For most swaps, the first trading interval covered by it is likely to commence at 0000 EST.

A Term can extend for more than one day.

[5]  The last day of the Term of the Transaction.  For a one day swap commencing at midnight, this is the same date as the Effective Date. For a one day swap that corresponds to a trading day (ie it commences at 0400 EST and finishes at 0400 EST the next day), the Termination Date will be the day after the Effective Date.

[6]  For each day of a swap there are 48 Calculation Periods. If less than 48 periods in a day are the subject of the swap, a quantity and price should be completed in the attachment only for the relevant periods, and the balance of them should be left blank both as to quantity and as to price. Alternatively, those periods could have "Nil" specified for them in each column. With appropriate treatment of the calculation of Floating Prices, Calculation Periods could be specified as being other than 30 minutes.

Participants may cover more than one day simply by extending the attachment. Participants may provide for different types of days (and different months) by incorporating different parts in the attachment for each such day and by substituting the following next to "Calculation Period(s):"

"Each period of 30 minutes set out in the third column of the attachment that occurs during a [month and a] type of day specified in the relevant part of the attachment."

[7]  Insert Settlement Date (ie the date when the net amount due must be actually paid). Participants need not include this item if they have agreed the meaning of Settlement Date in part 5 of the schedule (see the twelfth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement").

Under Section 3.3 of the 2005 ISDA Commodity Definitions, the Settlement Date is subject to adjustment in accordance with the Following Business Day Convention unless otherwise specified. Participants can specify a different Business Day Convention to apply by specifying it at this item of "Settlement Date" or in part 5 of the schedule to their ISDA Master Agreement. See the seventeenth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement") for wording relating to adjusting the Settlement Date in accordance with a Business Day Convention by including a clause in part 5 of the schedule.

A Settlement Date may be more than one day. For example, when the Transaction relates to more than one trading day the parties may want each Settlement Date a specified period after each trading day

Another alternative is that Participants may agree (particularly if either party is a participant in the physical electricity market) that the Settlement Date should correspond to the dates for settlement under the National Rules from time to time.  To do this:

•           in Part 5 of the Schedule to the ISDA Master Agreement add the following paragraph (this is the same clause that is recommended the twelfth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement":

"For each Calculation Period, the Settlement Date is the day upon which the party that is obliged to pay a Floating Amount or a Cash Settlement Amount calculated by reference to a Floating Price determined under the National Rules (or, if there are two such parties, Party [A/B]), if it were a market participant (as defined in the National Rules) under the National Rules, would be obliged to make a payment under the National Rules if a statement issued under the National Rules showed that that party owed an amount in respect of electricity bought by it in that Calculation Period."

or

•           in the Confirmation insert the following next to "Settlement Date(s):"

"For each Calculation Period, the day upon which the party that is obliged to pay a Floating Amount calculated by reference to a Floating Price determined under the National Rules, if it were a market participant (as defined in the National Rules) under the National Rules, would be obliged to make a payment under the National Rules if a statement issued under the National Rules showed that that party owed an amount in respect of electricity bought by it in that Calculation Period."

[8]  See Section 1.3 of the 2005 ISDA Commodity Definitions for the meaning of this term. Specify the places where commercial banks need to be settling payments ie "[name places eg Sydney, Melbourne]".

Participants need not include this item if they have agreed the meaning of Business Days in part 5 of the schedule (see twenty first footnote in 3.8.5 "Recommended clauses for Part 5 of the Schedule to the ISDA Master Agreement").

[9]  Insert correct party description.

[10]  See Section 5.2 of the 2005 ISDA Commodity Definitions for the meaning of this term. It is the price for each MWh agreed on the Trade Date.

Participants may cover different types of day (eg Mondays, weekdays (other than Mondays and public holidays), Saturdays, Sundays and public holidays) by incorporating different columns of Fixed Prices for each type of day, and by substituting the following next to "Fixed Price:"

"For each Calculation Period set out in the third column of the attachment that occurs during a type of day specified in a column of the attachment, the price specified in the column for that type of day for that Calculation Period."

[11]        Insert correct party description.

[12]  This is the machinery to calculate the price per unit of Commodity prevailing on the Pricing Date. It is often otherwise referred to in the financial markets as "reference price".

The Floating Prices for electricity expressly defined in Sub-Annex A of the 2005 Commodity Definitions are not in common use in the Australian market. The Floating Price or Floating Amount can be determined in a number of other ways. Some examples are:

- participants could create a Floating Price by specifying a Commodity, a Unit, a Price Source and a Specified Price;

- participants could create a Floating Price by using the definition of Spot Price in paragraph (4)(b) of the June 2006 Australian Electricity Addendum;

- one party may advise the other party of the price.

Participants need not include an item for Floating Price if they have pre-agreed it by setting it out in part 5 of the schedule (see the fourteenth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement".

[13]        Insert location of regional reference node.

[14]  Delete all the components of the Commodity Reference Price if the participants are using the definition of Spot Price in paragraph (4)(b) of the June 2006 Australian Electricity Addendum.

[15]  Delete if participants create a Floating Price by specifying a Commodity, a Unit, a Price Source and a Specified Price.

[16]  Care!  This Confirmation has been prepared on the following assumptions:

(a) Market Disruption Events, Additional Market Disruption Events, Disruption Fallbacks.  All these issues have been pre-agreed and dealt with in part 5 of the schedule. See the third to the tenth footnotes in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement"). If this is not the case, participants must cover these issues in their Confirmation.  *This is very important*

(b) GST. This issue, if a concern to the parties, has been pre-agreed and dealt with in part 5 of the schedule. See the fifteenth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement". If this is not the case, the issue could be dealt with by including the paragraph in footnote 12 in the Confirmation.

(c)         Calculation Agent.  Participants may have specified in part 5 of the schedule which party is the Calculation Agent (see the twenty second footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement". If not insert an item:

"Calculation Agent:"

(d) Payments to Party A, Payments to Party B. Participants do not insert particulars of the account into which payments to Party A or Party B are to be made. If this approach is adopted participants must ensure that these particulars are identified by some other means eg in standard settlement instructions or settlement instructions issued immediately before settlement. If participants want to insert in the Confirmation particulars for payments to Party A or Party B, insert items:

"Account Details:"

"Payments to Party A:"

"Payments to Party B:"

(e) Multibranch Parties. Neither party is a Multibranch party. If a party intends to make and receive payments under different Transactions through different branch offices, it should be specified in the Schedule to the ISDA Master Agreement as a Multibranch party. If a party is a Multibranch party, an item relating to Offices should be included in the Confirmation in which the relevant branch is identified.

[17]        Two forms of closing have been included. The first is for when the counterparty will be asked to return the Confirmation with their agreement to the terms endorsed on it. The second is for when the counterparty will send their own Confirmation or a Confirmation note referring to the other parties Confirmation.  It is optional which approach participants adopt.


Last Update Date 30 Jun 2011