Day 1 gains/losses

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Jonny
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Joined: 22 May 2020, 11:09

Day 1 gains/losses

Post by Jonny »

As you know IFRS 9 limits the possibility of immediate recognition of so-called ‘day 1 gains/losses’ to financial instruments with a quoted market price or with fair value based on a valuation technique that uses only data from observable markets (Level 1).

In our case a 12-year financial instrument is quoted with a mix of:
market prices, for products for which there is liquidity (8 years) plus settlement prices processed by the stoke market for products not yet traded, but for which stock market still offers a reference price (for 4 years).

Is financial instruments quoted as Level 1? Can the gain be recognized immediately?

Thanks
pub_acco
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Joined: 19 Mar 2020, 16:40

Re: Day 1 gains/losses

Post by pub_acco »

Sounds like a complex instrument and I don't even understand the cash flows of that. But first of all, a level 1 input must be a quote of identical asset in active markets. Is your instrument traded in an active market?
Jonny
Posts: 90
Joined: 22 May 2020, 11:09

Re: Day 1 gains/losses

Post by Jonny »

thanks

the financial instrument is a pure financial arrangement between a electricity generator and a customer, that enables both parties to hedge against electricity market price volatility in a market liquid only for the first 8 years.

Hope helps
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Marek Muc
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Re: Day 1 gains/losses

Post by Marek Muc »

I guess you can't buy identical contract on an active market, so the answer to your question is: no
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