Settlement Pricing Procedure

Transcription

1 Settlement Pricing Procedure The English version is for informal use only. Only the german version is legally binding Leipzig Version 5.01

2 1. Table of Contents 1. Table of Contents 2 2. Preliminary Remarks 3 3. Settlement Prices for Futures, Options and Spot Instruments Definition of Product-Specific Parameters Calculation of Theoretical Settlement Prices Market Plausibility Check 8 4. Product-Specific Rules and Parameters for the Determination of Settlement Prices Settlement of financial Power Futures Settlement of Cap and Floor Futures Settlement of Windpower Futures Settlement of Futures and Spot Instruments on Emission Allowances Settlement of Coal Futures Settlement of Freight and Iron Ore Futures Settlement of Options on Power Futures Settlement of Options on EUA Dec Futures Settlement of Options on Freight Futures Settlement of Futures on Agricultural Products Settlement of financial Wood Pellets Futures 20 Settlement Pricing Procedure Page 2

3 2. Preliminary Remarks For clearing procedures, especially for the calculation of each customer s variation margin, and furthermore as information about contract s values at the end of the day, a settlement price is established for each individual contract traded continuously or eligible for Trade Registration on the EEX Derivatives and Spot Markets. Settlement prices are determined on every exchange trading day (daily settlement) in direct responsibility of the Market Operations department. This document describes the guidelines Market Operations follows to determine settlement prices. Basically, settlement prices are determined by using own market data (not necessarily within the same market segment) within the respective settlement window (defined on product level). If no market data is available or the market plausibility check (3.3) makes it necessary, additional prices sources (such as the chief trader procedure, data from index providers or other market places) are used for settlement price determination. This approach is also used to calculate certain indices. The exact calculation rules for these indices are specified in separate index descriptions. A different approach is used for options. This document outlines the procedure for the daily determination of the EEX Derivatives Markets settlement prices and for continuous trading on the EEX Spot Markets. Settlement Pricing Procedure Page 3

4 3. Settlement Prices for Futures, Options and Spot Instruments 3.1 Definition of Product-Specific Parameters In principle, concluded trades and the EEX order book situation is used as the basis for settlement pricing. Only trades and orders which fulfil product/contract-specific parameters within the settlement window are used for pricing. These parameters include: Minimum quantity of traded contracts for exchange trades (trades) Minimum number of contracts for the consideration of orders Minimum duration of the cumulated valid best bid/best ask Maximum settlement spread per contract for consideration for settlement Maximum spread per contract for consideration for settlement The settlement window is defined as the period of time during the trading phase, in which the trade and order book situation relevant for the settlement price determination is tracked. The price range between buy and sell prices which is specified as a maximum value per contract is defined as the settlement spread. The respective settlement spread to be applied depends on the current market situation. Due to product specific data, first of all a theoretical settlement price is calculated (3.2.) which will be validated thereafter (3.3 market plausibility check). Settlement Pricing Procedure Page 4

5 3.2 Calculation of Theoretical Settlement Prices a) Futures and Spot Market instruments Firstly, the theoretical settlement prices are determined on the basis of defined calculation algorithms. In this context, the underlying method depends on the number of valid trades and orders which fulfil the product-specific preconditions (see 4). In principle, the price sources are trades, orders, the chief trader procedure (fair values) and data of other price sources. Mistrades or trades cancelled ex officio are not considered. EEX reserves the right to exclude individual trades, orders or fair values from pricing if those are not in line with the actual situation on the market. The following overview provides examples of possible scenarios and the calculation algorithms connected with these: Order book situation There was at least one trade. There were orders. Calculation algorithm Theoretical settlement price = 0.75*AverageTradePrice *AverageMid There was at least one trade. There were no orders. Theoretical settlement price = AverageTradePrice There was no trade. There were orders. Theoretical settlement price = AverageMid There was no trade. There were no orders. The theoretical settlement price can be established based on data of other price sources or the chief trader procedure. The AverageTradePrice is established as the mean value of the exchange prices traded during the settlement price window. The AverageMid is calculated as the mean value of the average best bid and the average best ask which fulfil the minimum order quantity. The average best bid (the average best ask) is established as the average from all highest buy orders (lowest sell orders) which lie within the limits of the current settlement spread during the time window for the individual contract on the market. If there are no trades and orders fulfilling the product-specific parameters, the EEX Management Board can determine the settlement price based on data of the chief trader procedure or other prices sources. Every trading participant can take part in the chief trader procedure through representation by a licensed exchange trader (chief trader). The EEX Market Operations department provides a standardised form to all trading participants, who agree to provide a market price for the respective derivatives market contracts or spot instruments. If required, EEX determines the settlement prices by calculating Settlement Pricing Procedure Page 5

6 the simple average from all estimates of the market prices received (indications). EEX reserves the right to remove indications which deviate considerably from the average in the calculation. There is no order book trading in products for Trade Registration. As a result, trades and orders cannot be determined. In this case, prices are established with the help of the chief trader procedure, prices from Trade Registration or other price sources. EEX reserves the right to adjust the theoretical settlement prices established in advance in order to ensure freedom from arbitrage. In case of derivatives contracts without an open interest, EEX reserves the right to waive the determination of settlement prices. In this case, the minimum price is determined pro forma as the settlement price which is defined in the contract specifications. b) Options The calculation of prices for Options is based on the mathematical equation of the Black-76 model. The essential influencing parameters comprise the underlying futures price, the exercise price, the residual term, the short-term risk-free interest rate and the implied volatility of the underlying security. In this context, the implied volatility is established by EEX based on data of other price sources or using the chief trader procedure and with the help of historic market prices. Subject to the assumption of the standardised normal distribution, the theoretical option prices are established in accordance with the following equation: with c = e rt [ F N (d 1 ) X N (d 2 )] p = e rt [X N( d 2 ) F N ( d 1 )] d 1 = ln (F X ) + σ2 T 2 σ T with c p F X T r d 2 = ln (F X ) σ2 T 2 σ T = price of the call option = price of the put option = d 1 σ T = current futures price (of the underlying security), here: settlement price = exercise price = residual term of the option = short-term risk-free interest rate (from Reuters). This is the interbank interest rate, at which banks of good credit standing lend each other money. N (x) = cumulative standardised normal distribution at point x, i.e. N (x) indicates the likelihood for a variable to be subject to a standard normal distribution of being smaller than x or equal x ln ( ) = natural logarithm = expected annual volatility of the futures price (of the underlying security) Except for the volatility, the input parameters are known and can be retrieved from various databases. Settlement Pricing Procedure Page 6

7 The calculation of prices for Options on Freight Futures is based on the mathematical equation of the Turnbull and Wakeman formula extended by Espen Gaarder Haug. The essential influencing parameters comprise the underlying futures price, the exercise price, the time to maturity, the start of the averaging period, the short-term risk-free interest rate and the implied volatility of the underlying asset. In this context, the implied volatility is established by EEX based on data provided by Cleartrade. Subject to the assumption of the standardised normal distribution, the theoretical option prices are established in accordance with the following equation: c A = e rt [ F N (d 1 ) X N (d 2 )] p A = e rt [X N( d 2 ) F N ( d 1 )] with d 1 = ln (F X ) + σ A 2 A T d 2 = d 1 σ A T 2 T where ln (M) σ A = T M = 2eσ2T 2e σ2τ [1 + σ 2 (T τ)] σ 4 (T τ) 2 c A = price of the call option with volatility of the average on the futures A p A F X T τ r = price of the put option with volatility of the average on the futures A = current futures price (of the underlying asset), here: settlement price = exercise price = Time to maturity = Time to the beginning of the average period = short-term risk-free interest rate (from Reuters). This is the interbank interest rate, at which banks of good credit standing lend each other money. N (x) = cumulative standardised normal distribution at point x, i.e. N (x) indicates the likelihood for a variable to be subject to a standard normal distribution of being smaller than x or equal x ln ( ) = natural logarithm = expected annual volatility of the futures price (of the underlying asset) If the option is into the average period the strike price must be replaced by Y and the option value must be multiplied by T T 2, where Y = X T 2 T F (T 2 T) A T 2 T 2 F A = the original time in the average period = the average futures price during the realized or observed time period T 2 T. During the average periode F A will be assumed to be equal to F. Settlement Pricing Procedure Page 7

8 3.3 Market Plausibility Check The result of the theoretical settlement price calculation additionally will be validated whether the actual market situation at that time, if available, is reflected correctly by the theoretical prices. For the market plausibility check external price sources will be used like prices from other trading venues, information from data providers and chief traders or prices from Trade Registration. Furthermore, especially in the case of having insufficient market data within the settlement window, trades and orders in direct temporal connection to the settlement window can be used for the market plausibility check Settlement Pricing Procedure Page 8

9 4. Product-Specific Rules and Parameters for the Determination of Settlement Prices 4.1 Settlement of financial Power Futures Settlement window Dutch and Belgian Power Futures Other Power Futures Minimum number of contracts traded Year contracts All other contracts Minimum number of contracts per order Year contracts All other contracts Settlement spread for the consideration of best bid / best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window PXE Power Futures All other Futures Other notes 15:45 16:00 CET 15:50 16:00 CET 3 contracts = 3 MW 5 contracts = 5 MW 3 contracts = 3 MW 5 contracts = 5 MW specified on contract level 1 min = 60 sec 3 min = 180 sec The settlement prices (P) of the Off-Peak Futures result from the arbitrage-free, calculated settlement prices of the corresponding Base and Peak Futures. In this case, the Off-Peak Futures are based on the following algorithm: P Off-Peak = (P Base*h Base-P Peak*h Peak)/h Off-Peak The settlement price of the front month is calculated as an average of the settlement prices or final settlement prices of the respective day- and/or week futures. The final settlement price for the current delivery week and/or the current delivery month in Power Futures is established as the mean value of the underlying Spot Market Index for the respective week and/or the respective month. The final settlement price of a day future corresponds to the respective average of the hourly price, calculated by the most liquid spot exchange in the daily Day-Ahead auction. This settlement price might be negative. The final settlement price of a Weekend Future corresponds to the respective average of the two corresponding day futures. This settlement prices might be negative. Settlement Pricing Procedure Page 9

10 In deviation to the procedure described above, the daily settlement prices for Phelix-DE/AT, Phelix-DE and Phelix-AT Futures with delivery periods before separate Day-Ahead Auctions for the market areas Austria and Germany have been implemented at EPEX Spot (expected as of October 2018) are generally equal (except from minor technical deviations), whereas the settlement prices of Phelix-DE futures are decisive. For delivery periods after separate Day-Ahead Auctions for the market areas Austria and Germany have been implemented at EPEX Spot (expected as of October 2018) the settlement prices of Phelix-DE/AT (SP DE/AT ), Phelix-DE (SP DE ) and Phelix-AT (SP AT ) Futures are determined according to the following the ratio: SP DE/AT = 1 10 (9SP DE + SP AT ), whereas the Phelix-DE is the leading price. Phelix-DE/AT settlement prices will be calculated on the basis of Phelix-DE prices. For all other contracts, that are not final settled and the theoretical settlement price is negative, the minimum price of 0.01 EUR/MWh or 0.01 GBP/MWh applies. The final settlement price is defined in the contract specifications. For the Spanish Power Futures the following applies: EEX and OMIP (Operador do Mercado Ibérico de Energia) have both listed the above named products on each exchange (cross listing). Hence, EEX can also make use of the published settlement prices by OMIP in order to determine the daily settlement prices for the products listed at EEX. Settlement Pricing Procedure Page 10

11 4.2 Settlement of Cap and Floor Futures Settlement window Minimum number of contracts traded Minimum number of contracts per order Settlement spread for the consideration of best bid / best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window Other notes 15:50 16:00 CET 5 contracts = 5 MW 5 contracts = 5 MW specified on contract level 3 min = 180 sec The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 11

12 4.3 Settlement of Windpower Futures Settlement window Minimum number of contracts traded All contracts except quarters and years Quarter and year contracts Minimum number of contracts per order All contracts except quarters and years Quarter and year contracts Settlement spread for the consideration of best bid / best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window Other notes 10:00 16:00 CET 2 contracts 1 contract 2 contracts 1 contract specified on contract level 3 min = 180 sec The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 12

13 4.4 Settlement of Futures and Spot Instruments on Emission Allowances Settlement window 17:50 18:00 CET Minimum number of contracts traded 3 contracts = t CO 2 equivalent Minimum number of contracts per order 3 contracts = t CO 2 equivalent Settlement spread for the consideration of best specified on contract level bid/best ask Minimum duration of the cumulated valid best 3 Min = 180 sec. bid/best ask during the settlement window Other notes - Settlement Pricing Procedure Page 13

14 4.5 Settlement of Coal Futures Settlement window Minimum number of contracts traded Minimum number of contracts per order Settlement spread for the consideration of best bid/best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window Other notes 15:50 16:00 CET 5 contracts = 5,000 t 5 contracts = 5,000 t specified on contract level 3 min. = 180 sec. The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 14

15 4.6 Settlement of Freight and Iron Ore Futures Settlement window - Minimum number of contracts traded - Minimum number of contracts per order - Settlement spread for the consideration of best - bid/best ask Minimum duration of the cumulated valid best - bid/best ask during the settlement window Other notes EEX and Cleartrade (CLTX) have both listed the above named products on each exchange (cross listing). Cleartrade will be responsible for the determination of the daily settlement prices according to their settlement price determination procedure for the products listed at EEX. The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 15

16 4.7 Settlement of Options on Power Futures Settlement window - Minimum number of contracts traded - Minimum number of contracts per order - Settlement spread for the consideration of best - bid/best ask Minimum duration of the cumulated valid best - bid/best ask during the settlement window Other notes The exchange establishes the intraday market value for the underlying security (Intraday Fixing price) as of 14:00 CET on the last day of trading. Options not exercised expire at 15:00 CET on the last day of trading. Settlement Pricing Procedure Page 16

17 4.8 Settlement of Options on EUA Dec Futures Settlement window - Minimum number of contracts traded - Minimum number of contracts per order - Settlement spread for the consideration of best - bid/best ask Minimum duration of the cumulated valid best - bid/best ask during the settlement window Other notes The exchange establishes the end of day market value for the underlying security (settlement price) during the settlement price window between 5:50 pm CET and 6:00 pm CET on the last trading day. Options not exercised expire at 6:45 pm CET on the last trading day. Settlement Pricing Procedure Page 17

18 4.9 Settlement of Options on Freight Futures Settlement window - Volume weighting of trades - Minimum number of contracts per order - Settlement spread for the consideration of best - bid/best ask Minimum duration of the cumulated valid best - bid/best ask during the settlement window Other notes The exchange establishes the intraday market value for the underlying security (Intraday Fixing price) as of 18:00 CET on the last day of trading. Options not exercised expire at 18:45 CET on the last day of trading. Settlement Pricing Procedure Page 18

19 4.10 Settlement of Futures on Agricultural Products Settlement window Dairy Futures Potatoes Minimum number of contracts traded Dairy Futures Potatoes Minimum number of contracts per order Dairy Futures Potatoes Settlement spread for the consideration of best bid/best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window Other notes 08:55 18:00 CET 10:00 16:00 CET 1 contract = 5 metric tons 1 contract = 250 quintals 1 contract = 5 metric tons 1 contract = 250 quintals specified on contract level 5 min = 300 sec. If there was no trade with the minimum number of contracts and there were no orders which fulfilled the requirements, the theoretical settlement price can established based on data of other price sources or the chief trader procedure. In case a publication of the underlying index took place, this index price will become the settlement price for the respective contract on that day. The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 19

20 4.11 Settlement of financial Wood Pellets Futures Settlement window - Minimum number of contracts traded - Minimum number of contracts per order - Settlement spread for the consideration of best bid/best ask Minimum duration of the cumulated valid best bid/best ask during the settlement window Other notes - - There is no order book trading in products for Wood Pellets futures, only Trades Registrations. As a result, trades and orders cannot be determined. In this case, prices are established with the help of the chief trader procedure, prices from Trade Registration or other price sources. The final settlement price is defined in the contract specifications. Settlement Pricing Procedure Page 20