Definition

A future is a listed forward transaction that is binding for both parties (as opposed to an option).

You enter the standardized contract elements in the class master data.

The difference between a future on an index, for example, and a commodity future is the type of underlying. In contrast to financial products, commodities are real objects that need to be stored, or sometimes cooled or eaten (such as coffee, orange juice, pork).

There are no premiums when the futures contract is concluded.

Both contract partners need to make an advance payment. This serves as a security deposit and is known as the initial margin . It is a fractional amount of the contract value and may be increased or decreased depending on the predominant volatility. Before the order is executed, the amount is paid into the margin account either in cash or as first-class government bonds.

Prerequisites

To enter commodity futures, you first need to make the required settings in Customizing for the Transaction Manager :

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 for commodity futures, choose Listed Derivatives ® Transaction Management ® Product Types

You then need to specify a number range under Define Number Ranges for Listed Options/Futures Class Data .

Under Define Product Types, enter a product type for commodity futures for the product category 700 Futures .

In the Class area, enter the following:

Category = commodity future

Quotation type =quoted in percent, directly, or in points

Settlement =cash settlement

Exercise type =European or American

In the Margin area, define the following:

Settlement method: future style

Rate type for variation margin : Define the rate type that is to be used to determine the rate in the variation margin calculation.

In the IMG activity Define Field Selection for Class Data, you can define which entry fields should be displayed and appear as optional, required, or display fields.

Settings for transaction management

Enter a number range for the transactions for each company code by choosing Listed Derivatives → Transaction Management → Transaction Types → Define Transaction Number Ranges. The system uses this number range to assign a transaction number when you create a transaction.

Under Define Transaction Types , create the required purchase and sales transaction types for each product type.

As in the Transaction Manager, for futures you can usually create transaction types for the transaction categories 400 Open Transaction and 500 Closed Transaction. .

You also have the option of creating only transaction types for transaction category 400 Open Transactio n. If you choose to do this, you can close the long and short positions for these open transactions by using the function Matching Long and Short Positions . This setting is required together with the Triple Point integration.

Create the transaction flow types for transaction management (IMG activity: Define Flow Types for Transaction ).

Examples:

1500 Purchase options/futures for flow category: Purchase

1510 Sell options/futures for flow category: Sale

1900 Charges for flow category: Other flow/condition

1950 Initial margin options/futures for flow category: Other flow/condition

Choose Assign Flow Types to Transaction Type to assign each transaction type all the flow types that are required to process a transaction.

You can define rules for generating flows automatically (such as tax flows) in the IMG activity Define Derivation Procedures and Rules .

Make the settings for internal and external confirmation letters in the Correspondence section. You define the possible correspondence types in the IMG activity Define Correspondence Types, and specify which documents you want to generate for each transaction type and activity category in the step Define Correspondence Activities .

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

You define account determination for the update types in Customizing for the Transaction Manager. To do this, choose General Settings → Accounting → Link to Other Accounting Components → Define Account Determination .

You need to create general valuation classes by choosing General Settings ® Accounting   ® Settings for Position Management ® Define and Assign Valuation Classes

A general valuation class must be assigned to each transaction. To simplify transaction entry, you can define default values for the general valuation class assignment. In Customizing, choose Listed Derivatives ® Transaction Management ® Assign General Valuation Class

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 futures

To 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, choose General Settings → Accounting → Settings for Position Management → Define Position Management Procedure and Assign Position Management Procedure

Choose one of the following settings:

Position management category = Listed options (future style) and futures.

Under Liabilities / Assets, you can select the management of assets and liabilities balance sheet account

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

Assign the update types required for the derived business transactions, taking into account the position management procedure. To do this, choose General Settings → Accounting → Settings for Position Management → Derived Business Transactions → Update Types → Assign Update Types for Derived Business Transactions

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

Once you have made the necessary settings in Customizing, you need to specify the master data required for entering the financial transactions:

Enter the required business partner data. In the Listed Derivatives area, you require business partners in the following roles:

Issuer

Depository bank

Counterparty

Define the commodity master data that you require in the application: See also: Commodity Master Data

Specify the required Futures Accounts and the corresponding Position Indicators .

Use

You can buy and sell commodity futures.

You can use Margin Management to manage the daily profit and loss for the open positions.

You can also value futures positions using the key date valuation. See also: Futures Valuation

You can use the function Matching Long and Short Positions to manage long and short positions together if your commodity future purchases and sales exist as open transactions in the system. The function then posts the variation and closed margin flows that would otherwise be determined when the closed transaction is entered.

The commodity future is required as an underlying for the Option on Commodity Futures .

Procedure