Commodity Swap

Commodity Swap

A swap involving the market price of a commodity. In a commodity swap, a financial institution is usually one of the counterparties. A user of the commodity may agree to pay the financial institution a fixed price for the commodity in exchange for the institution paying the user the spot price for the same commodity. On the other hand, a producer of a commodity may agree to pay the financial institution the market price in exchange for receiving a fixed price. A commodity swap usually involves oil and is used to protect against price fluctuations.
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The bonds are secured by the trust estate pledged under the indenture, including revenues derived from the sale of natural gas and payments received from the commodity swap provider.
Bloomberg's SEF, the first SEF to receive Commodity Futures Trading Commission approval, provides market participants with access to interest rate, credit default, foreign exchange and commodity swap liquidity.
Alternatively, the institution might invest in a total return commodity swap to gain exposure to a broad commodity index.
STRONG GUARANTED COMMODITY SWAP PROVIDER: The commodity swap provider is Royal Bank of Canada, Europe Limited (RBCEL).
Some governments have been involved in interest-rate swap agreements or commodity swap agreements that have come to an end because the counterparty (or the counterparty's credit support provider) committed or experienced an act of default or a termination event as described in the swap agreement.
Is a commodity swap regulated by the Commodities Futures Trading Commission?
The bank's role as the counterparty in the first crude oil derivatives hedge in Sri Lanka, first oil commodity swap done in Pakistan and Bangladesh's first commodity derivatives deal reinforced the bank's experience and expertise in its footprint.
Based on a detailed analysis of the relevant legislative history, the IRS ruled that, in the absence of "conclusive authority" on the status of a swap as an Investment Company Act of 1940 ('40 Act) security, a commodity swap does not generate RIC qualifying income.
A plain vanilla commodity swap is based on a reference price (also known as a "fixing").
In July last year, the IRS released a technical advice memorandum outlining its position regarding the character of payments under a commodity swap entered into by a taxpayer.
Additionally, Western Gas Partners and Anadarko have signed a five-year, fixed-price commodity swap agreements to cover all non-fee-based system volumes to manage the commodity-price risk associated with these assets.
The rating on the securities does not factor in the rating of the commodity swap provider, whose nonpayment is covered by RBC via a back-end commodity swap and a custody accord, the agency concluded.