Managing Retroactive Benchmark Substitution Spread Discrepancies in Physical Swaps
Resolve retroactive benchmark substitution discrepancies by aligning physical contract fallbacks with financial hedge mechanics and capping true-up lookbacks.
Platts
Meaning
Specialist information providers supply benchmark price assessments for the global energy, petrochemical, metals and agriculture markets. Market participants use platts prices to determine the value of raw materials in both long term contracts and spot trades. These assessments are based on a specific methodology that looks at trades occurring within a defined time window.
Valuation Standard
Daily updates provided by the firm serve as the basis for billions of dollars in global trade. Because the prices are published at the same time every day, they provide a consistent reference point for the industry. Traders use these figures to calculate the relative value of different grades of oil or ore.
This consistency reduces the friction in international commerce.
Window Methodology
Price discovery happens through a process where buyers and sellers submit their bids and offers during the final minutes of the trading day. This window is designed to reflect the most current market sentiment. The editors vet every submission to ensure that the trades are legitimate and represent fair market value.
Market transparency is maintained by publishing all bids and offers in real time to the subscriber network.
Price Benchmark
Financial exchanges list contracts that settle against these assessments, allowing companies to hedge their price risk. A refinery might buy crude based on a monthly average of the daily quote. This removes the risk of a single day of high prices impacting the total cost of the feedstock.