Getting ready to trade commodities - Q&A Guide
Background... 3 Summary of preparations to trade Commodities... 3 Market Access... 4 Clearing Models... 5 IT... 8 Connectivity... 8 Testing... 8 Trading... 9 Trading hours... 9 Closing prices... 9 Exchange Brokers... 9 Contract specifications... 10 Fees... 12 Rectify Trades and Trade/Position maintenance... 12 Give Ups... 13 Clearing... 14 Exercise of Options and Assignments... 14 Cascading of Power products... 14 Margin... 15 Custodian institution (CI)... 15 Reports / Reconciliation... 16 Settlement involving Payment... 17 EUR... 17 GBP... 17 Delivery... 18 VAT... 18 For further information... 19 Market Access support... 19 IT support... 19 Trading support... 19 Clearing support... 19 2
Background The Clearing House, NASDAQ OMX Stockholm AB is one legal entity consisting of two separate units operating it's clearing services. "NASDAQ OMX Derivatives" clears both equity and fixed income derivatives whilst "NASDAQ OMX Commodities" clears all electricity and emissions related derivatives. As of 05/03/12 there is one rulebook across all markets and existing members of the NASDAQ OMX Derivatives Market have the opportunity to trade and clear commodity products using their current membership. This document sets out the requirements for such members to access the commodities market. Summary of preparations to trade Commodities There are four areas an existing member will need to prepare in order to trade commodities. Below can be found a summary of these requirements. Further details on these areas can be found within the following pages. Market Access To be granted access the following three forms must be completed, signed and returned to Member Services: Request for Access form Settlement form Trader Registration form Further details, page 4 IT Derivatives members will be able to continue using the existing connectivity offered by the Exchange in order to access commodity products. Members will need to submit details of any new users or accounts required. NASDAQ OMX cannot be held responsible for any alterations or development work required by vendors or third parties. Further details, page 8 Trading The trading of commodity products will be handled in a similar manner to existing equity products traded on the Exchange today. Changes are stated within the trading section of this document. These include time limits on give ups and rectified trades as well as time limits on trade cancellations. Further details, page 9 Clearing Clearing of commodity products will be handled in a similar manner as equity derivatives. Custodian banks for example will continue to manage collateral. Changes are again stated within the following pages. These include the processes surrounding GBP denominated products such as the setting up of Sterling accounts and the opening of national registry accounts for the trading of emissions contracts. Further details, page 14 3
Market Access In order to trade commodity products all members are required to complete a series of connectivity tests. Testing will be made available in the Exchange s External Test System. Once this has been completed members are encouraged to prepare for trading within production. To do so the Exchange will require the following documentation: 1. Settlement form 2. Request for Access (only applicable for new users) 3. Trader Registration Settlement form - this is required in order to inform the Exchange of all settlement details necessary to commence trading within the desired market. 1 copy Only required for GCMs and DCMs Required for all markets and currencies Can be acquired from key account managers (KAM) or Member Services. Tel: + 46 8 405 6660 Trader Registration (Exceptions Trader or Trader Registration form) the member informs the Exchange of the traders that shall trade commodities products 1 signed copy with attached document with member firm, traders names, phone numbers, date of birth and email Trader Exception form is received from responsible KAM or Member Services Request for Access Trading Prod for members requiring additional trading users/accounts, 1 copy Request for Access Back Office Prod for members requiring additional Back Office users, 1 copy Request for Access FIX for members wishing to connect using FIX protocol, 1 copy The above mentioned forms can be found on the Member Extranet webpage: http://nordic.nasdaqomxtrader.com/memberextranet/genium_inet/authorizationanduserids/ All of the above forms need to be faxed or emailed to Member Services (memberservices@nasdaqomx.com). All user configurations are handled by Member Services (Stockholm), both for commodities and derivatives members. Once access to the production system has been granted, Members are requested to log in to the system (front end and Clearing Workstation applications) to verify that the setup is correct prior to trading. Members are required to submit contact information for all relevant front and back office staff to the Exchange. The first day of trading commodities must be agreed by both parties. 4
Clearing Models There are 3 membership types available: NCM (Non-clearing Member) DCM (Direct Clearing Member) GCM (General Clearing Member) The different requirements for each membership type can be found within the Rules and Regulations, section 2.2 http://nasdaqomx.com/digitalassets/77/77219_chap_2_111219.pdf and section 3.2 http://nasdaqomx.com/digitalassets/77/77221_chap_3_111219.pdf If an existing member or client cannot meet these requirements they may still access the market as an end client, either using an end client account (indirect or direct pledge) or as a client omnibus account. A short list can be found below explaning the difference between these two structures. Members can opt to use either of these two clearing models or a combination of them both. Member Clearing NASDAQ OMX Derivatives Markets do not maintain a direct relationship with the end client End customer and NCM s pertain the counterparty risk against the Clearing Member (limited for contracts on Segregated Accounts) Sub accounts are available for administrative purposes 5
End Customer Clearing End Customers are required to maintain a direct legal relationship with NASDAQ OMX Derivatives Markets End Customers have limited counterparty risk towards the Clearing Member credit risk remains with NASDAQ OMX Derivatives Markets (and the relevant custodian institution) End Customers are margined separately (at end customer level) with no netting between customers End customer agreements, used for end customer clearing, can be found within the Rules and Regulations, Chapter 5 (Appendices): http://nasdaqomx.com/listingcenter/nordicmarket/rulesandregulations/ Direct pledge client are required to use agreements in sections 2 and 3: Customer Agreement B1 B4 Indirect pledge client shall use agreement in section 2: Customer Agreement A There are no charges by NASDAQ OMX for the opening of end client accounts. Direct pledge and Indirect pledge end clients differ in the following ways: Direct pledge The direct end clients are responsible for opening trading and clearing accounts separately as well as a pledge collateral account held with a custodian institution. These trading and clearing accounts are interconnected. Members may connect several different trading accounts, held by other members, linking them to the same clearing account. All trades held within the clearing account are automatically cleared. The collateral account (cash, securities or both) are directly pledged to NASDAQ OMX. The end client are required to pledge their own capital as per margin requirements. In unlikely event of a default NASDAQ OMX will liaise directly with the client in question. The pledged collateral will be used to cover costs and to close out any open positions. NASDAQ OMX will be responsible for any excess costs not covered by the collateral. Indirect pledge The end client opens up an integrated trading and clearing account. The client has a pledge account towards the Member, and will pledge collateral towards the Member. The Member is not allowed to use this collateral to re-pledge towards NASDAQ OMX, but will have to use its own capital to pledge against NASDAQ OMX. In the event of a default the Exchange will manage the closing out of all positions. The member will be part of this closing process. If the cost involved in the closing is covered by the collateral posted by the client, the Member will be responsible for that cost. One requirement, stipulated by European Market Infrastructure Regulation (EMIR), is to make it mandatory for CCPs to have a membership sponsored default fund. This means that all General Clearing Members and Clearing members trading commodities will be required to contribute to the commodities default fund 6
All end client trading is anonymous to NASDAQ OMX s trading and clearing desk and will only handled by Clearing Control AB, CCAB. Contact details can be found below: Clearing Control AB Blasieholmsgatan 5 111 84 Stockholm Sweden Phone: + 46 8 5626 0720 What account structure does the Exchange provide for commodities products? The default account structure consists of a Daily Account (DA), Interim Account (IA) and House Account (HA). Depending on what kind of clearing model the member wants to use a Omnibus Account (CA) is opened up and/or end client account(s). Sub and segregated accounts can be opened for administration purposes as/where requested. 7
IT Connectivity Is internet connectivity available? Yes, both WebTrade and CW2 (clearing workstation) will be available for existing Derivatives Market members to administer the trading/clearing of commodity products. Where can members find information about the production and test environments? Information on the Genium INET commodities project, downloads, contact details, connectivity details and forms can be found on the Member Extranet webpage: http://nordic.nasdaqomxtrader.com/customerlogin/ User: omse Password: member Which vendors support NASDAQ OMX s commodity products? About 10 ISVs are interested in the commodities market. A comprehensive list will be posted on the Member Extranet page once these ISVs are made public. Can a member write directly to the API? Yes, either by OMNet or using FIX protocols. Testing The test environment is accessed by downloading the latest test version from our member web page: http://nordic.nasdaqomxtrader.com/customerlogin/ Test users and passwords are distributed by Member Services. Tel: +46 8 405 6660 Testing is conducted by members with assistance from Clearing Operations (if requested). Members are advised to test trade reporting, trade reconciliation, position maintenance, account set up, trading, order maintenance, report functionality as well as exercise and assignments. Members should also test to ensure compatibility with internal systems. 8
Trading Trading hours What are the trading hours? Nordic Electricity Contracts are between 8:00 15:30 CET German and Dutch Electricity Contracts between 8:00 17:00 CET Allowance Contracts between 8:00 18:00 CET GBP Contracts between 7:00 17:00 GMT Closing prices Nordic power market Closing prices are fixed at a random time between 15.25 and 15.30 CET. German and Dutch power market Closing prices are fixed at a random time between 15.55 and 16.00 CET. UK power market Closing prices are fixed at a random time between 17.55 and 18.00 CET. Carbon market Closing prices are fixed at a random time between 17.55 and 18.00 CET. Exchange Brokers Members will have the possibility to use the Exchange Brokers for commodities trading in a similar manner as done today for financial derivatives products. 9
Contract specifications NORDIC POWER BASE LOAD Futures: Day, Week PRODUCT Forwards: Month, Quarter, Year, Option, Contract For Difference MIN CONTRACT SIZE 1 MW 1 MW MIN TICKER SIZE 0.01 0.01 CURRENCY EUR EUR REFERENCE PRICE The official Nordic underlying day-ahead price as published by Nord Pool Spot, Monday through Sunday, covering the time period 00.00-24.00 CET. PEAK LOAD Futures: Week Forwards: Month, Quarter, Year The official Nordic underlying day-ahead price as published by Nord Pool Spot, Monday through Friday, covering the time period 08.00-20.00 CET. PRODUCT DUTCH/GERMAN BASE LOAD Futures: Week Forwards: Month, Quarter, Year MIN CONTRACT SIZE 1 MW 1 MW MIN TICKER SIZE 0.01 0.01 CURRENCY EUR EUR REFERENCE PRICE The official German/Dutch underlying day-ahead price as published by EEX/APX ENDEX, Monday through Sunday, covering the time period 00.00-24.00 CET. PEAK LOAD Futures: Week Forwards: Month, Quarter, Year The official German/Dutch underlying day-ahead price as published by EEX/APX ENDEX, Monday through Friday, covering the time period 08.00-20.00 CET. 10
UK POWER (Note! All listings are futures products) BASE LOAD PEAK LOAD PRODUCT Week, Month, Quarter, Season Week, Month, Quarter MIN CONTRACT SIZE 1 MW 1 MW MIN TICKER SIZE 0.01 0.01 CURRENCY GBP GBP REFERENCE PRICE The official UK underlying dayahead price as published by N2EX, Monday through Sunday, covering the time period 23.00-23.00 GMT (00.00-24.00 CET). The official UK underlying day-ahead price as published by N2EX, Monday through Friday, covering the time period 07.00-19.00 GMT (08.00-20.00 CET). EUROPEAN UNION ALLOWANCES (EUA) Spot contracts (day-ahead) Futures contracts for 2010-2014 Quarterly option contracts for the nearest two years PRODUCT Forward contracts for 2010-2014 (Note that the Exchange also lists for trading spread, strips and swap combinations for the above mentioned spot, futures and forward contracts) MIN CONTRACT SIZE 1 000 tco2 = 1 lot MIN TICKER SIZE 0.01 CURRENCY EUR CERTIFIED EMISSION REDUCTIONS (CER) Spot contracts (day-ahead) Futures contracts for 2010-2012 Quarterly option contracts for the nearest two years PRODUCT Forward contracts for 2010-2012 (Note that the Exchange also lists for trading spread, strips and swap combinations for the above mentioned spot, futures and forward contracts) MIN CONTRACT SIZE 1 000 tco2 = 1 lot MIN TICKER SIZE 0.01 CURRENCY EUR 11
Fees Please find the link below to the Commodities fee structure: http://nasdaqomx.com/digitalassets/76/76088_jointappendix720111003.pdf Rectify Trades and Trade/Position maintenance What are, if any, the rules for position maintenance at the Exchange / Clearing House? Re-registration rules can be found within the Clearing Regulations. In general positions can be transferred between all accounts T+2. After T+2 restrictions are applied on position transfers between house and client accounts. What are the rules for allocations? All allocations should be made between the Daily Account and relevant specific accounts (house, client, omnibus or sub accounts). Any trades not allocated will by default be transferred when Genium INETClearing Workstation closes at 19.20 CET to a Reject Account. Trades within the Reject Account will be cleared there, however if they are moved any settlement will be reverted. Exercise and Assignments can occur within the Reject account. Members will also need to pledge collateral for any trades held within the Reject Account. How does the Exchange confirm executed trades? Once an order is executed a trade confirmation is send out via the OMNet broadcasts (BD6). This confirmation is viewed as a ticker within the trading system as well as within the Genium INET clearing workstation Trade History. How does the Exchange confirm cleared trades? As soon as a trade is registered in Genium INET it is considered as cleared, i.e. the BD6 is as such a clearing confirmation. Both trade history and account positions are updated in real time. Cleared trades can also be viewed in reports created after night batches. What, if any time delays exist in the reporting of cleared trades? The members should use their electronic system to report trades, however Trading Operations team is available for manual trade reporting and they will enter the reported trades into the trading system as soon as possible. If the trade is done as an interbank it will be matched when all counterparties have confirmed the deal. Can the Exchange provide Members with intra-day confirmations of cleared trades? The OMnet API sends the BD6 in real time. The Trade History and Account Position windows in Genium INET Clearing Workstation are both updated in real time during the systems opening hours. 12
Give Ups Give Ups are done manually in the Genium INET Clearing Workstation application. The give up member places the trade in a holding state and the take up member needs to approve. If a member does not take up the trade during the day, the member needs to manually give up the trade the next day. A give up can be performed until T+2. 13
Clearing Exercise of Options and Assignments How does the Exchange process client exercise & assignment instructions? When an exercise has been entered into the system a random batch will choose who will be assigned. All exercises/assignments can be seen in the Exercise History window in Genium INET clearing workstation from 14.00 CET on the day of the Exercise. Reports are also created, and can be viewed the day after the exercise/assignment occurred. All the above information and more are also available through the OMnet API. How do members perform/carry out client exercise & assignment instructions? What are the rules in regards to deadlines? To deny automatic exercise or to request the exercise of options not automatically exercised, a fax or email instructions must be sent to Derivatives Market Clearing Operations. This must be recieved before 12.30 CET on the Expiration day. A member may also perform an exercise (or deny exercise) directly in the system. On Expiration Power Options 0.05 EUR ITM and Carbon Options 0.01 EUR ITM are automatically exercised unless otherwise specified by the member. How are contracts settled? All exercised Power Options are automatically converted into the underlying Forward whilst Carbon Options are converted into to the underlying Future respectively. Cascading of Power products All yearly and quarterly Power contracts are automatically cascaded. The value of the cascaded contracts at the point of cascading is the year contract s value. After the cascading day, the new contracts will follow the closing price of each separate product. For detailed information regarding cascading dates please see the NASDAQ OMX Commodities product specifications: http://www.nasdaqomxcommodities.com/trading/productspecification/cascading/ 14
Margin How are margins calculated? Calculations for commodity products will be performed using the same methodology as NASDAQ OMX Commodities. Risk parameters used in the margin calculations can be found in appendix 11 of the Rules & Regulations of NASDAQ OMX Derivatives Markets. What are the margin requirements i.e. initial, variation, intraday etc? Both initial and variation margin are used by the Clearing House. The initial margin is calculated by using the risk parameters of each underlying product. The variation margin corresponds to the daily mark-to market settlement figure. The pledged collateral should amount to at least the initial margin required, except on expiry when the variation margin, i.e. the final mark-to-market settlement amount is included in the total margin requirement. Custodian institution (CI) Custodian institutions are required, and in time the netting of collateral between equity derivatives and commodities derivatives will be possible. How is collateral pledged? Members of the Clearing House are required to pledge collateral with an approved custodian institution (a bank) as Security for the members' obligations for registered derivatives contracts in the case of default. The end-of day margin calculations are used to determine the amount of collateral to be pledged to the custodian institution. An approved custodian institution holds the collateral on behalf of the Clearing House and confirms that required net values of eligible collateral have been pledged to the Clearing House. At what times are the various margin calls made? The margin requirements are available to members and custodian institutions not later than 08:00 am CET on each banking day (NASDAQ OMX Derivatives Markets Rules & Regulations 3.7.23). Members and direct pledging customers are required to pledge collateral to the custodian institution before 11am CET each day (NASDAQ OMX Derivatives Markets Rules & Regulation 3.7.28). In turn custodian institutions are required to confirm with the Clearing House before 12 noon CET each day that the daily margin requirements referenced by the Clearing House have been met through the pledging of collateral for the respective member and direct-pledging customer (NASDAQ OMX Derivatives Markets Rules & Regulations 3.7.29). How does intraday margin calls work? The Clearing House has the authority to calculate and require intraday margins as a means of maintaining a desired level of margin coverage if it determines that such intraday margin calls are necessary. The Rules and Regulations of NASDAQ OMX Derivatives Markets stipulate that the new Margin Requirement will enter into force no earlier than 90 minutes after the Clearing House has notified the Clearing Member. The purpose behind the 90-minute provision is to permit the affected counterparties to comply by pledging the new margin call amount or alternatively to trade out of positions to a point that an appropriate level of risk exposure relative to already pledged margin can be achieved to help mitigate the risk of counterparty default. 15
We have been asked to place more collateral due to increased margin calls how is that done? How the actual payments are made is up to the custodian institution to inform the members of, as all collateral is held at the custodian institution, and not with NASDAQ OMX. Can a clearing member have more than one pledge account with a custodian institution? Yes. For administrative purposes members can e.g. have one cash account representing client margins and one cash account for house margins. However, in case of default by the clearing member all pledged accounts covered by the member's pledge will be handled in the same way, i.e. the Clearing House may have recourse to the collateral provided by the member in order to cover all of the member's undertakings (including the member's customers) in the clearing. What collateral can be accepted? See Appendix 12 of the Collateral List and Appendix 12a of the Collateral Restrictions. What interest will members earn on cash pledged as collateral? A custodian institution holds the member s collateral on behalf of the Clearing House. The member does not send any collateral to the Clearing House; please refer to the custodian institution. Are the margin requirement at NASDAQ OMX Derivatives Markets different from those at NASDAQ OMX Commodities? Yes, NASDAQ OMX Derivatives Markets does not require a base margin. All other margin requirements will be identical. Can the Exchange provide examples of statements including: Cash balances No. Since we don t hold the pledged securities we don t have that information. Long / short positions Yes. This is provided on reports and through the API Monthly interest No. This is not applicable as we do not hold the collateral. Reports / Reconciliation How are the reports distributed? All reports provided by the Exchange and Clearing House can be found in the Genium INET Clearing Workstation application. The reports are found under the Clearing menu in Genium INET. In what format does the Exchange confirm trades, open positions, margin calls etc? Reports are created in pdf and xls formats. All the above information and more are also available through the OMnet API and can be retrieved through interface files. 16
Settlement involving Payment All settlement payments (fees, premiums and daily future payments) are executed separately for each currency. Members must have a settlement account for each currency traded. All payments (equity, electricity and carbon emission related derivatives) in the same currency are netted into one single payment at NASDAQ OMX Derivatives Market. The Commodities Market offers both EUR and GBP cleared/settled products. The payment processes for these currencies are explained below. EUR NASDAQ OMX Derivatives Market offers the same payment structure as used today for the Finnish Equity Derivatives Market (see payment details below): Bank: SEB Finland ESSEFIHX Account: 3301-0001201748 IBAN: FI9433010001201748 Beneficiary: OMECSESS Members are able to continue to use their existing set up with the settlement bank account they currently use for Derivatives Market payments. If a new settlement bank is selected members must inform the NASDAQ OMX Derivatives Market of their settlement details by completing and submitting a Settlement Form. The settlement bank must be a local bank in Finland, in order for NASDAQ OMX Derivatives Market to assure same day value payments. Note: The settlement of EUR for the Finnish Equity Derivatives Market is according to Finnish Banking Days. The settlement of EUR for the Commodities Market is according to Norwegian Banking Days. If a member clears and settles trades on both markets they will have to obide by the settlement obligations on both Finnish and Norwegian Banking Days. GBP NASDAQ OMX Derivatives Market has appointed Nordea Finland London bransch as Settlement Bank in GBP. Swift code is NDEAGB2L. Bank: NORDEA Bank Finland London Branch NDEAGB2L Account: 0044521303 IBAN: GB98NDEA40487844521303 Beneficiary: OMECSESS NASDAQ OMX Derivatives Market will automatically debit and credit members accounts within the chosen Settlement Bank through standard swift messages, in accordance with Power of Attorneys that will be issued by members. The set up is a step within the project of implementing a Collateral Management Service. Members need to inform NASDAQ OMX Derivatives Market of their settlement details by sending in a Settlement Form. Power of Attorneys will also be needed in order for NASDAQ OMX Derivatives Market to automatically debit and credit members accounts within the chosen Settlement Bank. 17
NASDAQ OMX Derivatives Market will initially only contract one Settlement Bank. If the Member wish to use another Settlement Bank, NASDAQ OMX Derivatives Market cannot promise the go-live date of the 5th of Mars. If another Settlement Bank will be used an evaluation of the member s Settlement Bank will be initiated, since the Settlement Banks needs to fulfill NASDAQ OMX Derivatives Markets Settlement Bank requirements (the list of the requirements may be sent to the Member upon request). The evaluation of the Settlement Bank will include SWIFT testing and discussions between the Settlement Bank and NASDAQ OMX Derivatives Markets to assure the Settlement Bank fulfills the requirements. Delivery The Clearing House organises settlement and delivery of allowance as a central counterparty. EUA/CER deliveries will be made into the Clearing House s account at a national registry. Members trading allowances (EUA/CER) must have an account within a national registry and inform NASDAQ OMX Derivatives Market of their settlement details by including these on a submitted Settlement Form. VAT Members trading and clearing EUA/CER contracts will be liable for VAT. All members are responsible for any and all VAT payments. 18
For further information For questions please contact respective department, see contact details below: Market Access support Department: Member Services (user setup and maintenance in test and production environments, account set up, FIX ports) Telephone: + 46 8 405 66 60 E-mail: memberservices@nasdaqomx.com Support hours: 8:30 17:30 CET IT support Department: First line support (to contact if technical issues or questions) Telephone: +46 8 405 67 50 E-mail: technicalsupport@nasdaqomx.com Support hours: 24-7 Trading support Department: Listing and Trading Operations (listing and trading questions) Telephone: +46 8 405 73 60 E-mail: tradingoperations@nasdaqomx.com Support hours: 08.00 18.00 CET Clearing support Department: Clearing Operations (clearing questions) Telephone: + 46 8 405 68 80 E-mail: derivatives@nasdaqomx.com Support hours: 07.00 19.30 CET Sales Department: Commodities Sales E-mail: salescommodities@nasdaqomx.com 19