Seminar organized by XM Compañía de Expertos en Mercados ... · Börse ECC Payments (e.g....

Seminar organized by XM Compañía de Expertos en Mercados

Medellín, May 18th, 2012

About ECC

1st September: Spin-off of the EEX clearing department to the European Commodity Clearing AGLaunch of clearing services for theDutch Energy Derivatives Exchange (now: APX-ENDEX)

2006

2005Launch of clearing services for the French Energy Exchange Powernext2008

2

2010

20062006

2009

2008European Commodity Clearing Luxembourg S.à.r.l.

2009Start of clearing services for newly launched energy exchanges:France: EPEX Spot SEand Austria: CEGH Gas Exchange1st October: Integration of Luxembourg-based subsidiary into delivery chain; Establishment of ECC Lux as agent for deliveries

2010Start of clearing services (Spot) for Hungarian Power ExchangeHUPX.

In July 2011 launch of HUPX Futures Market.2011

Belgian Power FuturesDutch Power FuturesDutch (TTF) Natural Gas FuturesUK Power Futures

Phelix Futures & Options German Power FuturesFrench Power Futures

EUA FuturesCER FuturesEUA Options

Overview: Partners and Products

French Natural Gas(Spot & Derivatives)

Coal FuturesAPI 4 (RB, South Africa)2

German Power SpotFrench Power SpotAustrian Power SpotSwiss Power Spot

French Power FuturesGerman Natural Gas (Spot & Der.)Coal Futures API 2 (ARA)2

Dutch (TTF) Natural Gas Spot

Hungarian Power Spot

Hungarian Power Derivatives

Austrian Gas (Spot & Derivatives)

2 API 2 and API 4 are used under license from Argus Media Limited/The McCloskey Group Limited.All copyrights and database rights in the API 2 and API 4 indices belong exclusively to Argus Media Limited/The McCloskey Group Limited. All rights reserved.

3

3

3

6

5

16

30

16 clearing members272 non-clearing members21 countries

Overview: Members

21

5

8

16

18

3

41828

4

86 7

1

1

2

12

4

Overview:Transmission System Operators and Registries

5

Trading ParticipantTrading Participant

Clearing LicenseClearing License Balancing Group Agreement

Balancing Group Agreement

Exchange LicenseExchange License

Safe Business:Straight Trough Processing

6

(Clearing Member)

Settlement: Central Bank orcommercial money / CSD

6

As a central counterparty, ECCassumes the role of a marketparticipant in the grid of theTransmission System Operators.Physical Settlement is provided byECC Lux which has concluded abalancing area agreement with allmajor European TSOs.

Safe Business:Physical Settlement as core service

7 7

major European TSOs.

Trading participants opting forphysical settlement need abalancing area agreement with therelevant TSO. Alternatively, a third-party agreement permitting accessto a balancing area can beconcluded.

ECC has final liability.

All CM have joint liability.

ECC equity

Replenishment clearing fund

Clearing fund contribution - rest

Safe Business: Lines of Defense

ECC has joint liability.

CM is liable.

ECC clearing fund contribution

CM clearing fund contribution

Margin requirement

Variation Margin/Intraday Cashcall

CM is liable for NCM

Minimum requirement for CM

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Safe Business:Regulation

9

Services:Main Services at a glance

INTERFACE SERVICES• Capture and confirmation of transactions• Capture and checks of settlement prices• STP Interfaces for registration and clients• EUREX System as clearing system with

world wide connectivity• Interface to transmission capacity owners

and transmission system operators

SETTLEMENT SERVICES• Mark-to-market evaluation of open positions• Expiry of derivatives positions• Deliveries: physical (on behalf) and financial

deliveries (currently USD, GBP and EUR)• 24x7 procedures for intraday Markets.• Clearing services for spot market coupling • Payments: central bank & settlement agentand transmission system operators

TRADE AND POSITION MANAGEMENT SERVICES• Give-Up/Take-Up, trade modification,

account transfers and positions transfers• Updating real-time or during batch-

processing: new transactions, trade and position adjustments, expiries and cascading of derivatives.

• Payments: central bank & settlement agent

RISK MANAGEMENT / OTHER SERVICES• Risk Management services (e.g. margining)• Collateral Management (e.g. haircuts,

maintenance)• Intraday and end-of-day reporting • admission of participants (incl. KYC)• Clearing Helpdesk 24x7• Invoicing services on behalf of the partner

exchange• Fee settlement services (exchange/clearing

fees)

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Börse

ECC

Pay

men

ts(e

.g. V

aria

tion

Mar

gin)

Exchanges

ECC takes over transactions ofthe exchanges

CM depositsown collateral

Der

ivat

ives

sec2

Börse

ECC

Exchanges

sec

Der

ivat

ives CM

depositsNCM‘s

Pay

men

ts

(e.g

. Var

iatio

nM

argi

n)

ECC takes over transactions of the exchanges

Risk Management Collateral Pass-Through, Segregation, Portability

CM

NCM

Pay

men

ts(e

.g. V

aria

tion

Mar

gin)

sec1

NCM depositsown collateral

Der

ivat

ives

Der

ivat

ives

sec2

sec1

Pay

men

ts(e

.g. V

aria

tion

Mar

gin)

Forwarding of collateral reduces the clearing member‘s costs of liquidity.In this process, the forwarded collateral is protected.

CM

NCM

Der

ivat

ives

Der

ivat

ives

NCM‘s collateral

CMpledges collateral withsubordinate priorityN

CM

dep

osits

co

llate

ral

sec

sec

Pay

men

ts

(e.g

. Var

iatio

nM

argi

n)

Pay

men

ts

(e.g

. Var

iatio

nM

argi

n)

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0

200,000

400,000

600,000Daily flow of money / Variation Margin [€]

Example portfolio:

25 MW saleFrench Power

Risk ManagementPayment Netting

-600,000

-400,000

-200,000

0

Jan Feb Mar Apr May Jun Jul

Baseload Year

25 MW purchase German Power Baseload Year

Separate clearing

Integrated clearing

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Payment Netting reduces the need for Liquidity and the amount of Risk incurred through timing incongruences for Clearing Members but also for ECC.

This allows ECC to also collect Margins for Spot Energy with Cross Margining.

German

Power

French

Power

Belgian

Power

Dutch

Power

UK

Power

Hungarian

PowerEmissions

Gas NCG

Gaspool

Gas

TTF

Gas

France

Gas

NBP

Gas

CEGHCoal

German

Power

54% 40% 52% 45% 44% 31% 42% 40% 42% 39% 37% 37% 32%(100%) (74%) (71%) (80%) (57%) (68%) (51%) (57%) (60%) (58%) (49%) (43%) (51%)100% 74% 76% 83% 57% 68% 53% 57% 60% 58% 51% 43% 51%

French

Power

40% 39% 47% 38% 37% 27% 32% 32% 32% 35% 32% 34% 30%(74%) (100%) (68%) (72%) (54%) (57%) (48%) (55%) (57%) (55%) (45%) (42%) (47%)74% 100% 75% 72% 54% 57% 51% 55% 57% 55% 47% 42% 48%

Belgian

Power

52% 47% 54% 53% 38% 37% 38% 39% 42% 41% 36% 38% 33%(71%) (68%) (100%) (72%) (54%) (63%) (47%) (56%) (58%) (55%) (43%) (44%) (45%)76% 75% 100% 77% 54% 63% 50% 56% 58% 55% 46% 44% 47%

Dutch Power45% 38% 53% 53% 41% 32% 39% 38% 35% 38% 35% 36% 32%

(80%) (72%) (72%) (100%) (57%) (65%) (50%) (57%) (61%) (58%) (49%) (44%) (46%)83% 72% 77% 100% 57% 65% 52% 57% 61% 58% 49% 44% 48%

UK Power44% 37% 38% 41% 57% 30% 46% 51% 59% 52% 52% 43% 34%

(57%) (54%) (54%) (57%) (100%) (49%) (46%) (62%) (67%) (74%) (63%) (49%) (52%)

X-MarginingCross Margin Savings Overview*

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UK Power57% 54% 54% 57% 100% 49% 46% 67% 74% 74% 68% 53% 52%

Hungarian

Power

31% 27% 37% 32% 30% 26% 31% 29% 29% 24% 24% 31% 25%(68%) (57%) (63%) (65%) (49%) (100%) (45%) (49%) (52%) (51%) (37%) (46%) (43%)68% 57% 63% 65% 49% 100% 47% 50% 52% 51% 39% 46% 44%

Emissions42% 32% 38% 39% 46% 31% 73% 37% 41% 43% 43% 33% 38%

(51%) (48%) (47%) (50%) (46%) (45%) (100%) (44%) (45%) (43%) (46%) (33%) (40%)53% 51% 50% 52% 46% 47% 100% 46% 45% 43% 47% 33% 40%

Gas NCG

Gaspool

40% 32% 39% 38% 51% 29% 37% 52% 51% 54% 49% 45% 29%(57%) (55%) (56%) (57%) (62%) (49%) (44%) (100%) (75%) (70%) (63%) (47%) (47%)57% 55% 56% 57% 67% 50% 46% 100% 80% 78% 65% 56% 47%

Gas TTF42% 32% 42% 35% 59% 29% 41% 51% 69% 58% 57% 49% 30%

(60%) (57%) (58%) (61%) (67%) (52%) (45%) (75%) (100%) (76%) (63%) (49%) (48%)60% 57% 58% 61% 74% 52% 45% 80% 100% 84% 66% 60% 48%

Gas France39% 35% 41% 38% 52% 24% 43% 54% 58% 56% 49% 48% 30%

(58%) (55%) (55%) (58%) (74%) (51%) (43%) (70%) (76%) (100%) (61%) (51%) (48%)58% 55% 55% 58% 74% 51% 43% 78% 84% 100% 65% 60% 48%

Gas NBP37% 32% 36% 35% 52% 24% 43% 49% 57% 49% 71% 31% 33%

(49%) (45%) (43%) (49%) (63%) (37%) (46%) (63%) (63%) (61%) (100%) (38%) (49%)51% 47% 46% 49% 68% 39% 47% 65% 66% 65% 100% 46% 53%

Gas CEGH37% 34% 38% 36% 43% 31% 33% 45% 49% 48% 31% 61% 27%

(43%) (42%) (44%) (44%) (49%) (46%) (33%) (47%) (49%) (51%) (38%) (100%) (35%)43% 42% 44% 44% 53% 46% 33% 56% 60% 60% 46% 100% 35%

Coal32% 30% 33% 32% 34% 25% 38% 29% 30% 30% 33% 27% 57%

(51%) (47%) (45%) (46%) (52%) (43%) (40%) (47%) (48%) (48%) (49%) (35%) (100%)51% 48% 47% 48% 52% 44% 40% 47% 48% 48% 53% 35% 100%

* First 3 maturities; first 2 maturities for Power UK; only spreads for the same load profile (base, peak, offpeak) and delivery periods (month, quearter etc.)In brackets the benchmark front year is shown; for UK Power and PEG Nord front season; for power baseload profile

Phelix Base 2013 vs. Emissions December 2012(Positions according inverse ratio of marginparameter)

Phelix Base 2013 vs. NCG Gas 2013(Positions according inverse ratio of marginparameter)

Current Margin: Doubled overall margin due to emissions position

X-Margining: Overall margin requirement descreased by just 2%, which meanssavings of 45%.100 98

100

0

50

100

150

200

Current Margin X-Margining

200

- 51%

- 57%

X-MarginingCross Margin Savings Examples

(Positions according inverse ratio of marginparameter)

Phelix Base 2013 vs. Coal API # 2 2013(Positions according inverse ratio of marginparameter)

Current Margin: Doubled overall margin due to gas position

X-Margining: Overall margin requirement decreased by 14%, which meanssavings of 57%

Current Margin: Doubled overall margin due to coal position

X-Margining: Overall margin requirement decreased by 2%, which meanssavings of 51%

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100 86

100

0

50

100

150

Current Margin X-Margining

100 98

100

0

50

100

150

200

Current Margin X-Margining

- 57%

- 51%

Example position: + 10 Future German Baseload Front Year vs. - 16 Future German Gas Front Year

Total margin€ 476k (separate)

€239k

-60%

Gas

Services: Cross Asset / Cross Exchange margining

€ 191k (integrated):

Savings = -60% (of the total margin)€237 k

€191k

Separate Integrated

Power

ECC uses SPAN® for cross commodity and cross exchange margining.ECCs Implementation optimizes energy related offset capabilities

'SPAN®' is a registered trademark of Chicago Mercantile Exchange Inc. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN® by any person or entity."

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Spot Market Settlement System

Spothandels-systeme

Spothandels-systemeSpot Market

Spothandels-systeme

Spothandels-systemeFutures Market

EUREX

Trading

expiredfutures

Member InterfaceOverview

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Spot Market Settlement System

TSO TARGET2 account

Spot Clearing GUI ECC GUI

EUREX

Futures Clearing GUI

Clearing

cash

futures

ReportsReports

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• Possibility to subscribe reports

• Existing report subscription can be edited or deleted

• Registered Member Area user can choose between different report combinations

Member Interface: ECC Member Area Report subspription

VERTRAULICH / CONFIDENTIAL

report combinations

• Report types: Trade, Payment, Delivery, Invoice

• Report scope: Summary, Detail

• Report format: XML, PDF

• Report frequency: daily, monthly

• Report channel: FTP, e-mail

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Internal Delivery Account

Member Interface: ECC Member AreaInternal Delivery Accounts Emissions

VERTRAULICH / CONFIDENTIAL

Export as XML/PDF

Delivery Account Balance

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• Registry Transfer Requests have to be approved by 4-eyes-principle

• Beneficiary registry account can be chosen by the participant itself

Member Interface: ECC Member Area Registry transfer request

VERTRAULICH / CONFIDENTIAL

Entry of Registry Transfer Requests

• Transfers from primary to secondary market accounts are possible by entering ECC’s DEHStaccount as beneficiary account

• Delivery date has to be at least one day in the future

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• Licence to provide banking services (bank licence) by the respective local regulator

• Liable equity capital of EUR 30 mio. for GCMs / EUR 7.5 mio. for DCMs

• TARGET2 account (own or third party account)

MembershipRequirements for GCMs and DCMs

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• Pledged collateral account with Clearstream Banking or Sega Intersettle for depositing collaterals

• Technical connection to the ECC clearing systems (EUREX/SMSS)

• Adequate back office technology and qualified staff

• Contribution to the ECC Clearing Fund (EUR 3.0 mio. for GCM / EUR 0.5 mio. for DCMs)

VERTRAULICH / CONFIDENTIAL20

The following requirements are necessary for admission as NCM by ECC:

•conclusion of a corresponding NCM Agreement with the co-operating Clearing Member and ECC

MembershipRequirements for NCMs

•the clearing license of the Clearing Member co-operating with said Non-Clearing Member has to comprise the products concerned

•in case of physical delivery, the conclusion of a balance group agreement with the respective TSO is required

•admission as an exchange participant at the market, where the respectiveproducts are traded

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Fees for Clearing Members:

• Annual fee of ECC (12.500,- €)

• Technical connection fee to EUREX system (to be discussed)

• Fees for collateral account with Clearstream Banking

• No fees transaction based fees etc.

MembershipFees

• No fees transaction based fees etc.

Fees for Trading Participants:

• ECC will charge from Trading Participants a clearing fee (e.g. 1 ct/MWh for power deliveries)

• No annual fees etc.

22VERTRAULICH / CONFIDENTIAL22