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Derivatives

ISDA Plans Commodity Definitions Rewrite

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The International Swaps and Derivatives Association is planning to produce a new set of commodity definitions that will expand the number of provisions for physically settling trades and the number of asset classes.

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The International Swaps and Derivatives Association is planning to produce a new set of commodity definitions that will expand the number of provisions for physically settling trades and the number of asset classes. Kimberly Summe, general counsel in New York, said the move reflects a growing interest from its members in the energy markets because of the opportunities that have arisen since the collapse of Enron. For example, UBS, Banc of America Securities and Citigroup have launched energy trading operations since Enron's demise.

The new asset classes will include weather and emissions credits. The association is working on its first long-form confirmation for the emissions credits market and Summe said the first draft will be completed by the Feb. 23 working group meeting. The final document would likely be published in the summer in the hope it would become widely accepted by the time the larger commodity definitions are published in December. Both wet and dry freight are also being considered for inclusion.

Writing documentation for physically settled contracts is relatively new for ISDA and each commodity will have to be dealt with separately. "You can't craft generic delivery provisions," said Summe, explaining that market participants have to deliver gas in a different way from oil.

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