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Click your mouse to start the animated presentation (you only have to click once). The presentation runs approx. 3 minutes Example Credit Reducing Trades Credding @ 2011 Credding owns the copyright in this presentation. Reproduction of this Credding presentation is authorized, provided the source is acknowledged.
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Example Credit Reducing Trades Example trades German Power Counterparty BCounterparty A Summer 2010 Sold these to counterparty B @ EUR 60/MWh Your company Your company bought 5 MW Baseload Cal 2013 from counterparty A @ EUR 60/MWh Your company: Profit= 43.800 * (60-60) = EUR 0 Net position= 0 MWh Credit exposure: Counterparty A = EUR 0 Counterparty B = EUR 0 Result 2010: (with a market price of EUR 60/MWh) And counterparty B sold these to counterparty A @ EUR 60/MWh Counterparty B:Credit exposure: Profit= EUR 0 Your company = EUR 0 Net position= 0 MWh Counterparty A = EUR 0 Counterparty A: Profit= EUR 0 Net position= 0 MWh Credit exposure: Your company = EUR 0 Counterparty B = EUR 0 Trading result, net positions and exposures are equal to 0 for all counterparties The following OTC deals were executed independently with
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Example Credit Reducing Trades Counterparty BCounterparty A Your company In 2011 Trading results and net positions are unaffected, credit exposures have increased considerably It works as follows…. Your company: Profit= 43.800 * (60-60) = EUR 0 Net position= 0 MWh Credit exposure Counterparty A = EUR 1.095.000 Counterparty B = - EUR 1.095.000 Counterparty A: Profit= EUR 0 Net position= 0 MWh Credit exposure: Your company = - EUR 1.095.000 Counterparty B = EUR 1.095.000 Counterparty B:Credit exposure: Profit= EUR 0Your company = EUR 1.095.000 Net position= 0 MWhCounterparty A = - EUR 1.095.000 Credit exposure can be reduced by executing a Credit Reducing Trade This results in: the market price rises to EUR 85/MWh
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Example Credit Reducing Trades Counterparty BCounterparty A Your company Your company: Profit= 43.800 * (60-60) = EUR 0 Net position= 0 MWh Credit exposure: Counterparty A = EUR 0 Counterparty B = EUR 0 Your company buys 5 MW Cal 2013 from counterparty B @ EUR 60/MWh And sells these to counterparty A @ EUR 60/MWh And counterparty A sells these to counterparty B @ EUR 60/MWh Counterparty B:Credit exposure: Profit= EUR 0 Your company = EUR 0 Net position= 0 MWh Counterparty A = EUR 0 Counterparty A: Profit= EUR 0 Net position= 0 MWh Credit exposure: Your company = EUR 0 Counterparty B = EUR 0 Result after executing the Credit Reducing Trade: (with a market price of EUR 85/MWh) Execute a trilateral deal between your company, counterparty A and counterparty B This Credit Reducing Trade offsets the MtM and exposed volumes of the original deals The trading results and net positions are left unharmed and the credit exposures are completely mitigated
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Example Credit Reducing Trades …are an effective and efficient tool to mitigate credit risk exposures …are beneficiary for all credit exposures (Volumes and/or MtM) due to trading in standardized OTC commodities …enable commodity trading companies to actually reduce credit exposures and/or to reduce market price sensitivity …enable commodity trading companies to reduce delivery and settlement risks as well …enable commodity trading companies to increase trading liquidity Credding provides a web portal which helps commodity trading companies to identify and facilitate Credit Reducing Trades efficiently. Credit Reducing Trades:
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Would you like to know more about Credit Reducing Trades or the services of Credding? Please contact Credding at info@credding.com www.credding.com Credding is established in the Netherlands and is registered by the Dutch Authority for the Financial Markets (AFM)
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