I-SEM – Business Liaison Group
NEMO
5 May 2016
1
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
2
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
3
Overview EEX Group and ECC
EEX operates transparent markets for energy and commodity products. At EEX, contracts on Power,
Emission Allowances, Coal as well as Freight and Agricultural Products are traded or registered for
clearing. Alongside EEX, EPEX SPOT, Powernext, Cleartrade Exchange (CLTX), PXE and Gaspoint
Nordic are also part of EEX Group.
Clearing
House
Partner
Exchanges
Clearing and settlement of trading transactions are provided by the integrated clearing house European
Commodity Clearing (ECC). ECC also provides clearing services for CEGH, SEEPEX, HUPX and
NOREXCO.
4
Development ECC Partnership Model
2006
Spin-off of the EEX clearing department to ECC AG
Launch of clearing services for the Dutch Energy Derivatives Exchange*
2008
Launch of clearing services for Powernext
2009
Start of clearing services for
EPEX Spot SE and CEGH Gas Exchange of Wiener Börse AG
Integration of Luxembourg-based subsidiary into delivery chain;
Establishment of ECC Lux as agent for deliveries
2010
Start of clearing services (Spot) for Hungarian Power Exchange (HUPX)
2011
Launch of clearing services for HUPX Futures Market
2013
Start of clearing services for Power Exchange Central Europe (PXE)
2014
Migration of clearing services for GASPOINT NORDIC (GPN)
2015
Launch of clearing services for NOREXECO (NXE)
2016
17 February 2016 Launch of clearing services for SEEPEX
European Commodity
Clearing Luxembourg S.à.r.l.
31 March 2016 Transition of clearing services for APX UK/NL & BELPEX
* cleared through ECC from 2006 - 2013
5
ECC at a glance
ECC is
based on
regulation
ECC offers
secure
business
•
•
•
•
•
ECC holds a German banking license.
ECC has the permission to act as a central counterparty (CCP).
ECC is a designated payment system (settlement finality directive).
ECC has a legal framework effecting international standards
ECC has a public clearing rulebook – ECC Clearing Conditions
•
ECC mitigates the counterparty default risk guaranteeing the fulfilment of all
transactions for OTC and exchange trades.
ECC steps into the delivery chain as a central counterparty for clearing
ECC connects exchanges and OTC markets using an integrated clearing
platform.
•
•
•
ECC as a
reliable
partner
ECC and EEX
having a partnership
approach for its
users, other
exchanges, traders
and public bodies.
62,82%
4,52%
100%
100%
13,72%
18,94%
©ECC AG – Any use of information contained in this document is expressly prohibited without prior written consent of ECC AG
6
ECC‘s Partner Exchanges
12
Partner Exchanges
1
APX
APX UK
1
BELPEX
CEGH
1
2
1
EEX
1
EPEX SPOT
Gaspoint Nordic
HUPX
2
1
1
1
NOREXECO
Powernext
PXE
SEEPEX
7
Integrated Clearing Solution
Offering clearing and settlement services to a network of Partner Exchanges is ECC‘s core strategic
approach.
Standardisation in:
Products
Clearing and
Settlement
Procedure
Rules and
Regulations
Risk
Management
and Margining
Interfaces and
Reports
Network
advantages
Reliability and
Know How
Benefits
Minimised costs
of clearing
Reduced
complexity
Security and
robustness of
processes
Integrated Clearing Solution
8
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
9
Clearing for Spot Markets
Parties Involved in Energy Clearing
1
(Business) Transaction
Trading
Participant
3
Partner Exchange
(Business) Takeover
4
Collection of securities
Transmission System
Operator
Clearing Member
3
2
Nomination/Delivery
Collection of securities
Nomination/Delivery
4
10
Clearing for Spot Markets
Overview Membership Types
Currently, ECC offers two different types of membership (Clearing and Non-Clearing Members).
ECC plans to introduce a Direct Clearing Participant model as a new membership category for
clearing at ECC Spot markets to introduce an easy access option for SME’s.
Clearing Member
Clearing Member






Concluded a CM Agreement
with ECC
Based in a member state of the
EU, Switzerland or Norway
Regulated by a financial
authority
TARGET2 account
Liable equity capital
Contribution to the Clearing
Fund
Non-Clearing Member
Direct Clearing Participant
 Trading Participant of the
exchange
 Client of a Clearing Member
 Passed ECC’s KYC assessment
 Sign a trilateral NCM agreement
with the Clearing member and
ECC
 Conclusion of a balance group
agreement with the respective
TSO
in case of physical delivery
 Trading Participant on an ECC
approved Spot market
 Passed ECC’s KYC assessment
 Concluded a DCP Clearing
Agreement with ECC
 Proof of bilateral agreement with
a Settlement bank
 Pledged Settlement account in
favour of ECC
 Power of Attorney for ECC to
debit settlement account
 Contribution to the Clearing
Fund
11
Clearing for Spot Markets
ECC Clearing Process
Trade Transfer
Orderbook
trading
and Trade
Registration
Interface
system
ECC Clearing
System
(SMSS)
Reporting
 As soon as the trades are concluded at the exchange they are sent to ECC and will be
registered for clearing
 The transactions are enriched with information necessary for the physical and financial
settlement within the Clearing System of ECC
 The nomination is sent out to the respective TSO
 The financial settlement is instructed through the EUREX Clearing System
12
Clearing for Spot Markets
Physical Settlement
 The Luxembourg-based ECC subsidiary
European Commodity Clearing
Luxembourg S.à.r.l. steps into the
delivery chain as an additional
contractual party.
 As central counterparty, ECC assumes
the role of a market participant in the grid
of the Transmission System Operators.
Physical Settlement is provided by ECC
Lux which has concluded a balancing
area agreement with all major European
TSOs.
 Trading participants opting for physical
settlement need to conclude a balancing
area agreement with the relevant TSO.
Alternatively, a third-party account
permitting access to a balancing area
can be used.
13
Clearing for Spot Markets
Financial Settlement
Exchanges
Conclusion of trades on spot
markets
SMSS
Financial Settlement:
Net payment amount
Accounting cut-off 4:00 p.m. (CET)
Reporting
Trade and Payment Reports
available
End of day
EUREX
Debit/Credit of net payment
amount via TARGET2 instructed
 ECC established a daily booking cut at 16:00:00 CET.
All trades concluded before the booking cut are
financially settled on the following TARGET2 operating
day, all other trades are settled one day later.
 The commodity amounts of all trades are netted to one
net payment amount per Clearing Member and are
reported in daily Payment Reports available as a
summary or a detailed report.
 Payments in EUR are processed on TARGET2
operating days at around
 8 a.m. CET before market opening via the EUREX
infrastructure.
 Payments in USD and GBP are processed overnight at
fixed times on all currency-specific business days
according to Clearstream Banking Luxembourg
payment cycles.
14
Clearing for Spot Markets
ECC Spot Margin
Risk
Spot Market
Current Exposure
+
Current Exposure Margin
(CESM)
The backwards-looking
considers all Spot
transactions that were
and need to be paid
counterparties.
CESM
Margin
made
by the
It is the value of outstanding
payments at the time of a
potential counterparty default.
Derivatives
Market
Variation Margin
Potential Future Exposure
Initial Margin Spot Market
(IMSM)
The forward-looking IMSM acts
as a buffer for the time when
trading but no payments can
be made (e.g. during the night
or at the weekends).
It represents the value of spot
transactions for the time
between the last payment and
the close out of a counterparty
in case of a default.
Initial Margin (SPAN)
15
Clearing for Spot Markets
Current Exposure Margin (CESM)
Current Exposure Margin (CESM)
 ECC measures intraday credit exposure on spot markets near to real time and charges
the exposure as a margin which has to be covered with collateral at all times.
 It is the net value (payment amount) of all concluded transactions on the spot markets
during the day that have not been settled.
 The margin will be released as soon as the corresponding payments have been
instructed.
Spot Initial
Margin
(IMSM)
16:00 18:00 8:00
Current Exposure
Spot Market accumulates
11:45
Payment
fulfilled
Payment
booked
Start DA
auction
Payment
fixed
Payment
fixed
Exposure
accumulates
Payment
booked
Payment
fulfilled
Relation ECC-CM
16:00 18:00 8:00 11:45
EUREX
System
closed
Note: Only the case is shown where exposure equals payments.
16
Clearing for Spot Markets
Initial Margin Spot Market (IMSM)
Initial Margin Spot Market (IMSM)
 On spot markets, trading and clearing takes place 24/7 including times when settlement of
payments is not possible due to TARGET2 closure.
 In order to cover exposures that might arise from trading activities during TARGET2
closure (e.g. at night or on weekends) times ECC has developed a model to calculate a
margin which is designed to cover exposure from potential spot transactions in the future.
 Calculation is based on the trading participant’s exposure from the spot trading
behavior during a look-back period of one year; the maximum exposure from the last
20 days is used if it is greater than the exposure from the look-back period to account
for sudden changes in the trading behavior.
 Minimum: 10,000 EUR (30,000 EUR for new spot market participants)
t-1
t
t+1
4:00 pm
8:00 am
4:00 pm
Accounting
cut-off
Payment
Accounting
cut-off
8:00 am
11:45 am
Payment
Latest
possibility for
suspension
Total Exposure t
17
Clearing for Spot Markets
Initial Margin Spot Market (IMSM)
For each ECC trading day 𝑡, the margin requirement M for NCM 𝑖 for the next ECC trading day
𝑡 + 1 is given by
𝑀𝑖 𝑡 + 1 = max 𝜇 𝐸𝑖 𝑠
𝑠∈𝑆
+ 𝛼 𝜎 𝐸𝑖 𝑠
𝑠∈𝑆 ;
Statistical component
Mean + 3.1 * standard
deviation of exposures of
past year greater than 𝑀min
𝛽 max
𝐸𝑖 𝑠 ′ ; 𝑀min ; 𝑀min_𝑓𝑖𝑟𝑠𝑡 ∙ Ι{𝑡+1>𝑡0 +29}
′
′
𝑠 ∈𝑆
Maximum
component
1.4 * max
exposure of last
20 trading days
Minimum requirement
30,000 EUR for first 30 ECC
trading days after admission,
10,000 EUR afterwards
Example:
Daily exposure of 50,000 EUR over the last year (mean = 50,000 EUR, standard deviation = 0,
max. exposure of last 20 trading days: 50,000 EUR)
70,000 = max{
Statistical component
50,000 EUR + 3.1 * 0 =
50,000 EUR
 𝜇 is the average function, 𝜎 is the standard deviation
 𝐸𝑖 (𝑠) represents the exposure of NCM 𝑖 of day s
 𝛼, 𝛽, 𝑀min ; 𝑀min_𝑓𝑖𝑟𝑠𝑡 are parameters
Maximum
component
1.4 * 50,000 EUR
= 70,000 EUR
Minimum requirement
30,000 EUR
}
 𝐼 stands for the indicator function
 𝑡0 stands for date of admission
 𝑆 = {𝑡 − 250 + 1, … , 𝑡} in ECC days, 𝑆 ′ = 𝑡 − 20 + 1, … , 𝑡 in ECC days
18
Clearing for Spot Markets
Eligible Collateral
Non-Clearing Member
Clearing Member
ECC Collateral Management
via EUREX User GUI
ECC Collateral Management
via ECC Member Area
Securities Collateral
Location
Cash Collateral
Location
Emission
Certificates
Collateral Location
Bank Guarantees
Collateral Location
Clearstream
Frankfurt
Central Bank
TARGET2
Union Registry
ECC
19
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
20
Direct Clearing Participants
Overview Membership Types
Currently, ECC offers two different types of membership (Clearing and Non-Clearing Members).
ECC plans to introduce a Direct Clearing Participant model as a new membership category for
clearing at ECC Spot markets to introduce an easy access option for SME’s.
Clearing Member
Clearing Member






Concluded a CM Agreement
with ECC
Based in a member state of the
EU, Switzerland or Norway
Regulated by a financial
authority
TARGET2 account
Liable equity capital
Contribution to the Clearing
Fund
Non-Clearing Member
Direct Clearing Participant
 Trading Participant of the
exchange
 Client of a Clearing Member
 Passed ECC’s KYC assessment
 Sign a trilateral NCM agreement
with the Clearing member and
ECC
 Conclusion of a balance group
agreement with the respective
TSO
in case of physical delivery
 Trading Participant on an ECC
approved Spot market
 Passed ECC’s KYC assessment
 Concluded a DCP Clearing
Agreement with ECC
 Proof of bilateral agreement with
a Settlement bank
 Pledged Settlement account in
favour of ECC
 Power of Attorney for ECC to
debit settlement account
 Contribution to the Clearing
Fund
21
Direct Clearing Participants
Direct Clearing Participant Model - Components
Acceptance of
guarantees as
collateral
Spot
markets
only
Pre-trade
limits
Acts as payment
agent providing
TARGET2 & CBL
access without
guarantee function
Pre-trade limits as
precondition
Bilateral
Settlement
Bank
DCP
Clearing
Agreement
Agreement
between DCP and
ECC, suitable for
SMEs
22
Direct Clearing Participants
Trading Limits

Direct Clearing Access is allowed for markets with a pre-trade limit system in place.

It allows small and medium sized entities to gain direct access to the Spot markets
cleared by ECC.

Trading needs to be PRE-FUNDED by the Direct Clearing Participant and will be
restricted such that exposures will always be below the available total collaterals
furnished by the DCP to ECC as well as a credit limit which will be calculated by ECC
based on the scoring of the DCP.

DCP can

establish a limit amount depending on his expected trading volume per market
 ECC will calculate the respective total collateral amount which needs to be
provided

announce the respective collateral
 ECC will derive a total limit amount
amount
he
is
willing

Accepted Collateral: Cash and Bank Guarantees in EUR or GBP

A settlement bank provides TARGET2 access and acts as payment agent.

The introduction of the DCP model is scheduled for earliest Q2/2016.
to
provide
23
Direct Clearing Participants
Application Forms
DCP Forms
scan
“KNOW YOUR CUSTOMER”
TP_[MARKET]_01a
QUESTIONNAIRE
POSSIBILITY TO FULFILL TRADES
PHYSICALLY
TP07
VAT DETAILS
DCP01
original
TP Forms
APPLICATION FOR ADMISSION AS
DIRECT CLEARING PARTICIPANT
scan
TP_[MARKET]_01b
POSSIBILITY TO FULFILL TRADES
PHYSICALLY WHILE USING A THIRD
PARTY
DCP02
AGREEMENT
Supplementary documents like:
 Proof of bilateral agreement with settlement bank, Power of Attorney for ECC to debit
settlement account, certificate of company register, proof of signatures etc.
24
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
25
ECC‘s Admission Process
Overview
1
Contact your Key Account Manager or ECC Member Readiness
2
Submit admission forms to ECC
3
ECC reviews admission documents
4
Technical setup of trading and clearing systems
5
Admission as a Non-Clearing Member
26
ECC‘s Admission Process
Non-Clearing Member Requirements – Application Forms
NCM Forms
“KNOW YOUR CUSTOMER”
TP_[MARKET]_01a
QUESTIONNAIRE
POSSIBILITY TO FULFILL TRADES
PHYSICALLY
TP07
scan
VAT DETAILS
T10
APPLICATION FOR SETUP/
MODIFICATION / DELETION OF USERIDs – not mandatory
NCM01
original
TP Forms
APPLICATION FOR ADMISSION AS
NON-CLEARING MEMBER
scan
TP_[MARKET]_01b
POSSIBILITY TO FULFILL TRADES
PHYSICALLY WHILE USING A THIRD
PARTY
Reduced admission scope for
existing NCMs, who only enhance
the existing membership and apply
for new spot market power products
NCM02
NCM AGREEMENT
Supplementary documents like:
 certificate of company register, proof of signatures etc.
27
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
28
General Clearing Members
Membership Types



A Clearing Member is a guarantor and payment agent for all trades concluded on the
Spot Market. Additionally the CM steps between the transactions of ECC and NonClearing Members to be contractual counter party for both on the Derivatives Market.
A Clearing Member clears transactions as well as OTC-registered trades concluded
on one of ECC’s Partner Exchanges for ECC-approved products.
As a participant in the clearing procedure, the Clearing Member holds a clearing
license that covers all ECC approved products. It is based on a contract with ECC,
the ECC Clearing Conditions , Technical Regulations and ECC’s Price List.
Direct Clearing Member (DCM)
authorized to clear transactions on its
own account, customer transactions as
well as transactions by affiliated NonClearing Members
General Clearing Member (GCM)
authorized to clear transactions on its
own account, customer transactions or
transactions by Non-Clearing Members
29
General Clearing Members
Current Network of Clearing Members
As of May 2016
23
Clearing Member
ABN AMRO Clearing Bank N.V.
Banca Akros SpA
Banca Popolare di Sondrio SCPA
Banco Santander, S.A.
Barclays Bank PLC
Bayerische Landesbank
11
BNP Paribas Commodity Futures Ltd.
1
Citigroup Global Markets
2
ED&F Man Capital Markets Limited
Goldman Sachs International
2
INTL FCStone LTD
J.P. Morgan Securities plc.
KELER CCP Ltd.
1
1
Macquarie Bank International
1
Merrill Lynch International
Morgan Stanley & Co. International plc
Nordea Bank AB, Frankfurt Branch
Oesterreichische Kontrollbank AG
2
2
Raiffeisenbank a.s.
Renta 4 Banco
Societe Generale Newedge UK Limited
UBS AG
UniCredit Bank Czech Republic and
Slovakia, a.s.
30
General Clearing Members
Potential New Clearing Members for the Irish Market
Allied Irish Banks
Bank of Ireland
Danske Bank
HSBC
Ulster Bank
Or other financial institutions…
31
Agenda
 Overview ECC and EEX Group
 Clearing for Spot Markets - How Does it Work
 Direct Clearing Participants - Requirements
 On-boarding process at ECC
 General Clearing Members
 Shipping Arrangements
 Q&A
32
Questions?
33
I-SEM Project – Contact Details
Web: http://www.sem-o.com/isem/Pages/Home.aspx
Email : I-SEMproject@sem-o.com
THANK YOU!
34