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CESR/CEBS Consultation Paper on Commodities Business Summary

Core Content

This document is a response from Markit to the CEBS/CESR Consultation Paper on the review of the commodities business. It outlines Markit's current capabilities and insights in the OTC Commodity Derivatives market, particularly focusing on transparency, liquidity, and pricing services.

Main Points

• Purpose of the Response: Markit acknowledges the consultation but does not provide a direct response to the questions. Instead, it offers additional information to enhance transparency in the commodities market.

• Price Verification Service (Totem):

  • Markit's Totem service collects and cleans prices from 38 market makers for OTC derivatives on 349 commodities monthly.
  • It generates long-dated forward curves and option volatility surfaces for these products.
  • These data are used to mark positions for market makers and to provide post-trade valuations to buy-side clients.

• New Daily Pricing Service:

  • A new daily pricing service is planned for early 2009.
  • It will cover vanilla products in the OTC Commodity Derivatives market.
  • Initially focused on Energy, it will expand to include Soft Commodities and Metals over time.
  • The service will provide forward curves for 140 commodities (40 with European underlyings) and at-the-money volatility for around 40 underlyings.

• Liquidity Report:

  • Markit produces a monthly Liquidity Report for OTC Commodity Derivatives.
  • The report lists the products that are priced and includes the number of contributors for each product and curve point.
  • It serves as an indicator of market liquidity and reflects the depth of market participation.
  • It is not a definitive count of market participants but provides a valid representation of liquidity for each product/maturity.

Key Information

• Transparency: Markit emphasizes the importance of transparency in the commodities market and offers data to support this.
• Market Coverage: The Totem service covers a wide range of commodities, with 349 products and 38 market makers contributing data.
• Data Utilization: The data collected are used for both position marking and post-trade valuation services.
• Service Expansion: The planned daily pricing service will initially focus on Energy, with future expansion into other commodity sectors.
• Liquidity Insights: The Liquidity Report provides market participants with an overview of the liquidity in OTC Commodity Derivatives, reflecting the market's depth and activity.

Conclusion

Markit's contribution to the CEBS/CESR consultation highlights its role in enhancing transparency and liquidity insights in the OTC Commodity Derivatives market. Through its Totem service and upcoming daily pricing service, Markit offers critical data that supports market participants in understanding and managing their commodity derivative positions effectively. The Liquidity Report further serves as a valuable tool for assessing the market's depth and activity levels.