Market Dynamics Report

JANUARY 15 2014

2013 – The Year in Review

There were four main themes that played out in the Euro Commodity markets during 2013:

  1. The impact of regulation – Dodd Frank and EMIR;
  2. Battle for Coal;
  3. Focus on Euro Gas; and
  4. The continued decline of Emissions.

1.       Impact of Regulation

The impact of the implementation of Dodd-Frank and EMIR was seen in our markets through an increase of block futures execution and a shift to clearing in the largest European Power market. The block future trade type first became a significant feature in the Euro Commodity markets during October 2012, in response to  Dodd-Frank's focus on swaps. The Euro Commodity market most affected by Dodd-Frank is the global Coal market, the contracts API2 and API4. During 2013 we have seen the percentage of the total API2 & API4 cleared market that is executed as a block future significantly increase from December 2012 to December 2013. The cleared market is almost completely executed as a block future, and this is only set to rise. This is in addition to an increase in clearing in coal.

There has been a visible shift to clearing in our largest European Power market, German Power, across 2013.  This grew as a percentage of total German Power volume in 2013, an increase vs. 2012. With EMIR implementation continuing in 2014, this shift could be a leading indicator of a move to cleared trading by FC and NFC+ participants due to the increased costs of uncleared trading because of EMIR.  We'll keep an eye on further clearing developments across all markets subject to EMIR over 2014.

2.       Battle for Coal

2012 saw the emergence of a real fight for clearing business in the almost exclusively OTC Coal market between the global commodities exchanges. While there was a significant shift of cleared market share from one exchange to another during 2012, 2013 also saw one exchange end the year with the majority of the total API2 & API4 cleared market.

In terms of volume growth, coal recorded the largest year on year volume growth of the Euro Commodity markets for 2013. Coupled with the increase in clearing and market share, one exchange's API2 & API4 volumes rose significantly in 2013 vs. 2012.

3.       Focus on Euro Gas

Euro Gas had the second highest volume growth of the Euro Commodity markets. This volume growth supported the increasing importance of this market sector to the European Energy markets. TTF grew to more than half the size of NBP volumes for 2013. The German Gas markets also displayed some interesting dynamics, with the smaller Gaspool area growing to very nearly the same size as the larger NCG in the latter months of the year.

The potential of these nascent markets have also caught the eye of the three major exchanges that offer trading in these markets.

4.       Emissions

The emissions market had a mixed year this year. The various policy votes held throughout the year pushed volumes around. Even with these sporadically large volume days, total volumes in the emissions market dropped vs. 2012. The CER market showed the biggest change, with volumes down significantly vs. 2012 and the market almost fully cleared by December 2013.

As with 2012, 2013 was a year full of activity and significant change. We look forward to an interesting 2014.