A company buying commodities in several currencies and keeping them in storage while waiting for being sold off faced currency and commodity price risk in several formats. The buy and sell were perceived to be done back to back but in fact they were based on different reference prices inducing a systematic pricing error as the margin were calculated on the wrong basis. Secondly the company built storage and failed to recognize that the reference price change during the storage period. When selling the commodity at a later stage the sell price were created as margin on top of the at reference price at the time of pricing the sell. The marginal on top of the reference price were stable but in absolute terms the company could just as well realize a loss or profit depending on market movements of the commodity.

By changing the reference price for pricing commodities the company lost the short term pricing risk. To solve the storage risk the assets were to be matched with debt replicating the market price properties of the storage at any given time. This was solved by creating a function in the trading system that captured any trade commitment that would alter the storage volumes and the reference price the trade was committed at. This feature aggregated net volumes and entered automatically into financial swaps to replicate the change balancing the change to a 100 per cent. The swap itself were done on a bespoke instrument connected to the reference price and thus the swap itself were done in batches reducing the number of transactions from several hundreds to two day with the same function as being done in real time through out the day. The low number of transactions lowers cost by fewer spreads to pay buying and selling. The solution was hedge efficient and the process highly efficient as it became fully automated. Audits and reconciliation became more transparent with full traceability.