Price Discovery Process. Miami, Florida October 29, 2008 Esa Ramasamy Director – Americas Oil Market Reporting. Agenda. Introduction to Platts Types of Price Discovery Process Elements of Price Discovery Platts Price Discovery Process Market on Close - explanation.
Price Discovery Process
October 29, 2008
Director – Americas Oil Market Reporting
Platts’ Prices, Analysis & News
Price Assessments & Indices
“The closing range in which a standard repeatable transaction takes place or could take place at arm’s length.”
Trades, bids and offers at the close (3.15 pm New York time) are taken into account for the assessment process
In the absence of trades, the most competitive bids and offers at the close will provide a floor and a ceiling to the assessment after any necessary normalization.
The assessment would be within the bid-offer range.
Price discovery – Market on close
Cut-off for new bids/offers
3.15 pm NY assessment
Since Platts tracks the market throughout the day beginning as early as 9.00 New York time, any bids and offers off market level will not be published and not used during the assessment process:
Example:Gasoline barges trade at +2 cents/gal in the morning and all the way up to +4 cents/gal prior to MOC
From the previous example, assume that the +6 bid trades straight away or very close to being submitted in the assessment process and is then no longer bid. We have no other offers or bids.
From an assessment point of view, we know the market was strengthening all day and traded up to +4 cents/gal, BUT what we don’t know here is -- would there have been a seller at +4.25 cents/gal, or maybe +4.5 cents/gal, +4.75 cents/gal, +5 cents/gal……and so on
We cannot accept the bid as the level between 4 and 6 cents/gal has not been tested and the jump is not justified by any market fundamentals
Scenario 1: You receive direct interest to trade from a counterparty.
Scenario 2: A broker communicates to you directly that he has a seller.
In the above scenarios, you must inform Platts that you have a seller and that you either withdraw your bid or re-bid.
Re-bids are required in a timely manner, within one minute of you concluding the deal and can only be at the same level of the trade or can be lower, higher if it’s a re-offer . They cannot be bid above the trade or offered below.
Your bid will continue to be live on screen and available until Platts is notified otherwise.
Scenario 3: Platts informs you via yahoo or you see on PGA 400 that there is interest in your bid or offer.
Scenario 4: An offer matches your bid or offer on PGA 400.
In the above scenarios you conclude the trade and inform Platts of any re-bid or re-offer. If a re-bid/offer is not received within a timely manner then we will assume there is not one.
In scenario 4 – counter-party’s bid or offer need to have access to PGA 400. Platts will try and pass on information via other communication methods, but during busy periods this may not be possible.
You do not have to submit a bid/offer to trade within the Platts’ assessment process.
If you submit a bid/offer, and it was received by Platts in full by the respective deadline. You are a market maker and can increase the bid/lower the offer.
If you did not submit a bid or offer, you can lift bids/offers, re-bids/re-offers, but your re-offer or re-bid will not be posted onto PGA 400. There is no limitation on how many times you may trade. (You are a market taker, i.e. your changes to bids/offers will not be posted on PGA 400 and will not be considered for the assessment).
Only the market takers interest to buy or sell to a market maker’s bid or offer is posted on PGA 400.
All bids and offers placed on the Platts assessment process are deemed firm and hence can be traded when a buyer or seller emerges.
If the market maker fails to perform on their bid or offer – this is viewed by Platts as not being able to perform on what was told to Platts.
In the event of non-performance, Platts will consider all information provided by the company concerned as being non-credible and hence will not be used for assessment purposes.
Platts will highlight and raise this issue to the concerned company’s management and at times even write a story.
The loss of credibility could affect a particular segment/region
Performance standards extend through execution of the deal (i.e. lifting/delivery of the oil)
Bids/offers and deals are normalized to the Platts standard specification, location, and volume for any specific commodity.
This provides consistency and allows Platts to accurately publish the value of each commodity.
Bids or offers which are deemed to be restrictive in any nature are not taken into consideration.
Standards represent what is most widely tradeable
Deals, bids and offer levels are normalized for standard terms and conditions
The Platts methodology is continuously evolving keeping pace with the changes taking place within the market place.
Standards are set to ensure that the value of a commodity is fully represented in that commodity’s assessment.
Example: Company A bids FOB IMTT to load a barge, 25,000 barrels on March 29 only.
There are two restrictive elements to this bid, the specific terminal and the fact that they are only willing to load it on 1 day. Therefore the bid could and probably will probably to be higher than other standard bids to be fulfilled.
The way to bid this would be to provide a range of dates to load the barge, e.g. 17-19 and provide a location rather than the one terminal, i.e. FOB NYH
Q & A