Function documentationCommodity Swaps Locate this document in the navigation structure

 

A commodity swap is similar to an interest rate swap, but the parties exchange a fixed price for a commodity with a floating price for the commodity.

Commodity swaps can have the following types:

  • Fixed for Floating Swap (Buyer/Receiver)

  • Floating for Floating (Basis) or Location Swap

Prerequisites

Before you can enter your commodity swap details, you must ensure that you have correctly defined your settings in Customizing for the Transaction Manager.

  • You need to make the following Customizing settings:

    • Define Product Types:

      The creation of financial transactions and management of positions in the Transaction Manager is based on product types.

      To create product types in Customizing, choose   OTC Derivatives   Transaction Management   Product Types   Define Product Types  .

      Select the OTC Swaps tab page and then choose New Entries.

      • Assign a key for the product type (81A, for example).

      • Assign the product type a long text up to 30 characters and a short text no longer than 10 characters.

      • Product Category = 810 Commodity Swap

      • Save your entries.

    • Define transaction types for your corresponding product types:

      • Choose   Transaction Types   Define Transaction Types   to create at least one transaction type for the following transaction categories:

        • 300 Payer

        • 301 Payee

        • 302 Basis

        • 303 Fix to Fix

        You can specify that the system assists you with data entry by proposing default values for you to apply. For more information, see Flow Generator for Commodity Swaps and Swap Symmetry of Commodity Swaps.

        For the system to generate only a payment for the difference between an incoming and an outgoing flow, activate the setting Use Compensation. Otherwise, the system creates a separate payment for the incoming flow and for the outgoing flow.

      • In the Customizing activity Define Flow Types, create the transaction flow types for transaction management. Some examples are:

        • 1107 Nom.Unit Decr.(Not Rel.f.Pos) for flow category: 10 Principal Increase

        • 1117 Nom.Unit Decr.(Not Rel.f.Pos) for flow category: 11 Principal Decrease

        • 1310 Cash Settlement for flow category: 31 Cash Settlement

      • Assign the required flow types to each transaction type. You must include all the flow types needed to process a transaction. For example, flow types 30 and 31. (Customizing activity: Assign Flow Types to Transaction Type)

      • Define the relevant update types and assign them to the corresponding transaction types in the Update Types section. For example:

        • DE1107 (Nominal Unit Increase)

        • DE1117 (Nominal Unit Decrease)

      • Define field selections and assign these to transaction types. To do this, choose   General Settings   Transaction Management   Define Field Selection  .

        • COMMODITY SWAP: PAYER

        • COMMODITY SWAP: RECEIVER

        • COMMODITY SWAP: BASIS

        • COMMODITY SWAP: FIX TO FIX

  • Make the required settings for the commodity master data by choosing   Transaction Manager   Listed Derivatives   Master Data   Commodities  . See also: Commodity Master Data.

  • Settings for managing positions for commodity swaps:

    • Determine the steps to be taken and the order in which they should be carried out for the key date valuation and the determination of derived business transactions by choosing   Transaction Manager   General Settings   Accounting   Settings for Position Management   Define Position Management Procedure   and Assign Position Management Procedure. You can then create a position management procedure for the position management category OTC Derivatives.

    • Assign the update types required for valuation based on the position management procedure by choosing   General Settings   Accounting   Key Date Valuation   Update Types   Assign Update Types for Valuation  .

    • Assign the update types required for the derived business transactions. When doing this, observe the position management procedure. To do this, choose   General Settings   Accounting   Derived Business Transactions   Update Types   Assign Update Types for Derived Business Transactions  .

  • To make the settings required for posting the relevant update types to Accounting, choose   General Settings   Accounting   Link to Other Accounting Components  .

Activities

To create a new commodity swap:

  1. Choose   Treasury and Risk Management   Financial Risk Management for Commodities   Trading   Create Financial Transaction   and enter the following basic data for the transaction:

    • Company Code

    • Product Type

    • Transaction Type This includes the following variants:

      • Payer: Outgoing interest payments are fixed, incoming are variable

      • Payee: Incoming interest payments are fixed, outgoing are variable

      • Basis: Variable against variable interest payments

      • Fix to Fix: Fixed against fixed interest payments

    • Business Partner

  2. Choose Create.

  3. Open the Structure tab page.

  4. Enter the start date and end date of the Term.

  5. Enter the following details for the commodity swap:

    • Commodity ID

    • Commodity Quantity/Units

    • Price

    • Payment Frequency

  6. Open the Administration tab page and enter the General Valuation Class.

  7. Enter the required data on the other Tab Pages

  8. Save the transaction.

More Information

For more information, see: