ONE CLEAR CONNECTION TO COMMODITIES

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1 ONE CLEAR CONNECTION TO COMMODITIES Power Natural Gas Coal Oil Environmental Markets Freight Metals Agricultural Markets Pulp

2 ECC ONE CLEAR CONNECTION TO COMMODITIES ECC members benefit from a wide network of partners and cross-commodity margining European Commodity Clearing (ECC) is the central clearing house for energy and related products in Europe. - ECC means being connected to Europe s major energy and commodity exchanges: One clearing house membership provides access to this network and a large variety of asset classes. - ECC assumes clearing as well as physical and financial settlement of transactions concluded and registered for clearing on all Partner Exchanges. - ECC connects European commodity markets through integrated and automated clearing processes and eliminates the counterparty risk through clearing and settlement of all transactions. In order to guarantee the fulfilment of transactions, ECC has implemented a margin system which complies with regulatory standards (EMIR, CPSS-IOSCO). An approved collateral management system, with different options to segregate collaterals, adds further protection for segregated Non-Clearing Members and clients. ECC specialises in the physical settlement of grid-bound energy (power, natural gas) and energy-related products (emission allowances). ECC guarantees financial fulfilment and carries out cash clearing for purchases and sales of all spot market transactions concluded on our Partner Exchanges, while all payments are netted in order to reduce the cost of clearing. Uniform processes and reports reduce the number of interfaces and create transparency. In addition, members benefit from ECC s cross-commodity margining across all markets and products which further reduces the cost of clearing. 2

3 ECC CLEARED COMMODITIES Power Natural Gas Coal Oil Environmental Markets Freight Metals Agricultural Markets Pulp 3

4 PRODUCTS IN DETAIL POWER --Austrian Spot (IT/ST) --Belgian Spot (IT/ST) & Futures (P/F) --Czech Spot (ST) & Futures(P/F) --Dutch Spot (IT/ST)* & Futures (P/F), Options (F) --French Spot (IT/ST) & Futures (P/F), Options (F) --German Spot (IT/ST) --German Intraday Cap Futures (F) --German Power Futures (P) --German/Austrian Wind Power Futures (F) --Floor Futures (F)* --French Capacity Guarantees (ST) --Greek Futures (F) --Hungarian Spot (IT/ST) & Futures (P) --Italian Futures/Options (F) --Nordic Futures/Options (F) --Phelix Futures/Options (F) --Polish Futures (F) --Romanian Futures (F) --Serbian Power (ST) --Slovak Futures (P/F) --Spanish Futures/Options (F) --Swiss Spot (IT/ST) & Futures (F) --UK Spot (IT/ST) & Futures (F) NATURAL GAS --Austrian Spot (IT/ST) & Futures (P) --Czech Spot (ST) & Futures (P) --ETF Spot (IT/ST) & Month- Ahead (P) --GASPOOL German Spot (IT/ST) & Futures (P) --GRTGaz French Spot (IT/ST) & Futures (P) --NBP UK Spot (IT/ST) & Futures (P) --NCG German Spot (IT/ST) & Futures (P) --TTF Dutch Spot (IT/ST) & Futures (P) --TRS French Spot (IT/ST) & Futures (P) --ZEE Belgian Spot (IT/ST) & Futures (P) --ZTP Belgian Spot (IT/ST) & Futures (P) --PEG Nord French Spot ( IT/ST) & Futures (P) --PSV Italian Futures (P/F) COAL --API 2 CIF ARA Futures (F) 1 --API 4 FOB Richards Bay Futures (F) 1 --API 5 FOB Newcastle Futures (F) 1 * --API 8 CFR South China Futures (F) 1 * --Indonesian Sub-bituminous Futures (F) 2 * --Options on API 2, API 4, API 5 (F)* OIL --Cargoes Singapore Oil Futures (180 CST FOB, 380 CST FOB)* ,5% FOB Barges Rotterdam Oil Futures* 3 ENVIRON- MENTAL MARKETS EMISSION ALLOWANCES --EU Emission Allowances (EUA) Spot (ST) & Futures (P) --EU Aviation Allowances (EUAA) Spot (ST) & Futures (P) --Options on EUA Futures --Green Certified Emission Reductions (Green CER) Spot (ST) & Futures (P) GUARANTEES OF ORIGIN --GoO on Alpine Hydro Power (P) --GoO on Nordic Hydro Power (P) --GoO on Northern Continental Europe Wind Power (P) FREIGHT --Dry Bulk Time Charter Futures (F) & Options --Dry Bulk Trip Time Charter Futures (F) --Dry Bulk Voyage Route Futures (F) METALS --Iron Ore 62 % Fe CFR Tianjin (TSI) Futures (F)* 3 AGRICUL- TURAL MARKETS POTATOES --European Processing Potato Futures (F) MEAT --Hog Futures (F) --Piglet Futures (F) DAIRY --Butter Futures (F) --European Whey Powder Futures (F) --Skimmed Milk Powder Futures (F) FERTILISER --Urea (Granular) FOB NOLA Futures (F) 4 --Urea (Granular) FOB Egypt Futures (F) 4 --Urea (Prilled) FOB Yuzhnyy Futures (F) 4 --DAP FOB NOLA Futures (F) 4 --DAP FOB Tampa Futures (F) 4 --UAN FOB NOLA Futures (F) 4 PULP --Pulp Futures (F) In addition to exchange trading, German and French power derivatives as well as gas derivatives are also offered for trading on additional trading venues (non-mtf) since July IT Intraday/Within-Day Trading ST Day Ahead Trading P Physical F Financial * Coming soon Argus IHS McCloskey IHS PLATTS Index The Fertilizer Index Argus Media, Fertecon, CRU; Please see page 29 for more information. 4

5 SETTLEMENT VOLUMES Clearing Volume 2016 Total Trade Registration No. of Contracts No. of Contracts 85,087,593, ,269, Settlement Volumes Spot Market Power GWh 405, , ,739 Natural Gas GWh 313, , ,405 Emission Allowances (incl. Primary Market Auction) m t CO Settlement Volumes Derivatives Market Power (incl. GoO) GWh 1,595,814 2,567,818 3,942,293 Natural Gas GWh 281, ,887 1,098,669 Emission Allowances m t CO figures are preliminary figures subject to the year-end audit. 6,250 TWh Power and gas account for the largest share of ECC s settlement volume. In 2016, the spot and derivatives markets for power and natural gas amounted to 6,250 TWh. Compared to the previous year, the volume increased over 50 percent (2015: 4,100 TWh). Find up-to-date volumes on the website 5

6 ONE CLEAR CONNECTION TO AN INTERNATIONAL NETWORK OF PARTNERS ECC provides clearing and settlement services for various Partner Exchanges throughout Europe. Offering clearing and settlement services to these Partner Exchanges is ECC s core strategic approach. ECC maintains standardised interfaces and procedures to connect existing and new partners. This reduces technical complexity and costs. Partner Exchanges Market areas New Partner Exchange planned for 2018: SEMOpx As of January

7 BENEFITS OF ECC S BUSINESS MODEL Integrated Clearing Solution --Standard processes and interfaces create efficiency. --Standardised product specifications which meet customer needs and support product launches. --Payment & delivery netting minimises operational and liquidity costs. --Cross-asset and cross-exchange margining reduces the costs of clearing. --Straight-through processes avoid manual interaction and improve the accuracy and reliability of trades. --Customer-focused --Access to all Partner Exchanges within ECC The benefit of ECC s multi-exchange network is that we connect 450 trading participants from almost 30 countries. Anja Drosdziok/Head of Clearing Initiatives & Cooperations; EMIR Technology Officer Standardisation in: Interfaces Clearing and Rules and Risk management Reports settlement procedure regulations 7

8 NETWORK OF MEMBERS General Clearing Members ABN AMRO Clearing Bank Banca Akros 450 Non-Clearing Members 3 DCP Clearing Members Banca Popolare di Sondrio Banco Santander 2 Bayerische Landesbank BNP Paribas Commodity Futures Citigroup Global Markets ED&F Man Capital Markets Limited Goldman Sachs International 7 4 J.P. Morgan Securities KELER CCP Macquarie Bank International 13 Marex Financial Limited Merrill Lynch International Nordea Bank AB Oesterreichische Kontrollbank Raiffeisenbank Renta 4 Banco Societe Generale Newedge UK UBS AG UniCredit Bank Czech Republic & Slovakia Direct Clearing Members INTL FCStone Morgan Stanley & Co. International Settlement Banks 2 ABN Amro Bank N.V Canada/USA/Cayman Islands Please find up-to-date figures: about-ecc/partners-products As of 31 Dec

9 ACCESS TO ECC Our growing community of members rely on us to provide prompt and secure access to the Partner Exchanges of ECC. We therefore understand it as our core task to offer one clear connection to these commodity markets in Europe and beyond. Regine Scholz/Head of Member Readiness Become a Member: There are different types of membership in ECC: Clearing Members (CM): --are financial institutions in an EU member state or in Switzerland. --hold either a general clearing licence or a direct clearing licence. --can be trading participants of the exchange. Non-Clearing Members (NCM): --are trading participants of the exchange. --sign a trilateral agreement between the Non-Clearing Member, Clearing Member and ECC to provide the necessary infrastructure. NEW DCP Clearing Members (DCP CM): --are trading participants with direct access to trading and clearing of specific spot markets without the requirement of a Clearing Member. --have an agreement with a co-operating Settlement Bank. NCM Agreement Performs margining, financial settlement and accounting trought ECC infrastructure Payment agent Guarantor Conclude a balance group agreement Become a trading participant on the exchange or OTC Find a CM and conclude an NCM agreement CM NCM Responsible for physical nomination ECC Settlement Bank DCP CM Performs financial settlement trought ECC infrastructure Payment agent Find a Settlement Bank and conclude an agreement Conclude a balance group agreement Become a trading participant on the exchange or OTC Collateral and Limit Management DCP CM Agreement 9

10 Access Requirements for Non-Clearing Members (NCM) For the transactions to be cleared, the NCM should contact a Clearing Member (CM) of its choice. The legal relationship between an NCM and a CM is defined by the Clearing Conditions and the NCM Agreement. Within this relationship, the CM takes over financial settlement in order to perform financial transactions through one interface. Admission by ECC constitutes a fundamental precondition for exchange trading for NCM. It ensures that settlement, delivery and hedging of the transactions are secured by the clearing house. --Completion of a Know-Your-Customer (KYC) questionnaire if requested by ECC and passing of the ECC KYC assessment or other applicable access policies of ECC --Completion of a corresponding NCM Agreement with the cooperating CM and ECC --The clearing license of the CM co-operating with said NCM has to comprise the product concerned --The conclusion of a balance group agreement with the respective TSO, in case of physical delivery More details about: ECC KYC Procedure kyc-procedure ECC Admission Process admission-process CM Starter Kit NCM Starter Kit 10

11 Access Requirements for DCP Clearing Members The new DCP membership enables a greater number of players and, in particular, smaller participants, access to wholesale spot markets while further increasing depth of liquidity. ECC is constantly expanding the products and markets available for DCP Clearing Members. The products which are currently available are published on our website at: For becoming a DCP Clearing Member the following requirements have to be fulfilled: --Completion of the Know-Your-Customer-Questionnaire if requested by ECC and passing of the ECC KYC assessment or other applicable access policies of ECC --Agreement with a co-operating Settlement Bank and ECC --Approval as a Trading Participant for, at least, one ECC-approved spot market where a DCP membership model is available --Companies must be based in a country approved by ECC for DCP Clearing --Liable equity capital of, at least, EUR 50,000 --Contribution to the Clearing Fund --The conclusion of a balance group agreement with the respective TSO, in case of physical delivery More details about: ECC KYC Procedure kyc-procedure ECC Admission Process admission-process ECC DCP CM Starter Kit Directclearing@ecc.de 11

12 Member Section Benefits Free Access: Login Area Only for Members: --Downloads are offered with regard to contract details and file specifications --User guides and manuals are available for technical applications and processes --The holiday calendar provides information on holidays on the Partner Exchanges as well as ECC maintenance windows and the ability to import these dates into your calendar --Report Specifications --Product Specifications --View your transactions --Maintenance of trading limits --Subscription to detailed reports --Access to internal delivery accounts for emissions, Guarantees of Origin and Capacity Guarantees --Requests for the transfer of emission allowances and Guarantees of Origin to external registry accounts --Querying deposited values (e.g. capacity guarantees, cash collateral) Furthermore, the EUREX Clearing GUI provides a Member Section for the Derivative Markets. 12

13 CLEARING SERVICES ECC has established integrated processes and highly efficient operations for clearing and settlement services of energy and commodity products. Its range of clearing and settlement services comprises physical settlement, financial settlement and invoicing for transactions. ECC has a strong footprint in the settlement of physically delivered energy contracts and therefore works together with a broad network of transmission system operators (TSOs), Market Area Managers and registries. ECC develops solutions for the energy markets physical needs. This close relationship with the physical market confirms that ECC, as a clearing house, has a unique market role, which enables us to offer single-sided or priority nomination for most of the delivery hubs. We are constantly improving our clearing & settlement infrastructure and processes with a special focus on the increasing demand from the physical commodity and energy markets. Dr. Götz Dittrich/Head of Clearing & Settlement Physical settlement (delivery) Financial settlement (payment) Risk management services Straightthrough- Processing Reporting services ECC has a high level of expertise in the physical settlement of power and natural gas and is connected to more than 20 TSOs and hub operators. As a central counterparty, ECC guarantees financial fulfilment and carries out financial settlement for purchases and sales of all transactions concluded ECC's service comprises margining services, collateral management and limit services. ECC offers Straight- Through Processing (STP) of transactions registered at the Partner Exchanges by brokers. The STP service reduces operational risk and manual in- ECC provides Clearing Members and trading participants with a service which they can use to delegate their reporting obligations to ECC. on ECC s Partner teraction for market Exchanges. participants. 13

14 PHYSICAL SETTLEMENT ECC is responsible for physical settlement of traded or registered contracts. Nomination includes scheduling of local markets of ECC s Partner Exchanges and the nomination of cross-border power deliveries as part of various European market coupling initiatives. In this context, ECC assumes the role of the cross-border shipping entity, thus contributing to the further integration of the European electricity markets. Furthermore, ECC is linked to the Union Registry to perform the delivery of emission allowances and to the registry operated by Grexel in order to perform the delivery of Guarantees of Origin (GoO). Additionally, since 2016, ECC is connected to the French Registry for Capacity Guarantees. Delivery Areas POWER --Intraday (AT, BE, CH, DE, FR, HU, NL, UK) --Day-Ahead (AT, BE, CH, CZ, DE, FR, HU, NL, RS, UK) --Physical Futures (BE, FR, HU, NL, SK) --French Capacity Guarantees (FR) NATURAL GAS --Within-Day (AT, BE, DE, DK, FR, NL, UK) --Day-Ahead (AT, BE, CZ, DE, DK, FR, NL, UK) --Physical Futures (AT, BE, CZ, DE, DK, FR, IT, NL, UK) ENVIRONMENTAL MARKETS Emission Allowances --EUA Spot --EUA Primary Market Auction --EUA Futures --Green CER Futures --Green CER Spot --EUAA Spot --EUAA Primary Market Auction --EUAA Futures Guarantees of Origin --GoO for hydro power from Scandinavia (DK, FI, NO, SE) --GoO for wind power from North-Western Europe (BE, DE, DK, NL) --GoO for hydro power from the Alpine region (AT, CH, DE) Market Coupling ECC supports the vision of an integrated cross-border wholesale energy market in Europe. Together with its Partner Exchanges, network operators and trading participants, ECC is involved in various projects for connecting European electricity markets, the so-called Market Coupling. Market Coupling Approach By using the available transmission capacities between the different market areas, the following goals can be achieved: --minimising differences in prices between two or more market areas, --ensuring convergence of power prices across regions, --reducing price volatility and --providing access to cross-border capacities. Market Coupling maximises social welfare and supports the creation of a pan-european market area for power. Role of ECC 14

15 Within the scope of Market Coupling, ECC cooperates closely with the European Power Exchange EPEX SPOT, which covers the German, Austrian, Swiss, French, Dutch, UK and Belgian market areas and the connected TSOs. With its connection to major TSOs across Europe and its expertise in providing physical settlement of power trades, ECC promotes the integration of regional markets towards a Europe-wide electricity market. As a dedicated clearing house, ECC provides clearing and settlement services for cross-border energy flows. It nominates the cross-border electricity flows to the transmission system operators (TSOs) and settles trades for all counterparties involved. ECC contributes to the overall welfare of the European power consumer / producer community by bundling the overall market liquidity and increasing the efficiency of the usage of cross border capacities. General Process ECC Clearing in the Framework of Market Coupling Transmission System Operators Power Exchanges --Amprion --APG --Elia --Energinet.dk --50Hertz --National Grid/ Elexon --RTE --Tennet DE --Tennet NL --Transnet BW Available Transmission Capacity --EPEX SPOT and EPEX SPOT Belgium --Nordpool Spot --OMIE, GME, BSP Southpool Power Exchanges Trading Systems Order Books Local Market Nomination Market Coupling System Cross-Border Nomination EPEX SPOT Trade Files Capacities ECC Scheduling ECC clearing, both directions ECC clearing, one direction Upcoming ECC clearing 15

16 FINANCIAL SETTLEMENT & INVOICING Exchanges Conclusion of trades on spot markets Financial Settlement As a central counterparty, ECC guarantees financial fulfilment and carries out cash clearing for all transactions concluded on ECC s Partner Exchanges. ECC co-operates with international banks as Clearing Members. For Euro settlement, the transfer is done via the robust and reliable TARGET2 infrastructure of the ECB. SMSS Financial settlement: net payment amount Accounting cut-off: 4:00 p.m. (CET) ECC has been approved as a designated payment system according to Article 10 of the 98/26/EC Settlement Finality Directive. Payments in foreign currencies are settled with the help of Clearstream Banking Luxemburg (Clearstream) as a private settlement agent. ECC has a harmonised invoicing and fee settlement process across all of its products, markets and asset classes. Reporting Trade and payment reports available Services to Third Parties ECC provides fee settlement for its Partner Exchanges. This means that ECC collects the fees on behalf of the participant via their Clearing or Settlement Bank and the invoices are issued by the Partner Exchanges themselves. End of day SWIFT Debiting/crediting of net payment amounts instructed 16

17 RISK MANAGEMENT Managing risk is an essential function of ECC as a central counterparty. All our processes from pretrade and post-trade limits to our default waterfall are designed to effectively protect market participants from the impact of a member default. Marcus Knappe/Director Risk Controlling & Bank Compliance; EMIR Risk Officer Managing Risk is an essential function of ECC, a Central Counterparty (CCP) licensed under the strict European financial market regulations for CCPs ( EMIR ). As a CCP, ECC is a legal entity that interposes itself between the counterparties to the contracts traded on one or more markets, becoming the buyer to every seller and the seller to every buyer. Thereby, ECC eliminates the counterparty risk for trading participants on the markets cleared by ECC. ECC s risk management rests on three pillars: First, ECC ensures that General Clearing Members fulfil high standards on financial stability. ECC monitors this on an ongoing basis. The second pillar is to measure exposures on a near-to-real time basis and requires sufficient collateral from members to cover the potential losses resulting from the close-out of a defaulting member under a variety of market conditions. For Direct Clearing Participants the pre-trade limit implemented in the trading system ensures that all trading exposures are covered. Third, to cover losses that could exceed collateral in extreme but plausible market conditions, ECC has access to the Default Fund which is a pre-funded contribution by members and an additional contribution by ECC ( Skin in the Game ). Lines of Defence ECC Regulatory Equity + Assessment CMs 1 Assessment ECC Skin in the Game ECC EMIR equity: ~ EUR 40 million Assessment CM + ECC: EUR million Member Contribution - Remaing Default Fund contributions - ECC dedicated own funds (Skin in the Game) - Default Fund contribution of member in default Covers close-out costs in case of simultaneous default of two largest CMs in extreme but plausible market conditions ECC Skin in the Game: EUR million Member Contribution - Collateral of member in default/pretrade limit collateralisation of DCP - Variation Margin/Intraday Cash-Call - CM Guarantee for NCM - Access criteria for CM/DCP 1 Planned for 2017 Covers close-out cost in case of default of a Clearing Member in normal market conditions (99 % of market movements over liquidation period of 2 days) Initial Margins: ~ EUR 2.5 billion Figures per 31 Oct

18 Governance As of 11 June 2014, ECC has been granted a Central Counterparty licence according to Article 14 (1) of the Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR). The licence is valid for the European Union. It covers commodity transactions or transactions with commodities as the underlying. ECC is supervised by the German Federal Financial Supervisory Authority, the German Central Bank and the European Securities and Markets Authority: European Regulators Germany EU German Central Bank Federal Financial Supervisory European Securities and Market Other Relevant National European Banking Authority (EBA) (Bundesbank) Authority (BaFin) Authority (ESMA) Regulators College Audits Regulatory Regulatory Framework Reporting & Standards Licensing & Supervision ECC ECC also complies with additional requirements set by local regulators outside the EU where ECC offers clearing services. Currently this is the Norwegian Finanstilsynet. 18

19 Margining Margin Types ECC collects margins on a daily basis to limit its credit exposures Exposure Type Margin Type Description from its members. Such margins are sufficient to cover losses that result from at least 99% of the exposure s movements over a specified time Variation Margin Mark-to-market value (change) of all open positions in futures using the latest market prices received from the markets. horizon which is at least two trading days, according to the EMIR requirements. ECC uses the SPAN 1) methodology for derivatives and an in-house model for the spot markets. Current Exposure Premium Margin ECC's options are Premium Style (i.e. no daily Variation Margin is calculated). Therefore, Premium Margin has to be deposited for net short positions. For net long positions, credits from Premium Margin are used to offset other margin requirements. Current Exposure Spot Market * (CESM) The net value (payment amount) of all concluded transactions on the spot markets during the day that have not been settled. SPAN 1) Initial Margin 2) SPAN Initial Margin covers the risk in open positions in futures and options. Potential Future Exposure Supplementary Initial Margin (MCAP) Delivery Margin Covers the difference between the allowed 80 % margin reduction and the current margin reduction if the latter is higher. Delivery Margin covers the risk in positions in physically settled futures during the delivery period and the delivery risk for spot markets where ECC has no priority right. Initial Margin Spot Market (IMSM) The IMSM is called for expected spot in the future and serves as a buffer to reduce intraday margin calls. Concentration Risk Margin The Concentration Risk Margin covers the risk of concentrated positions that are unlikely to be closed out within the 2 days liquidation period. 1) 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 2) Additionally, the Supplementary Initial Margin (MCAP) covers the difference between the minimum of an 80 % margin requirement (as required by EMIR) and the current margin reduction (if the latter is higher). * Non-storable commodities (e.g. gas and power transactions) have current exposure only; storable commodities (e.g. EUA certificates) also have potential future exposure As of November

20 SPAN Initial Margin ECC calculates portfolio-based margin requirements using SPAN. This methodology allows ECC to align margin requirements with risk, thereby realising efficient margining. ECC updates the SPAN risk parameters daily. These parameters are available on ECC s website and the FTP Server for downloading. Example of Margin Credits 1. Netting Netting of futures and options with the same underlying Inter-Commodity Margin Credits Inter-Commodity Margin Credits are calculated for any combination of opposite positions for different products according to the correlation between the two products and on different levels of netting. This improves collateral efficiency and increases economies of scale in diversified portfolios. 2. Margin Credits 100% Perfect Spreads Spreads between offsetting positions in the same commodity and with a completely overlapping delivery period and profile, e.g.: Year vs. four quarters Baseload vs. Peakload and Off-Peak Margin Credits 99% 3. Inter-Commodity Spreads Spreads between any potential combination of different products: Commodities Delivery profile Delivery area Delivery period Margin Credits 0 100% 4. Member Margin Cap ECC calculates margins on a gross basis across members. If the overall margin reduction (level 1 3) is higher than 80%, the delta has to be covered through an additional contribution to the Default Fund. 20

21 Segregation and Portability Each Central Counterparty and each Clearing Member (CM) must offer at least two models to segregate positions and collaterals: Individual segregation where positions and assets of a single client are recorded in separate records and accounts and omnibus segregation where positions and assets of a group of clients are recorded in separate records and accounts. This segregation protects the clients assets against losses resulting from other clients or Clearing Members positions. ECC offers different EMIR compliant models to segregate positions and assets of clients from those of their Clearing Members or other clients, if requested by the client. The assets or positions are held in separate accounts that are reported to the Clearing Member or client. The Clearing Member has the option to set up a separate collateral pool for its house account. By default, the proprietary pool is separated from the standard collateral pool by value. Benefits --Segregated clients benefit from the full protection of their positions and assets. In case of a Clearing Member Default, ECC will immediately trigger the process for transferring positions and segregated collateral to a new Clearing Member specified by the Non-Clearing Memberor all clients in an omnibus pool. --Depending on the level of segregation and type of assets posted as collateral, the individually or omnibus segregated clients are entitled to a portion of the collateral remaining in the standard collateral pool after the default management process has been completed by ECC. ( Reclaim Procedure, see below). House (optional) General Omnibus (GOS) Simple Omnibus (SOS) Individual Segregation (IS) Omnibus Segregation (OS) Position CM Proprietary CM Agency NCM CM Agency NCM NCM Registered Client Clients appoint common omnibus representative Collateral CM Proprietary Pool (House Collateral Pool) Standard Collateral Pool SOS Collateral Pool IS Collateral Pool OS Collateral Pool Reclaim Procedure Shortfalls in SOS, IS or OS collateral pools can be covered with surplus in the standard or house collateral pool. Details are available at: ECC has established a reclaim procedure for non-isa/osa-segregated collateral remaining with ECC in the standard collateral pool, the simple omnibus pool or the general omnibus pool after the default procedures have been completed. Known participants (Non-Clearing Members and segregated clients) whose positions have not been transferred can reclaim some of the collateral, depending on the collateral provided. Details and restrictions can be found at: 21

22 Collateral Management ECC accepts EUR cash and a broad range of ECB (European Central Bank) eligible government bonds and EUA emission allowances to fund margin requirements. For spot markets ECC accepts bank guarantees in EUR to cover Spot margin requirements. For DCP model ECC accepts cash collateral in EUR and GBP as well as bank guarantees in EUR and GBP. least, 3 days for bonds and 2 days for EUA emission allowances. ECC imposes concentration limits on certain issuers, countries and currencies depending on their credit rating. Concentration limits are applied on the level of the Clearing Member and on the default fund as a whole. ECC natively supports the custodian Clearstream Banking Frankfurt with CREATION and CASCADE accounts being available. Haircuts are applied to reflect the potential changes of the market value in stressed market conditions over a liquidation period of, at More information about ECC s collateral management: Clearing Member ECC Collateral Management ECC Collateral Management via Eurex User GUI via ECC Member Area Securities Collateral Cash Collateral Emission Certificates Bank Guarantees Locations Locations Collateral Locations Collateral Locations CBF Central Bank Union Registry ECC TARGET2 Default Management The ECC risk management framework is based on the standard CCP Lines of Defence and an early warning system regarding credit risks. It is designed to proactively reduce the potential risks associated with a member s default to the greatest extent possible. ECC performs regular default management tests involving Clearing Members and trading participants, as well as other entities to ensure that the processes and procedures are viable. There are two recent case demonstrating the stability of ECC s risk management and default procedures. In 2011, MF Global UK Ltd was suspended with all customer positions transferred to another Clearing Member before the default was declared so that settlement on ECC was not impacted. The associated risks were adequately covered by collateral deposits, without resorting to the Default Fund. In 2008, the risk exposures of Lehman Brothers International (Europe) were adequately covered by ECC s margins during bankruptcy proceedings. ECC also supports Clearing Members in case of the default of Non-Clearing Members with an Emergency Member Stop Procedure. More information about the Emergency Member Stop is available at: 22

23 DCP Clearing Member ECC has introduced a new membership type: The DCP Clearing Member (DCP CM). A DCP CM becomes a direct counterpart of ECC. The DCP Membership is currently offered for spot markets that have a pre-trade limit system in place that is approved by ECC. The list of approved spot markets can be found on the ECC website ( approved-markets). The DCP CM does not require a Clearing Member. It needs to enter into an agreement with a Settlement Bank. ECC assigns the DCP CM a pre-trade limit based on the collateral provided by the DCP and the financial strength of the DCP CM. Trading is only possible up to this pre-trade limit. + + Pre-Trade Limit Collateral Default Fund DCP Clearing Members can enter orders and conclude trades up to the amount of a pre-trade limit set by ECC. Trading requires pre-depositing of collateralise according to the assigned pre-trade limit. In case of the simultaneous default of a DCP CM and its guarantor, the DCP CM s collateral and clearing fund contribution are used to cover the resulting shortfall. The DCP Clearing Member requests a limit which will be distributed by ECC to the markets. Accepted collateral types for DCP Clearing Members: --Cash collateral in EUR and GBP --Bank guarantees in EUR and GBP A minimum default fund contribution of a DCP CM is defined as a percentage of its total trading limit. 23

24 ECC RISK MANAGEMENT SERVICES ECC together with its Partner Exchanges offers a convenient process for actively managing risk exposures through trading limits and emergency procedures. In assuming the role of an intermediary, ECC connects the available risk management facilities of its connected markets and presents them to its Clearing Members in a self-service portal. Trading Limits Limits can be set in many forms: financial, quantitative, pre-trade, pre-clearing and special limits designed for Straight-through- Processing (STP). ECC and its Partner Exchanges have implemented trading limit services for their customers that cover these diverse perspectives enabling limit set-ups according to individual needs. Trading limits enable market participants to proactively manage their risk exposure, and thus constitute a cornerstone for securing the functionality and integrity of commodity wholesale markets. The application of limits result in a reduction of risks on the top level and therefore minimise the total cost of risk management measures for all market participants. The following table provides an overview of the different limit types and their area of application. Volumetrics Financial Transaction Size Limit Constitutes a maximum amount of units or contracts a trading participant can trade per transaction Total Purchase Quantity Limit Constitutes a maximum amount of units or contracts a trading participant can trade within a timeframe defined by the exchange Cash Limit Constitutes a maximum financial exposure up to which a trading participant can trade within a timeframe defined by the exchange Limit Application Pre-Trading Limit Limit taking effect before trade conclusion Pre-Clearing-Limit Limit that takes effect on trade transfer from the Partner Exchange to ECC Straight-Through Processing (STP) Limit Limit that takes effect on derivative trades registered at ECC s Partner Exchange via the STP service. Market Spot Markets Derivative Markets Trading Limits for ECC Spot Markets are pre-trading limits. Trading Limits for ECC Derivative Markets are either pre-trading or pre-clearing limits. Post-Trade Limit Advanced Risk Protection Clearing Members are enabled to define limits based on margin exposure at ECC on different levels. A breach of limit leads to defined actions, starting with information to the Clearing Member up to the immediate suspension of the NCM. 24

25 Trading limits enable market participants to proactively manage their risk exposure, and thus constitute a cornerstone for securing the functionality and integrity of commodity wholesale markets. Jörg Schenderlein/Director Clearing Strategy & Business Development Emergency Member Stop Since April 2016, ECC has been offering an enhanced Emergency Member Stop (EMS) functionality to support the Clearing Member in case of a temporary suspension of trading for its affiliated Non-Clearing Members. ECC operates an automated process to distribute STOP-requests to its Partner Exchanges. This improves the communication between ECC, the Clearing Members and the exchanges and reduces the cycle time until a member is deactivated from trading. Clearing Members can use an interface within ECC s Member Area with a 24/7 access to request, monitor and release the stop of a Non-Clearing Member. STP Risk Limits As per plans for 2017, ECC will provide even more controls by enhancing the Pre-Trade-Risk Control on STP trading. The process flow of trade registration via the ECC STP service will be improved by a trading limit based on margin requirements on trades cleared via STP interfaces. Implemented Limits -- EEX Spot and Derivatives -- EPEX Power Spot -- EPEX French Capacity -- HUPX Power Spot -- PEGAS Natural Gas Spot --SEEPEX Power Spot -- PXE Power Spot -- EEX and PWX STP Limits --ECC Advanced Risk Limits More information about ECC s limit management: 25

26 STRAIGHT-THROUGH PROCESSING (STP) SERVICE ECC offers Straight-Through Processing (STP) of transactions registered on the Partner Exchanges by brokers. The STP service reduces operational risk and manual interaction for market participants. ECC provides a technical interface for submitting exchange registered trades for clearing. Currently, the service is offered for all derivatives traded on EEX and all derivatives traded on the PEGAS platform operated by Powernext. Several independent STP providers offer an electronic portal that can be used by brokers for trade registration. Additionally, trade acceptance of broker-registered trades by the final beneficiary can be automated at ECC (automatic confirmation). Full STP as a Standard The default setting for trade acceptance is Always, which means automatic confirmation of trades irrespective of execution style and confirmation status. The setting is consistent across all accepted brokers and adds further value to the registration chain as manual interactions are reduced. At any time, trading participants can deactivate the pre-set Straight- Through Processing Automatic Confirmation function entirely or partially by submitting the T08 Refinement or Deactivation of Default Settings form. A detailed list of independent STP providers, connected brokers and products can be found on: Trade Registration Straight-Through Processing (STP) Manual Independent Software Vendors Exchange System KB Tech Ltd. CLTX Portal / KB Portal Trayport Hosted Clearing Link EFETnet Clearing Registration Service ( exrp ) Trigonal Trade Manager Registration at Partner Exchange for clearing at ECC 26

27 Benefits --STP reduces manual effort as it eliminates manual re-entry of trade details captured in the broker system as well as manual confirmation of trades in the clearing system. --Central counterparty clearing ensures security as an extra level of protection as the registered trades are subject to the approved clearing processes of ECC. --Cross-margining and cross-commodity effects fully apply. Application Utilisation of STP only requires an admission by ECC and the respective exchange to trade the products offered for STP. The STP Forms for Auto Registration (Brokers), i.e. Refinement/Deactivation of Auto Confirmation (Trading Participant) can be found under the following link: admission-forms/stp_forms The STP process is accessible for broker firms which are admitted as Trading Brokers or Non-Trading Brokers: Trading Brokers are trading participants or Trade Registration participants of the respective Partner Exchange and ECC operating as brokers that do not only enter trades into the trading system on behalf and in the name of NCMs but that can also open own positions which they can then transfer to their clients respective position accounts (Give-ups). Non-Trading Brokers only enter trades into the trading system on behalf and in the name of NCMs (direct trade entry). Hence, a trading participant membership for the broker is not needed. Confirmation Confirmation Confirmation Straight-Through Processing (STP) Member A Registration for clearing Broker Supporting Independent STP Providers Registration for clearing at partner exchange Auto Confirmation (T08 Refinement or Deactivation) NCM A CM A Trade Partner Exchange Auto Registration (T09) ECC Straight-Through Process (STP) Member B Auto Confirmation (T08 Refinement or Deactivation) NCM B CM B 27

28 REPORTING SERVICE Trade Reporting according to EMIR Article 9 Since 12 February 2014, counterparties have been obliged to report transactions to a trade repository according to EMIR Article 9. For ECC s members, these requirements comprise trade and position reporting, as well as reporting of data on collateral and valuations for financial counterparties. Service Offering ECC offers Clearing Members (CM) and trading participants a service whereby they can delegate their reporting obligations to ECC. This means that members can reduce their reporting efforts for all derivatives trades cleared by ECC. REMIT For transaction reporting obligations under REMIT, a service is offered to trading participants by ECC s Partner Exchanges. For more information please use the following links (exemplary for HUPX and EEX Group): remituseful.aspx Reporting for Derivatives Transactions All contracts that are derivatives under EMIR have to be reported. Due to the principal-to-principal model, the Clearing Member (CM) concludes a transaction with ECC as well as, in the case of Non- Clearing Member (NCM) or client business, a back-to-back transaction with its NCM or client. For any derivatives transaction, up to four trades have to be reported by the respective counterparties. Transaction Transaction Transaction Transaction NCM CM ECC CM NCM Requirements for Trade Reporting via ECC 1) Clearing Members Non-Clearing Members Clearing Members may delegate reporting to ECC (Delegated Reporting) --Open an account with Regis-TR (full reporting participant membership) --Sign an agreement with ECC and provide certain static data Non-Clearing Members may delegate reporting to ECC (Third-Party Reporting) --Open an account with Regis-TR (full reporting participant membership) --Sign an agreement with ECC and provide certain static data --Prerequisite: CM has delegated reporting to ECC 1) Service fee of EUR 200 per month for each party 28

29 DISCLAIMERS PRICE REPORTING AGENCIES Thermal Coal 1 API 2, API 4, API 5, API 8, ARGUS and IHS McCLOSKEY are trade marks and are used under licence from Argus Media Limited and IHS Global Limited. All copyrights, database rights and other rights in the API 2, API 4, API 5, and API 8 indexes belong exclusively to Argus Media Limited and IHS Global Limited and are used under licence. Argus and IHS take no position on the purchase or sale of products listed, traded or cleared on EEX (or any of its affiliates) including API 2 CIF ARA (Argus-IHS McCloskey) EURO Coal, API 4 FOB Richards Bay (Argus-IHS McCloskey) EURO Coal, API 5 FOB Newcastle (Argus-IHS McCloskey) Coal, and API 8 CFR South China (Argus-IHS McCloskey) Coal Futures. EEX is solely responsible for the operation of these products/markets and Argus and IHS exclude all liability in relation to such products and any use of its indexes. 2 IHS Indonesian Sub-bituminous FOB marker ( Index ) is a trade mark and is used under licence from IHS Global Limited. All copyrights and database rights in the Index belongs exclusively to IHS Global Limited and are used herein under licence. EEX and ECC are solely responsible for the operation of markets in Indonesian Sub-bit. (IHS) Coal Futures ( Product(s) ). IHS takes no position on the purchase or sale of such Products and excludes all liability in relation thereto. The Products are not in any way sponsored, endorsed, sold or promoted by IHS and IHS has no obligation or liability in connection with the administration, marketing or trading of the Products. IHS makes no warranties or representations, whether express or implied, including as to the results to be obtained from the use of the Index and excludes all liability relating to use of the Index to the fullest extent permitted at law. 3 Iron Ore The TSI Iron Ore Fines 62% Fe, CFR Tianjin Port Index ( PLATTS Index ) is a product of PLATTS, a Division of McGraw Hill Financial, Inc., and has been licensed for use by EEX and ECC (the Exchange ). Platts, TSI and The Steel Index (the PLATTS Marks ) are trademarks of PLATTS, its affiliates and/or its licensors and have been licensed for use by the Exchange. Iron Ore 62% Fe CFR Tianjin (TSI) Futures ( Exchange Contract ) is not sponsored, endorsed, sold or promoted by PLATTS or its affiliates or licensors. PLATTS, its affiliates and licensors make no representation or warranty, express or implied, regarding Exchange Contract or regarding the advisability of investing in securities or commodities generally or the ability of the PLATTS Index to track general market performance or commodity price movements, nor do they have any liability for any errors or omissions in, or interruptions of, the PLATTS Index or Exchange Contract. PLATTS s, its affiliates and licensors only relationship to the Exchange with respect to the PLATTS Index is the licensing of the PLATTS Index and of certain trademarks, service marks and/or trade names of PLATTS, and/or its affiliates or licensors. The PLATTS Index is determined, composed and calculated by PLATTS without regard to the Exchange or the Exchange Contract. PLATTS, its affiliates and licensors have no obligation to take the needs of the Exchange or any clients or users of the Exchange Contract into consideration in determining, composing or calculating the PLATTS Index. PLATTS, its affiliates and licensors have no obligation or liability in connection with the creation, development, preparation, marketing, sale and/or trading of the Exchange Contract. PLATTS, ITS AFFILIATES AND LICENSORS DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE PLATTS INDEX OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. PLATTS, ITS AFFILIATES AND LICENSORS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. PLATTS, ITS AFFILIATES AND LICEN- SORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE EXCHANGE, CLIENTS OR USERS OF THE EXCHANGE CONTRACT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE PLATTS INDEX OR EXCHANGE CONTRACT OR WITH RESPECT TO THE PLATTS MARKS, THE PLATTS INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL PLATTS, ITS AFFILIATES AND/OR ITS THIRD PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROF- ITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE. 4 Fertiliser ARGUS, the ARGUS Logo, FERTECON, the FERTECON Logo, CRU, the CRU Logo, are trade marks of Argus Media Limited, Fertecon Limited, and CRU International Limited, respectively, and are used under licence. All trade mark rights, copyrights and database rights in The Fertilizer Index report and The Fertilizer Index belong exclusively to Argus Media Limited, Fertecon Limited, and CRU International Limited, and are used under licence. EEX and ECC are solely responsible for the EEX Urea (Granular) fob NOLA Future, EEX Urea (Granular) fob Egypt Future, EEX Urea (Prilled) fob Yuzhnyy Future, EEX DAP fob NOLA Future, EEX DAP fob Tampa Future and EEX UAN fob NOLA Future. Neither Argus, Fertecon or CRU takes any position on the purchase or sale of these futures contracts and excludes all liability in relation thereto. 29

30 CONTACT HOTLINES Clearing & Settlement --For all clearing-related questions --Available from 7:30 a.m. to 7:00 p.m. CET l Phone: Fax: clearing@ecc.de Member Readiness --For all admission-related questions --Available from 9:00 a.m. to 6:00 p.m. CET l Phone: Fax: memberreadiness@ecc.de Contact European Commodity Clearing AG Augustusplatz Leipzig Germany Phone: clearing@ecc.de ECC is a subsidiary of EEX, part of Group Deutsche Börse. 30

31 24/7 Scheduling Hotline --For questions concerning physical delivery --Available 24 hours, 7 days a week l Phone: Fax: clearing@ecc.de Direct Clearing Team --For all questions concerning Direct Clearing processes (limit, collateral and payment) --Available from 9:00 a.m. to 5:30 p.m. CET Phone: directclearing@ecc.de Imprint Published by: European Commodity Clearing AG Photographs: Jürgen Jeibmann Photographik, Leipzig Layout: Grafikkontor Leipzig Printed by: Gutenberg Beuys Feindruckerei GmbH, Langenhagen As of January 2017