Tokyo Power Market Seminar June 2018 Richard Everett Head of Product and Markets

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1 Tokyo Power Market Seminar June 2018 Richard Everett Head of Product and Markets

2 TRAYPORT OVERVIEW Our company Founded in 1993 HQ in London, with offices in Singapore and New York 200+ staff Wholly owned subsidiary of TMX Group Our clients 292 direct trader entities in 38 different countries, entities includes: Utilities, Banks, Trading Houses, Resource Companies and Funds 12 exchanges, 23 wholesale brokers, and 4 CCPs 4,000 + traders Our markets Network covers multiple asset classes: o Power o Gas o Coal o Freight o Iron Ore o LPG o Emissions Why Trayport? We connect all these traders, brokers and exchanges to form the primary network and data platform for European wholesale energy markets. Trayport solutions are used for: Price discovery Execution Post-trade transparency Post-trade STP Our technology underpins over 80% of all Power, Natural Gas and Coal derivatives trading in Europe.

3 EUROPEAN ENERGY COMPOSITION: BROKER / CLEARED / EXCHANGE Forward/future electricity markets offer market participants hedging opportunities against spot price uncertainties, in order to improve stability of their cash flows. The majority of forward/future contracts are traded through brokers, while the rest are traded across multi-country platforms. Information as at: 30 June 2017 Estimates based on Trayport analysis and market research

4 EUROPEAN ENERGY COMPOSITION

5 EUROPEAN EXPERIENCE Liberalised Developing Reforming Closed The majority of EU countries have liberalised electricity and gas markets. In CEE and Russia electricity is becoming a competitive market with regulation in place Some Eastern EU countries (Balkans) have less liberalised markets and the are still working on the legal framework

6 FORWARD AND FUTURES MARKET EVOLUTION The DEREGULATION of power and gas has supported the creation of the wholesale market. The creation of multilateral BILATERAL trading aided by BROKERS, who help to create trading opportunities between counterparties. These trades start to be reported more widely, thus creating the beginnings of a transparent market. With price disclosure comes price discovery which in turn attracts more players to the market, often at this stage smaller physical traders and the first tentative moves by financial players. EXCHANGES provider standardisation and facilitate greater access to the market, especially by non-physical players.

7 EUROPEAN POWER MARKET - MARKET PARTICIPANTS Electricity trading is both physical and financial. Physical exchange of power usually happens among counterparties through bilateral agreements ( EFET standard contracts) and also OTC brokers. Exchanges offer financial and physical, typically short-term physical and longterm financial. Clearing houses remove counterparty risks between buyer and sellers. Who they are? Traders Interdealer Brokers (OTC) Exchanges What do they do? Procurement, hedging and speculation: Banks/Funds Retailers (utilities) Generators Commodity trading houses Facilitate transactions between counterparties for a fee and without taking positions. Offers a marketplace where members can trade instruments without incurring in counterparty risk (clearing)

8 PRODUCT CHARACTERISTICS: CONTRACTS TRADED & PERIODS The most common financial and physical instruments used in the electricity sector to hedge underlying energy price risks are FUTURES and FORWARDS. FUTURE / FORWARD Base load Peak load Off Peak HOURS DAYS MW MW MW MW GERMAN POWER MARKET: ~70 ACTIVE CONTRACTS EUROPEAN POWER: ~300 ACTIVE CONTACTS WEEKS MW MW MW MONTHS MW MW MW QUARTERS MW MW MW SEASONS MW MW MW YEARS MW MW MW JAPAN POWER: TBC: CONTRACTS? BRENT FUTURES: < 30 ACTIVE CONTRACTS SPREAD OF LIQUIDITY ACROSS MANY CONTRACTS MAKES BROKERS KEY TO SUCCESS OF MARKET

9 MANAGING THE RISK: LOAD SHAPES In reality hedging is carried out over the portfolio and multiple trades across Spot, Physical Forwards and Futures are used to hedge a close as possible the physical requirements. Physical Forwards Day ahead -> Years Financial Futures (Generally) Months -> Years SPOT Day Ahead and Intraday

10 THE TRADERS DESK

11 THE TRADERS DESK Market Data and Execution Market Data and Execution Market Data and Execution News Instant Messenger Charting Excel ETRM Turret / Phone Bank

12 THE TRADERS SCREEN To Manage Risk: Brokers to support wide range of contracts Financial and Physical products Wide range of market participants

13 THE TRADERS SCREEN To Manage Risk: Brokers to support wide range of contracts Financial and Physical products Wide range of market participants

14 FOR JAPAN? To Manage Risk: High number of contracts to mirror risk profiles liquidity support from brokers. Financial and Physical products to support a wide range of market participants Wholesale markets for electricity and fuels

15 Thank You Head Office Trayport Limited 7th Floor 9 Appold Street London EC2A 2AP United Kingdom Tel: +44 (0) New York 245 Park Avenue 39th Floor STE 62 New York NY Tel: Singapore Trayport Pte Limited One Raffles Place Office Tower 1 #31-02 Singapore Tel: