Name: Matching - SAP Broker Reconciliation for Commodity Derivatives
Uploaded: 2023-6-2
Duration: 261 s
Description: In Part Three of this series, you will learn about how the closeout of positions in your clearing account works, and understand the mechanisms of matching and how it helps to run lean financial processes.

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<div><div><div><div><div><p>In Part Three of this series, you will learn about how the closeout of positions in your clearing account works, and understand the mechanisms of matching and how it helps to run lean financial processes.</p><br></div></div></div></div></div>

Matching - SAP Broker Reconciliation for Commodity Derivatives

Hello and welcome to the next session about the clarification of business terms for our industry cloud app SAP Broker Reconciliation for Commodity Derivatives. This unit is about matching. My name is Simon Neumann, and I'm a solution owner in Agri Business Industry. In the first unit about brokers, matching was already mentioned, but not explained in detail. This current unit prerequisites knowledge, which was shared in the first unit about brokers, and the second about commodity derivatives. So, if you haven't watched them yet, you may watch them first and then come back. To understand what matching exactly is, we need to take a step back and recap what you learned in the last session about commodity trading. The company Corn Trading Inc. signed a deal with Farmer Joe in March for corn delivery in September. Of course, Farmer Joe is not the only farmer Corn Trading Inc. is working with. There are also Farmer Jill, Farmer John and a smaller farmer Co-operative. Corn Trading Inc. creates deals with different sizes, prices and delivery periods with different counterparties. The contracts all need to be hedged. This leads to multiple future deals, which may be ordered at different times and lead to a growing number of open positions in the company's clearing account. As a trader, Company Corn Trading Inc. does not only buy corn, but also sells it to, for example, manufacturers like mills. Here, another department of the company is taking care of the contracts, which also must hedge their risk. So, while hedging, the purchase Corn Trading Inc. sold futures. Now, for hedging their sales, they are buying futures. As the long and short futures sum up in the clearing broker account, the company has also to pay a certain margin for every open future position they have in their account. We will probably talk about margins in another session, so for now only consider it as a security fee which needs to be paid to the broker. The growing number of open positions results in a lot of open account items, which hinders the company from getting a quick overview of their account balance. To lower the required margin deposit, get back more liquidity, prevent the future contracts from getting expired, and a better overview of the clearing account, the company Corn Trading Inc. can ask the broker to automatically match long and short future contracts. This is possible if the contracts have the same underlying commodity and expiration date. It is also possible to match two deals with different quantities. In this case, one deal disappears and for the other one the quantity will be reduced. Another possible scenario is matching multiple future contracts. Here one contract is left, in case the summed up quantity for both sides were uneven. By matching long and short positions with different prices, the gains or losses resulting from the different buy and sell prices will be realized and credited or debited to the company's account. In reality, the company would not order every matching with the broker but have rules defined when and how to perform matching. Of course, they need to apply the same rules in their own system to perform the matching accordingly. There are many more rules to consider when it comes to matching, like for example legal requirements, but this tutorial should give a basic overview of what matching is and help to get a general understanding about it. Thanks for watching and see you next time!