Belpex clearing & settlement January Albert Vreeman Business Development Manager

Transcription

1 Belpex clearing & settlement January 2008 Albert Vreeman Business Development Manager

2 Background Recognition: Belpex introduces new market segments: continuous dayahead and intra-day Efficient solution required. Continuous day-ahead market introduces new type of risk, requiring margining to be applied. Traditional close-out mechanism not supported: close-out issue Continuous intra-day market requires changes to the invoicing cycle (scope). Modification of ARP contract removes delivery risk Belpex is exposed to.

3 Close-out issue Restricted to buying Participants not meeting requirements Typical close-out out mechanism assumes CCP to take title to delivery obligations: CCP to own the electricity CCP to offset defaulter s physical position in the market place i.e. find a replacement buyer CCP to incur damages as a result of market prices having moved away from original contract price CCP to recover damages (in whole or in part) from margins deposited by defaulter. Issues: In respect of the Belpex market, APX does not take title to deliveries; it only receives financial obligations, whereas delivery obligations reside with Participants and Belpex. When taking title to delivery obligations, APX would require a supplier license under Belgian law, for which APX (or a party similar to it) does not qualify.

4 Close-out mechanism in PA CSS Each Participant mandates APX to: offset its physical position in the market place, if it were to default. to recover damages (in whole or in part) from margins and any other collateral deposited by it, if it were to default. APX: Warrants to selling Participants, that they will receive the original contract price (APX takes losses in case of only partial recovery of damages = consistent with prevailing clearing capital structure) Title to the contract remains with the original buyer Close-out out on behalf of defaulting buyer Close-out out for risk and account of defaulting buyer Seller guaranteed to receive original contract price, APX to compensate for losses if collateral was insufficient

5 ARP contract amendment Removes Belpex s exposure to delivery risk in respect of selling Participants ARP Perimeter Fee mechanism no longer required Reduces Variation Collateral requirement for net selling Participants

6 Changes to PA CSS Belpex Day Ahead Market renamed to Belpex Spot Market Three market segments: DAM, CoDAM and CIM. Definitions updated accordingly. Initial and Variation Margining introduced Applies to CoDAM Instruments. Inclusion of a system whereby: APX is mandated by Participant CSS to close-out positions in case it is a buyer and defaults. APX warrants that sellers receive original contract price. Modification of the Variation Collateral requirement Recognizing removal of Belpex s exposure to delivery risk. Maintaining net sellers to contribute to Collective Fund, but removing the Individual Variation Collateral. Removal of the ARP Perimeter Fee mechanism Recognizing removal of Belpex s exposure to delivery risk.

7 Variation Collateral requirement For net selling Participants (IFM+CFM) times (the avg. of 28 days of daily sales plus 7 times the standard deviation on those net sales) Where: IFM = Individual Fund Multiplier = 0 CFM = Collective Fund Multiplier = 1 And: The Variation Collateral requirement is complemented with Unrealized Settlement amounts and Initial +/- Variation Margins (if positions in CoDAM Instruments are held).

8 Variation Collateral requirement For net buying Participants (IFM+CFM) times (the avg. of 28 days of daily purchases plus 7 times the standard deviation on those net purchases) Where: IFM = Individual Fund Multiplier = 1 CFM = Collective Fund Multiplier = 1 And: The Variation Collateral requirement is complemented with Unrealized Settlement amounts and Initial +/- Variation Margins (if positions in CoDAM Instruments are held).

9 Questions?

10 A VITAL LINK IN ENERGY TRADING

11 Settlement Brussels January 2008

12 Introduction Settlement process overview Changes to the settlement process

13 Settlement process overview Delivery Delivery assumed through notification by ARP s of net deliverable positions to Elia under existing arrangements (ARP) Daily settlement To lock-in payments due, settled against collateral Unrealized settlement amounts created upon contract expiry (D/C) Reconciliation against preliminary invoices/self-bills facilitated Identical to DAM procedures Weekly settlement Weekly settlement Final invoices and self-bills issued on Tuesday following 12:00 Payments to be made by Wednesday before 7:00 Monthly reconciliation of self-bills Identical to DAM procedures

14 Daily settlement process

15 Weekly settlement process

16 Weekly settlement process

17 Monthly reconciliation process

18 Changes to settlement process Day-Ahead Spot Market (DAM) Change of invoicing/self-bill scope from Wed-Tue deliveries to Tue-Mon deliveries Invoice/self-bill date will be Monday, available on Tuesday consistent with today s timings No further changes (operational timings remain the same). Continuous Intra-Day Market (CIM) New, but not different from DAM. Last Instrument on invoice/self-bill relates to delivery Monday H24 Continuous Day-Ahead Market (CoDAM( CoDAM) New, but not different from DAM. Single invoice/self-bill for all market segments 6 lines each, separating energy and fees per market segment

19 Collateral and Margining Brussels January 2008

20 Collateralization Day-Ahead Spot Market No changes, except for those related to ARP contract amendment. Continuous Intra-Day Market Contracts attract Unrealized Settlement amounts (D/C) Orders require full Collateral coverage prior to entering Open Orders reduce Participant s remainder Collateral (Accrued Orders) Unrealized Settlements disappear following receipt of payment as part of weekly settlement. Continuous Day-Ahead Market Contracts attract Margins when Instruments are still open for trading. Margins replaced by Unrealized Settlement amounts following Instrument expiry. Unrealized Settlements disappear following receipt of payment as part of weekly settlement.

21 Margining Initial Margin Assumes the value at-risk when closing-out of a defaulting Participant s position Based on net buy position (BP) or net sell position (SP) in Initial Margin = ( BP * longx ) + ( SP * shortx ). Variation margin Accrued profit or loss (P/L) on Contracts in Instrument that have not yet expired. Contracts valued against last (reference) price at least once per day. Difference between last price and transacted price. P/L collateralized, not settled. Sum of P s and L s = Variation Margin (net debit or credit) Margin requirement Margin requirement Initial Margin +/- Variation Margin (if any).

22 Transaction cycle

23 Margin parameters Subject to frequent evaluation of adequacy No reliable historic prices available today Over time, markets may proof not to behave symmetric, hence potentially different parameters for buy and sell positions Can be changed by giving notice Initial margin parameters linked to Liquidity Class Level to which positions are offset (netted) before calculating the Initial Margin. Limited set of Instruments reduces offset opportunities, which will increase when more Instruments are introduced. Initial margin parameters will be: Applied to net buy positions Base: 35% (offset between Base Day and Base WkEnd) Peak: 57% Off-peak: 30%

24 Margin calculation steps Determining gross positions by Instrument (price * qty = ) Determining BP or SP in by Instrument (netting) Determining BP or SP by Liquidity Class (netting) Determining the Liquidation Risk: BP * applicable parameter SP * applicable parameter Sum of the before = Liquidation Risk Calculating the P/L by Instrument position Sum of P s P s and L s L s = Variation Margin (net debit or credit) Margin Requirement = Liquidation Risk +/- Variation Margin

25 Questions?

26 Belpex CSM in EuroLight January 2008 Albert Vreeman Business Development Manager

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28 Enter limit order

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30 Modify limit order

31 Modify limit order

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33 View detailed Order status history

34 Mass entry of Orders: Task List

35 Hold orders

36 have a cup of coffee

37 and release Orders again

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39 View Contracts concluded

40 Identify cancelled (and offsetting) Contracts A B A B