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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.

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Presentation on theme: "Click your mouse to start the animated presentation (you only have to click once). The presentation runs approx. 3 minutes Example Credit Reducing Trades."— Presentation transcript:

1 Click your mouse to start the animated presentation (you only have to click once). The presentation runs approx. 3 minutes Example Credit Reducing Trades 2011 Credding owns the copyright in this presentation. Reproduction of this Credding presentation is authorized, provided the source is acknowledged.

2 Example Credit Reducing Trades Example trades German Power Counterparty BCounterparty A Summer 2010 Sold these to counterparty EUR 60/MWh Your company Your company bought 5 MW Baseload Cal 2013 from counterparty EUR 60/MWh Your company: Profit= * (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 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

3 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= * (60-60) = EUR 0 Net position= 0 MWh Credit exposure Counterparty A = EUR Counterparty B = - EUR Counterparty A: Profit= EUR 0 Net position= 0 MWh Credit exposure: Your company = - EUR Counterparty B = EUR Counterparty B:Credit exposure: Profit= EUR 0Your company = EUR Net position= 0 MWhCounterparty A = - EUR Credit exposure can be reduced by executing a Credit Reducing Trade This results in: the market price rises to EUR 85/MWh

4 Example Credit Reducing Trades Counterparty BCounterparty A Your company Your company: Profit= * (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 EUR 60/MWh And sells these to counterparty EUR 60/MWh And counterparty A sells these to counterparty 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

5 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:

6 Would you like to know more about Credit Reducing Trades or the services of Credding? Please contact Credding at Credding is established in the Netherlands and is registered by the Dutch Authority for the Financial Markets (AFM)


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