Developing and cultivating industry standards is a vital aspect of the Coal Trading Association’s (CTA’s) core mission. The organization has long advocated the establishment of commercial trading standards as a paramount concern when seeking to create market liquidity. In a related area, the association also considers the need to develop new products that meet standard specifications.
Coal Trading FAQ
QVA Reaffirmed by CTA Board of Directors
The CTA Board of Directors has reaffirmed its support of the Quantity Variance Adjustment (QVA) provision in the Master Coal Purchase and Sales Agreement. QVA addresses volumetric mismatches in Over-the-Counter (OTC) contracts. Final review and approval of the measure was presented to the CTA’s membership at the 2009 Annual Business Meeting as part of the Coal Trading Conference.
- News Release on the QVA Provision in the Master Agreement
- Frequently Asked Questions about QVA
- CTA Master Agreement and the Master Agreement FAQ
Standards and New Products
In 2007 the CTA established a New Products Committe and several subcommittees. The committee was the result of a general membership meeting during which the Board of Directors was charged with the task of developing standards for new coal products, in consideration of upcoming environmental legislation. Additionally, many over-the-counter (OTC) participants were interested in new hedging tools to assist in overall portfolio management. As a result, the board formed the New Products Committee, charged with effectively representing the various interests within the OTC to develop reasonable quality standards for the general market.
Initially focused on defining a clear slate of coal products for physical trading, the role of the New Products Committee has grown to incorporate revamping the Over/Under Rule, modifying unit train sizes in the traded market, and outlining potential coal basis markets in the East and West. In order to efficiently vet issues associated with the various coal initiatives, regional subcommittees were ultimately formed (NAPP, IL Basin, and Other Products). The detailed information below represents a comprehensive review of the regional subcommittees and their respective members, the proposed slate of products including quality specifications, and the current status of final recommendations for each subcommittee.
Standards and the Master Agreement
In 2000 the CTA took a significant step towards contract and product standardization when it rolled out its first Master Coal Purchase and Sales Agreement (MCPSA) template. The document, a collaborative effort of producers, traders, and end-users, sought to eliminate contractual risk and provide performance assurances between counterparties. The 2000 MCPSA was widely circulated and provided a generic roadmap for entities to begin negotiating company specific master agreements.
Although serving as the industry’s most widely circulated bilateral coal contract for more than five years, the 2000 MCPSA was in need of a minor revision to address new physical/financial market issues never contemplated by the original architects. As a result, CTA members received the first draft of a proposed revised Master Agreement at the 2005 Annual Meeting. After receiving initial positive feedback, the CTA Board assigned the project to the OTC Master Agreement Subcommittee, which subsequently was approached by representatives of the Edison Electric Institute’s Drafting Committee. The combined team sought to create one single source document which mirrored the new EEI Coal Annex to the CTA Master Agreement.
Over the course of the next 12 months, the OTC Master Agreement Subcommittee, in conjunction with the EEI Drafting committee, collected countless questions and proceeded to revise the Master Agreement based on diverse issues raised by industry participants. The end document was submitted to the general membership body at the 2006 CTA Annual Business Meeting in New York and ratified.
The CTA will continue to vigilantly provide periodic reviews of new standards for further contract revisions as the market warrants.
2010 Master Coal Purchase and Sale Agreement
Click here for information on this document, which the CTA membership adopted on December 6, 2010.