Source: https://www.otcguide.com.au/Updates-History/6-2-3-5-sample-confirmation-for-electricity-commodity-option-contract-for-cash-settlement-other-than-an-Asian-option-with-commentary
Timestamp: 2020-07-10 02:31:11
Document Index: 646568979

Matched Legal Cases: ['art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5', 'art 5']

> 6.2.3.5 Sample Confirmation for electricity commodity option contract for cash settlement (other tha
6.2.3.5 Sample Confirmation for electricity commodity option contract for cash settlement (other tha
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Following is a sample confirmation for electricity commodity option contract for cash settlement (other than an Asian option), with commentary included in footnotes to the confirmation.
Sample Confirmation for electricity commodity option contract for cash settlement (other than an Asian option). (Paragraph (4) of June 2006 Australian Electricity Addendum contains some definitions relevant to this type of contract.)
Commodity option - cash settled
The purpose of this letter is to confirm the terms and conditions of the cash settled commodity option for electricity entered into between us on the Trade Date specified below ("Transaction").
Option Style:[4] [European/American/Bermuda]
Option Type:[5] [Put/Call]
Seller:[6] [Party A/B]
Buyer:[7] [Party A/B]
Total Premium:[8]
Premium Payment Date:[9]
Cash Settlement: Applicable
[Cash Settlement Amount:][10]
Calculation Period(s):[11] Each period of 30 minutes set out in the third column of the attachment.
[Settlement Date(s):][12]
Strike Price per Unit:[13] For each Calculation Period, the strike price set out in the attachment for that period.
[Commodity Reference Price:[14]
Specified Price: The spot price as at the (#)[15] regional reference node as determined under the National Rules][16]
[Commodity Reference Price:450 Spot Price
Regional Reference Node:451][17]
Procedure for Exercise:
[Exercise Period:] [From and including to and including ][18] between am. and pm. (local time in )
[Potential Exercise Date(s):][19]
Expiration Time:[20]
Expiration Date:[21]
Automatic Exercise:[22] [Applicable/Inapplicable]
Written Confirmation:[23] [Applicable/Inapplicable]
Seller's telephone or
facsimile number for purpose
of giving notice of exercise:[24]
[Business Days:][25]
463[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.
[27][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:
[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 underlying swap. The parties may specify a different Notional Quantity for each party (this may require separate attachments for each party).
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 eleventh footnote in 3.8.14
[4] Insert either "American", "European" or "Bermuda". See Section 8.3 of the 2005 ISDA Commodity Definitions for the meaning of these terms. For an Asian option, see 3.8.16 "Sample Confirmation for Asian electricity commodity average price option contract for cash settlement with commentary".
[5] See Section 8.3 of the 2005 ISDA Commodity Definitions for the meaning of these terms.
[6] Insert correct party description.
[7] Insert correct party description.
[8] See Section 8.6 (a) of the 2005 ISDA Commodity Definitions for the meaning of this term.
An alternative to specifying the Total Premium is to specify a "Premium per Unit" - see Section 8.6 (b) of the 2005 ISDA Commodity Definitions for the meaning of this term. For Options it is unlikely that this alternative will be adopted unless all Calculation Periods have the same Notional Quantity.
[9] See Section 8.6 (c) of the 2005 ISDA Commodity Definitions for the meaning of this term. Insert the date for payment of the premium.
The Australian convention in other commodity markets is for the premium to be payable within 2 Business Days after the Trade Date unless otherwise agrees at the time the Commodity Swaption is dealt.
Under Section 8.6 (c) of the 2005 ISDA Commodity Definitions, the Premium Payment 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 "Premium Payment Date" or in part 5 of the schedule to the ISDA Master Agreement. See the eighteenth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement" for wording relating to adjusting the Premium Payment Date in accordance with a Business Day Convention by including a clause in part 5 of the schedule.
[10] See Sections 8.7 and 8.8 of the 2005 ISDA Commodity Definitions for the meaning of this term. If this definition is acceptable, participants need not insert an item "Cash Settlement Amount" in the Confirmation. If it is not, the method of calculation should be inserted in the Confirmation.
[11] 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.
[12] 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.
"For each Calculation Period, 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."
[13] See Section 5.2 of the 2005 ISDA Commodity Definitions for the meaning of this term. It is the strike 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 Strike Prices for each type of day.
[14] 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".
[15] Insert location of regional reference node.
[16] Delete all the components of the Commodity Reference Price if participants use the definition of Spot Price in paragraph 4(b) of the June 2006 Australian Electricity Addendum.
[17] Delete if participants create a Floating Price by Specifying a Commodity, a Unit, a Price Source and a Specified Price.
[18] Include this if it is an American style option. It need not be included in the case of a European or Bermuda style option.
[19] Include this if it is a Bermuda style option. It need not be included in the case of a European or American style option.
[20] See Article 3.7 of the 2005 ISDA Commodity Definitions. This will be 9:30 am (New York time) unless otherwise specified here.
Insert the latest time on the Expiration Date at which the Seller will accept a Notice of Exercise.
[21] See Section 3.6 of the 2005 ISDA Commodity Definitions for the meaning of this term. Note how this date can be adjusted if the date specified is not a Commodity Business Day, and also the extension for up to 8 Commodity Business Days due to Market Disruption Events.
Specify the option exercise date or the last day of the option exercise period, and any adjustment to the extension period that is required.
[22] See Section 8.5 (e) of the 2005 ISDA Commodity Definitions for the meaning of this term.
Participants need not include an item for Automatic Exercise if they have pre-agreed it by a clause in part 5 of the schedule (see the twentieth footnote in 3.8.5 "Recommended clauses for part 5 of the Schedule to the ISDA Master Agreement".
[23] See Section 8.5 (d) of the 2005 ISDA Commodity Definitions for the meaning of this term.
If "Written Confirmation" is applicable, then the Buyer must confirm a Notice of Exercise in writing.
Australian market practice in the commodity markets is not to require written confirmation of the exercise of an option. However, it is market practice to confirm in writing the amount of a Cash Settlement Amount.
[24] Specify the Seller's telephone or facsimile number for the purpose of giving Notice of Exercise. See Section 8.5 of the 2005 ISDA Commodity Definitions for the meaning of Notice of Exercise. These details could be omitted if they are included in standard settlement instructions.
[25] 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]".
[26] Care! This Confirmation has been prepared on the following assumptions:
(d) Payments to Seller, Payments to Buyer. Participants do not insert particulars of the account into which payments to the Seller or the Buyer 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 the Seller or Buyer, insert items:
(f) Barrier Options. That the parties do not require this to be a barrier option. See Section 1.9 to 1.18 of the 2005 ISDA Commodity Definitions for definitions relating to barrier options if a barrier option is to documented.
[27] 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 party's Confirmation. It is optional which approach participants adopt.