Day-Ahead & Intraday Energy Market Clearing

Transcription

1 Day-Ahead & Intraday Energy Market Clearing 20/07/2018 Christos Nikolaidis Director of Risk Management and Clearing Division ATHENS EXCHANGE GROUP 1

2 Agenda DAM & IDM structure The role of Energy Clear Clearing Members Clearing Procedures Risk Management Default Procedures & Measures against Clearing Members Fees Amendments of the Rulebook Financial Settlement 2

3 Day-Ahead & Intraday Market Structure 3

4 ORDERS TECHNICAL INFO DAILY SCHEDULE Interfaces between the Participants in DAM & IDM ADMIE MARKET PARTICIPANT GENERAL CLEARING MEMBER ORDERS TRADE CONFIRMATIONS TRADES CONFIRMATIONS RISK INFORMATION TRADE CONFIRTMATIONS ENERGY EXCHANGE ENERGY CLEAR CREDIT LIMITS ORDERS TRADE CONFIRMATIONS TRADES CONFIRMATIONS RISK INFORMATION MARKET PARTICIPANT (DIRECT CLEARING MEMBER) PAYMENT TRANSFERS PAYMENT TRANSFER PAYMENT TRANSFERS SETTLEMENT BANK PAYMENT TRANSFERS TARGET 2 PAYMENT TRANSFERS SETTLEMENT BANK 4

5 Τhe Role of Energy Clear in DAM & IDM 5

6 Netting and Central Clearing Old world: Bilateral trading without netting A Bilateral trading with netting A New Model: Centrally Cleared Transaction A B C B C B Energy Clear C D E D E D E Several counterparties and transactions One transaction for each counterparty Always only one counterparty! 6

7 The Role of Energy Clear The role of Energy Clear: As a Central Counterparty, intervenes between counterparties transactions within the Energy Market (Day Ahead & Intraday) and undertakes the role of buyer vs each seller and vice versa, for the clearing of the financial side of transactions. Main advantages of Energy Clear: Efficiency: Energy Clear aggregates the obligations of the counterparties considering their positions (netting) Risk Management: Energy Clear manages counterparties risk applying suitable risk management models 7

8 Clearing Members 8

9 Clearing Members 1/2 Clearing Members are the Counterparties of Energy Clear. Clearing Members categories: Direct Clearing Members are those who are authorized to clear only their own transactions as Market participants. The Direct Members are not allowed to clear other participants transactions General Clearing Members are those who are authorized to clear their own transactions as well as other participants transactions Clearing Members can be: Energy Market Participants (DCM) Credit Institutions (GCM) Investment Firms (GCM) Participant & Direct Clearing Member General Clearing Member Energy Clear Participant & Direct Clearing Member General Clearing Member Participant Participant Participant 9

10 Clearing Members 2/2 Requirements for Clearing Members: 1. Participating in the Market (only for DCMs) 2. Being financially robust (minimum Equity 500,000 for DCM & 3,000,000 for GCM) 3. Satisfying minimum organizational requirements (risk management, certified users, etc.) 4. Satisfying technology requirements 5. Having an agreement with a Settlement Bank 6. Having completed the Know-your-Client procedure of Energy Clear 7. Having contributed to the Clearing Fund 8. Complying with the Clearing Rulebook 10

11 Clearing Procedures 11

12 Clearing Accounts At least one Clearing Account (C.A.) is created for each Participant Each Participant is allowed to have more than one C.A. Debits / Credits, Risk and Submitted Collaterals are maintained on C.A. level General Clearing Member Clearing Account 1 Clearing Account 2 Participant 1 Participant 2 12

13 Clearing Procedures Clearing involves the following procedures: Notification of the transactions to be cleared, from the Market Operator to Energy Clear Calculation of net positions (quantities & cash amounts) at specific time of the day Calculation of margin requirements Collateral management & valuation Credit limits calculation & monitoring Financial settlement Issue of the relevant invoices 13

14 Transactions Details The Market Operator communicates on a digital form to Energy Clear detailed information of the transactions that took place The required info per transaction is the following Energy Market (DAM or IDM) Participant EIC code Entity EIC code, for which the order is submitted Buy or Sell transaction Energy quantity Transaction price or total value Time & Date Market Time Unit(s) Currency Clearing Account Code 14

15 Calculation of Credits and Debits Energy Clear on specific time Τ (16:00) every working day calculates for each Clearing Member and Clearing Account the net credits or debits per market (DAM or IDM), which derive from the transactions that have taken place and notified to Energy Clear until time Τ The net debit will be settled on the following working day while the net credit the working day after that Energy Clear provides also detailed transaction information per market, clearing account and participant; it issues invoices with detailed data as well 15

16 Credit/Debit Settlement Schedule Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Trade Trade Trade Trade Trade Trade Trade Trade Debit Debit Debit Debit Debit Debit Credit Credit Credit Credit Credit Credit The transactions that take place before time Τ (16:00 ΕΕΤ) of each day are included in the calculation procedure of the day. The remaining transactions are considered in the calculation procedures on the following day. For each day, debits are settled the following working day while credits the working day after that 16

17 Financial Settlement 17

18 Settlement in Central Bank Money Energy Clear performs the Financial Settlement of the transactions, the collaterals management and the Clearing Fund contribution management, in Central Bank with the use of Target 2 system The use of the Ancillary System of Target 2 offers an easy access to money transfer for all participants, even to the foreign ones 18

19 Financial Settlement Example 20

20 Risk Management 21

21 Collaterals Collaterals are used to mitigate counterparty risk. The accepted collaterals from Energy Clear, initially will be the following: Cash in euro Letter of Guarantees from credit institutions At least 40% of the required collaterals must be provided in cash The collaterals are submitted per clearing account The collaterals in cash are submitted in Target 2 Collaterals of a non defaulting member may be temporarily used to cover liquidity needs in case of a default 22

22 Margin Requirement Margins are required in order to cover risk from unsettled transactions Margin requirement is calculated during the end of day procedure Margin calculation is based on the net position (liability/claim) of the Clearing Account resulting from the transactions disclosed to the Clearing System on the clearing day: If the net position is an obligation for the member, then margin is equal to this obligation If the net position is an obligation for the Energy Clear, then the margin is equal to this obligation but with negative sign and it is counted as collateral Calculated margin becomes zero after the settlement of the transactions 23

23 Credit Limit The Clearing Account Credit Limit is equal to the sum of the deposited collaterals valuation minus the calculated margins Credit Limit may be increased by providing additional collaterals or after the settlement of transactions 24

24 Intraday Risk Intraday Risk is calculated for active orders and completed trades during the day and should be lower than the provided credit limit The intraday risk for active orders is calculated as follows: For the orders with specific price (e.g. piece-wise step & linear orders), the transaction is valuated at its total amount (e.g. for piece-wise step orders equals to the sum over all steps of the order step price multiplied to the order step quantity) For the price-taking orders, the transaction is valuated according to a reference price applying historical data If the derived value is negative (credit for participant), then the order risk is equal to the value and the correspondent credit limit is consumed If the derived value is positive (debit for participant), the risk is zero and no credit limit is consumed The intraday risk for the completed trades, equals to the sum of the corresponding value of all trades 25

25 Intraday Risk Transactions Intraday Risk Orders Collaterals break-down Collaterals Margin Requirement Available Guarantees Credit Limit 26

26 Clearing Fund Energy Clear handles the Clearing Fund to protect the Market from Counterparty Risk Each Clearing Member holds a share in the Clearing Fund. The Clearing Fund is the sum of the contributions (shares) of the Clearing Members Clearing Fund gets calculated by Energy Clear on a monthly basis The contribution of each Clearing Member to the Clearing Fund is determined according to its average daily margin during the previous period, applying a minimum contribution requirement ( 30,000 for DCM and 500,000 for GCM) 27

27 Other Risks for Energy Clear Liquidity Risk Operational Risk 28

28 Liquidity Risk The objective is to maintain a sufficient level of liquidity, to ensure that Energy Clear is capable of meeting its payment obligations at the end of each day or, if necessary, on an Intraday basis. The amount of Energy Clear's liabilities is calculated based on normal operating conditions, but also under stress scenarios (e.g. member default). The available Energy Clear liquidity sources, specifically for covering a member default, are the following: The provided guarantees by all Clearing Members The Clearing Fund Energy Clear s own financial resources 29

29 Operational Risk The Energy Clear Business Risk Management Framework defines the principles & procedures for managing the Operational Risk, as well as the roles and responsibilities assigned. It analyzes the procedures of risk identification / evaluation, mitigation and monitoring. The main pillars of the framework are the following : Recognition of potential risks through a self-assessment process (RCSA) Data collection of events that could lead to damage Action plans to minimize risk and key risk indicators reporting 30

30 Default Procedures and Measures against Members 31

31 Default Cases Default takes place when there is no sufficient amount, in the settlement account of the Clearing Member in Target 2, to match its obligations for: financial settlement required margin deposits possible adjustments in Clearing Fund contributions fees taxes 32

32 Actions for Default Management If the Clearing Member fails to meet its obligations, Energy Clear implements the following steps: Informs RAE, the Market Operator and IPTO Consumes or liquidates the Clearing Member's available collaterals Makes use of the Clearing Member's share in the Clearing Fund or the other Clearing Members' shares, to cover the default amount (pro rata) 33

33 Default Waterfall The following figure explains the order in which the available funds are used by Energy Clear in the case of a Clearing Member Default Guarantees of the Default Clearing Account Share of the Default C.M. in the Clearing Fund Remaining of the Clearing Fund * 25% of the required by the law 4425/2016 share capital of Energy Clear Energy Clear own resources * 34

34 Fees 35

35 Fees Energy Clear fees: Decisions will be made from Energy Clear Board Of Directors Will be transparent & discrete per service Get published on Energy Clear website Any changes: Will be communicated to RAE Will be published on time to participants 36

36 Rulebook Amendment Procedures 37

37 Rulebook Amendment Procedures The Clearing Rulebook is amended by an Energy Clear decision, approved by RAE according to paragraph 4, Article 12 of Law 4425/2016. The amendments approved by RAE are published in the Official Government Gazette. Energy Clear submits to RAE any implementing decision pursuant to the Clearing Rulebook The amendment of the Rulebook to non-legislative or regulatory matters requires prior consultation between Energy Clear and authorities representing Clearing Members and Energy Market Participants 38

38 Questions Christos Nikolaidis Director of Risk Management and Clearing Division 39