Appendix A to Part 20 - Guidelines on Futures Equivalency

Appendix A to Part 20 - Guidelines on Futures Equivalency

The following examples illustrate how swaps should be converted into futures equivalents. In general the total notional quantity for each swap should be apportioned to referent futures months based on the fraction of days remaining in the life of the swap during each referent futures month to the total duration of the swap, measured in days. The terms used in the examples are to be understood in a manner that is consistent with industry practice.

Example 1 - Fixed for Floating WTI Crude Oil Swap Linked to a DCM Contract

Reference Price	Daily official next to expire contract price for the NYMEX Light Sweet Crude Oil Futures Contract (“WTI”) in $/bbl through the NYMEX spot month.
Fixed Price	$80.00 per barrel.
Floating Price	The arithmetic average of the reference price during the pricing period.
Notional Quantity	100,000 bbls/month.
Calculation Period	One month.
Fixed Price Payer	Company A.
Floating Price Payer	Company B.
Settlement Type	Financial.
Swap Term	Six full months from January 1 to June 30.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

NYMEX WTI trading in the next to expire futures contract ceases on the third business day prior to the 25th of the calendar month preceding the contract month. For simplicity in this example, the last trading day in each WTI futures contract is shown as the 22nd of the month.

Futures Equivalent Position on January 1

Total Notional Quantity = 6 months * 100,000 bbls/month = 600,000 bbls

1,000 bbl = 1 futures contract

Therefore 600,000 bbls/1,000 bbls/contract = 600 futures equivalent contracts

Total number of days in swap term = 31 + 28 + 31 + 30 + 31 + 30 = 181

Futures Equivalent Position of Swap on January 1

Dates swap in force	Referent futures month	Fraction of days	Company A position (long)†	Company B position (short)†
January 1 - January 22	February	22/181	73	−73
January 23 - February 22	March	31/181	103	−103
February 23 - March 22	April	28/181	93	−93
March 23 - April 22	May	31/181	103	−103
April 23 - May 22	June	30/181	99	−99
May 23 - June 22	July	31/181	103	−103
June 23 - June 30th	August	8/181	27	−27
Total		181/181	601	−601

^† Contracts rounded to the nearest integer.

Futures equivalent position on January 2

Total Notional Quantity = Remaining swap term * 100,000 bbls/month = 596,685 bbls

1,000 bbl = 1 futures contract

Therefore 596,685 bbls/1,000 bbls/contract = 597 futures equivalent contracts

Total number of days = 30 + 28 + 31 + 30 + 31 + 30 = 180

Futures Equivalent Position of Swap on January 2 (Example 1 Continued)

Dates swap in force	Referent futures month	Fraction of days	Company A position (long)†	Company B position (short)†
January 2 - January 22	February	21/180	70	−70
January 23 - February 22	March	31/180	103	−103
February 23 - March 22	April	28/180	93	−93
March 23 - April 22	May	31/180	103	−103
April 23 - May 22	June	30/180	99	−99
May 23 - June 22	July	31/180	103	−103
June 23 - June 30th	August	8/180	27	−27
Total		180/180	597	−597

^† Contracts rounded to the nearest integer.

Example 2 - Fixed for Floating Corn Swap

Reference Price	Daily official next to expire contract price for the CBOT Corn Futures Contract in $/bushel through the CBOT spot month.
Fixed Price	$5.00 per bushel per month.
Floating Price	The arithmetic average of the reference price during the pricing period.
Calculation Period	One month.
Notional Quantity	1,000,000 bushels/month.
Fixed Price Payer	Company A.
Floating Price Payer	Company B.
Settlement Type	Financial.
Swap Term	Six full months from January 1 to June 30.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

Last trading day in the nearby CBOT Corn futures contract is the business day preceding the 15th of the contract month. For simplicity in this example, the last trading day in each Corn futures contract is shown as the 14th of the month. Futures contract months for corn are March, May, July, September, and December.

Futures Equivalent Position on January 1

Total Notional Quantity = 6 contract months * 1,000,000 bushels/month = 6,000,000 bushels

5,000 bushels = 1 futures contract

Therefore 6,000,000 bushels/5,000 bushels/contract = 1,200 futures equivalent contracts

Total days = 31 + 28 + 31 + 30 + 31 + 30 = 181

Futures Equivalent Position of Swap on January 1

Dates swap in force	Referent futures month	Fraction of days	Company A position (long)†	Company B position (short)†
January 1-March 14	March	73/181	483	−483
March 15-May 14	May	61/181	404	−404
May 15-June 30	July	47/181	311	−311
Total		181/181	1,198	−1,198

^† Contracts rounded to the nearest integer.

Example 3 - Fixed for Floating NY RBOB (Platts) Calendar Swap Futures

Reference Price	Platts Oilgram next to expire contract Price Report for New York RBOB (Barge) through the NYMEX spot month.
Fixed Price	$1.8894 per gallon.
Floating Price	For each contract month, the floating price is equal to the arithmetic average of the high and low quotations from Platts Oilgram Price Report for New York RBOB (Barge) for each business day that it is determined during the contract month.
Calculation Period	One quarter.
Notional Quantity	84 million gallons/quarter.
Fixed Price Payer	Company A.
Floating Price Payer	Company B.
Settlement Type	Financial.
Swap Term	Six full months from January 1 to June 30.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

NYMEX NY RBOB (Platts) Calendar Swap Futures Contract month ends on the final business day of the contract month. For simplicity in this example, the last trading day in each futures contract is shown as the final day of the month.

Futures Equivalent Position on January 1

Total Notional Quantity = 2 quarters * 84 million = 168 million gallons

42,000 gallons = 1 futures contract

Therefore 168 million/42,000 gallons/futures contract = 4,000 futures equivalent contracts

Total number of days = 31 + 28 + 31 + 30 + 31 + 30 = 181

Futures Equivalent Position of Swap on January 1

Dates swap in force	Referent futures month	Fraction of days	Company A position (long)†	Company B position (short)†
January 1-March 31	April	90/181	1989	−1989
April 1-June 30	July	91/181	2011	−2011
Total		181/181	4000	−4000

^† Contracts rounded to the nearest integer.

Example 4 - Calendar Spread Swap

Reference Price	The difference between the next to expire contract price for the NYMEX WTI Futures contract and the deferred contract price for the NYMEX WTI Futures contract.
Fixed Price	$80 per barrel.
Floating Price	The arithmetic average of the reference price during the pricing period.
Calculation Period	One month.
Notional Quantity	100,000 bbls/month.
Fixed Price Payer	Company A.
Floating Price Payer	Company B.
Settlement Type	Financial.
Swap Term	Six full months from January 1 to June 30.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

NYMEX WTI trading in the next to expire futures contract ceases on the third business day prior to the 25th of the calendar month preceding the contract month. For simplicity in this example, the last trading day in each WTI futures contract is shown as the 22nd of the month.

Futures Equivalent Position on January 1

Total Notional Quantity = 6 months * 100,000 bbls/month = 600,000 bbls

1,000 bbl = 1 futures contract

Therefore 600,000 bbls/1,000 bbls/contract = 600 futures equivalent contracts

Total number of days = 31 + 28 + 31 + 30 + 31 + 30 = 181

Futures Equivalent Position of Swap on January 1

Dates swap in force	Fraction of days	Applicable next to expire futures month	Company A position (long)†	Company B position (short)†	Applicable deferred futures month	Company A position (short)†	Company B position (long)†
January 1 - January 22	22/181	February	73	−73	March	−73	73
January 23 - February 22	31/181	March	103	−103	April	−103	103
February 23 - March 22	28/181	April	93	−93	May	−93	93
March 23 - April 22	31/181	May	103	−103	June	−103	103
April 23 - May 22	30/181	June	99	−99	July	−99	99
May 23 - June 22	31/181	July	103	−103	August	−103	103
June 23 - June 30th	8/181	August	27	−27	September	−27	27
Total	181/181		601	−601		−601	601

^† Contracts rounded to the nearest integer.

Example 5 - Columbia Gulf, Mainline Midpoint (“Midpoint') Basis Swap

Reference Price	The Platts Gas Daily Columbia Gulf, Mainline Midpoint (“Midpoint”) and the next to expire NYMEX (Henry Hub) Natural Gas Futures contract.
Fixed Price	$0.05 per MMBtu.
Floating Price	The Floating Price will be equal to the arithmetic average of the daily value of the Platts Gas Daily Columbia Gulf, Mainline Midpoint (“Midpoint”) minus the NYMEX (Henry Hub) Natural Gas Futures contract daily settlement price.
Calculation Period	Monthly.
Notional Quantity	10,000 MMBtu/calendar day.
Fixed Price Payer	Company A.
Floating Price Payer	Company B.
Settlement type	Financial.
Swap Term	One month from January 1 to January 31.
Floating Amount	Floating Price * Notional Quantity * calendar days in the month.
Fixed Amount	Fixed Price * Notional Quantity * calendar days in the month.

NYMEX Henry Hub Natural Gas Futures Contract trading ceases three business days prior to the first day of the delivery month. For simplicity in this example, the last trading day in the futures contract is shown as the 28th of the month.

Futures Equivalent Position on January 1

Total Notional Quantity for each leg = 1 month * 31 days/month * 10,000 MMBtu/day = 310,000 MMBtu

10,000 MMBtu = 1 futures contract

Therefore 310,000 MMBtu/10,000 MMBtu/contract = 31 futures equivalent contracts

Total number of days = 31

Futures Equivalent Position of Swap on January 1

Dates swap in force	Fraction of days	Referent futures month	Company A position in Columbia Gulf, Mainline Midpoint (“Midpoint”) natural gas (long) MMBtu	Company A Position in NYMEX (Henry Hub) natural gas futures (short)	Company B position in Columbia Gulf, Mainline Midpoint (“Midpoint”) natural gas (short) MMBtu	Company B position in NYMEX (Henry Hub) natural gas futures (long)
January 1 - January 28	28/31	February	†††	−28	†††	28
January 29 - January 31	3/31	March		−3		3
Total	31/31			−31		31

^††† Note: Because there is no underlying position taken in a basis contract, for reporting purposes, only enter the futures equivalent contract quantities into the corresponding futures.

Example 6 - WTI Swaption (Call)

Swaption Style	American.
Option Type	Call.
Swaption Start Date	Jan 1 of the current year.
Swaption End Date	June 30 of the current year.
Strike Price	$80.50/bbl.
Notional Quantity	100,000 bbl/month.
Calculation Period	One month.
Reference Price	Daily official next to expire contract price for WTI NYMEX Crude Oil Futures Contract in $/bbl through the NYMEX spot month.
Fixed Price	$80.00 per barrel per month.
Floating Price	The arithmetic average of the reference price during the pricing period.
Settlement Type	Financial.
Swap Term	One month from July 1 to July 31 of the current year.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

NYMEX WTI trading ceases on the third business day prior to the 25th of the calendar month preceding the delivery month. For simplicity in this example, the last trading day in each WTI futures contract is shown as the 22nd of the month.

Futures Equivalent Position on January 1

Total Notional Quantity = 1 month * 100,000 bbls/month = 100,000 bbls

1,000 bbl = 1 futures contract

Therefore 100,000 bbls/1,000 bbls/contract = 100 futures equivalent contracts

Total number of days = 31

Gross Position on January 1

Dates swap in force	Referent futures month	Fraction of days	Company A position (long)†	Company B position (short)†
July 1 -July 22	August	22/31	70	−70
July 23 - July 31	September	9/31	29	−29
Total		31/31	99	−99

^† Contracts rounded to the nearest integer.

Delta^†† Adjusted Position and Futures Equivalent Position on January 1

Date	August		September
	Delta	Position	Delta	Position
January 1	.2	14	.2	5

^†† Deltas should be calculated in an economically reasonable and analytically supportable basis.

Example 7 - WTI Collar Swap

Swaption Style	American.
Swaption Start Date	Jan 1 of the current year.
Swaption End Date	June 30 of the current year.
Call strike Price	$70.00 per bbl.
Put strike price	$90.00 per bbl.
Notional Quantity	100,000 barrels per month.
Calculation Period	One month.
Reference Price	Daily official next to expire contract price for WTI NYMEX Crude Oil in $/bbl through the NYMEX spot month.
Fixed Price	$80.00 per barrel.
Floating Price	The arithmetic average of the reference price during the pricing period.
Settlement Type	Financial.
Swap Term	One month from July 1 to July 31 of the current year.
Floating Amount	Floating Price * Notional Quantity.
Fixed Amount	Fixed Price * Notional Quantity.

NYMEX WTI trading ceases on the third business day prior to the 25th of the calendar month preceding the delivery month. For simplicity in this example, the last trading day in each WTI futures contract is shown as the 22nd of the month.

Futures Equivalent Position on January 1

Total Notional Quantity = 1 month * 100,000 bbls/month = 100,000 bbls

1,000 bbl = 1 futures contract

Therefore 100,000 bbls/1,000 bbls/contract = 100 futures equivalent contracts

Total number of days = 31

Gross Position on January 1

Dates swap in force	Referent futures month	Fraction of days	Company A position		Company B position
			Call	Put	Call	Put
July 1-July 22	August	22/31	70.97	70.97	−70.97	−70.97
July 23-July 31	September	9/31	29.03	29.03	−29.03	−29.03
Total		31/31	100	100	−100	−100

Company (A) Delta^† Adjusted Position on January 1

Date	August				September
	Long call		Short put		Long call		Short put
	Delta	Position	Delta	Position	Delta		Delta	Position
January 1	.7	49	.3	−21	.7	20	.3	−8

^† Deltas should be calculated in an economically reasonable and analytically supportable basis.

Futures Equivalent Position on January 1

Date	August††		September††
	Long	Short	Long	Short
January 1	70	0	28	0

^†† Contracts rounded to the nearest integer.