Companies need expertise when negotiating and managing complex hedge contracts
| Given the complexity of hedging, hedge advisors represent companies in the process by: 1. Offering an unbiased view of commodity pricing environments; 2. Providing technology to manage your hedge program holistically; 3. Using analytics and scenarios to model risk-adjusted outcomes; 4. Making recommendations on otherwise complex hedge structures; 5. Negotiating the price of hedges with counterparties with an eye on fair market value; and 6. Tracking, valuing and managing hedges through final settlement. |
Counterparties are a party to the transaction: As such, the Dodd-Frank Act prohibits counterparties from providing certain advice and scenario analysis. And given companies normally trade with many counterparties, no single counterparty can provide a holistic view of your hedge program. Hedge advisors do both.
Managing an Effective Hedge Program
While it is possible to go without a hedge advisor, it is important to consider the following:
 | Where will I get actionable research and analytics? Is it daily/weekly/monthly? |
| Since counterparties cannot provide advice, where will I get advice on my hedging program? |
| Can my advice provider factor in the positions I have on with other counterparties? |
| Do I have the technology to see my hedge program holistically and respond to Board and investor inquiries? |
| Do I have the technology to solicit bids/offers across multiple counterparties? |
| If not, how do I know if I am getting competitive pricing? |
| If I need to call other counterparties, will the counterparty hold its bid/offer until I am done with my calls? |
| How can I be sure my limit order be filled promptly when the price is reached? |
| How do I know the mid-markets I am getting are precise and accurate? |
| What will I use to verify the confirmations I receive are accurate? |
| How will I get the trade details to a 3rd party so they can be recorded and valued? |
| What will I use to verify the ultimate settlements I receive are accurate? |
| What technology can I access to see the hedge positions, hedge percentages, and weighted average prices I have on with each counterparty? |
| Can any of my counterparties integrate their technology with other counterparties to give me a full view? |
| Can any of my counterparties run mark to markets and provide financial data across multiple counterparties to enable our financial reporting and accounting? |
| How can any of my counterparties track the progress of our overall hedging strategy when they can only see the hedges I have on with them? |
