Liquidity: statutory consultation on the
‘Secure and Promote’ licence condition
Power Trading Forum
Martin Bell
12/12/13
Reminder – structure of
our liquidity proposals
Objective 1 (availability of
products which support
hedging):
Secure and
Promote
Licence
Condition
Secure fair trading terms for
small suppliers through
Supplier Market Access rules
Objective 3 (an effective near
term market):
Reporting requirements to
facilitate monitoring of dayahead auctions
Objective 2 (robust reference
prices along the curve):
Promote improvements in
forward liquidity through a
market-making obligation
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Current stage – statutory consultation
• On 20 November, we published a statutory consultation on the proposed licence
condition. This is a legal requirement before making changes to licences
• This stage focuses on the licence drafting. We would like to obtain feedback on the
licence text. In particular, we want to check that it reflects our policy design
•
The full set of documents we published were:
Notice with the proposed
licence text
Statutory consultation
setting out our final policy
design
Draft Guidance on
interpretation of the
licence text
Impact Assessment
• Responses to the statutory consultation, and any feedback on the Impact
Assessment and Guidance should be submitted by 18 December
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Market making design (1)
•
Our design for the market making obligation remains broadly as set out in June
• However, following responses to the last consultation, we have updated our policy
design to improve its effectiveness
Approach to market maker availability
•
Requirement in June
consultation
Requirement in November
statutory consultation
Post prices for 50% of
trading hours each
month
Post prices for two hourlong trading windows
each day
Trading windows have a number of advantages – these include:
Guaranteed
opportunities to
trade every day
Increased market
depth
Afternoon window
aligns with activity
in the gas market
Practical benefits
(eg monitoring
compliance)
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Market making design (2)
Knock-on changes to availability rules
• As a result of moving to trading windows, some of the other availability rules also
needed to be redesigned
• These rules are intended to provide protection for Secure and Promote licensees
against specific risks, while still ensuring that the design delivers regular availability
Reloading rule
• Five minute period to
replace prices after
trading a particular
product
Volume cap
• Net volume cap for a
licensee of 30MW in a
product per window
• Intended to mitigate
risk of large open
positions
Fast market rule
• Licensees allowed to
withdraw from market
making in a product if
the price moves by 4%
in a window
• Intended to deal with
situations of extreme
volatility
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Market making design (3)
Platform rules
European financial legislation
• Reframed rules – in general, we want to leave
licensees flexibility about where to market make
• Uncertainty about the final shape - so we intend to
carry out a review at an appropriate point
Bid-offer spreads
• Increased slightly for baseload products
Transition period
• Introduced short (three month) transition period
with slightly wider spreads
• Full product range still available in transition period
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Timetable
20 Nov
2013
18 Dec
2013
Early
2014
Statutory consultation published
Deadline for responses
Decision to modify licences (at least 56
days before changes come into effect)
Plus 20
days
Window for appeal to Competition
Commission (20 working days)
31 Mar
2014
Licence condition implemented
Contact details:
Graham Knowles (graham.knowles@ofgem.gov.uk), Martin Bell
(martin.bell@ofgem.gov.uk) or Leigh Rafferty (leigh.rafferty@ofgem.gov.uk)
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