Market Dynamics Report

JULY 11 2014

June 2014

Euro Commodities markets shift to clearing is more visible than ever; the TTF brokered market outstrips NBP; volumes up

This month sees a real crystallisation of the shift to clearing in the Euro Commodities markets. The largest Euro Commodity market, NBP, crossed over half of the cleared market share threshold for the first time during June 2014. Euro Gas and Coal also recorded the highest monthly cleared market share.

A theory that we have often quoted in this editorial is that of an expected shift to clearing in high volume months, as traders do not require a broker to find liquidity for them – it is there in the market already. June 2014 showed strong month on month volumes in all markets bar Emissions, which supports this theory. Yet June is the second lowest volume month of the year by monthly contracts traded – comparatively, January to April saw higher volumes but lower cleared market share. Are we now seeing the fundamental shift to clearing in the market? What's driving the shift – is the impact of the recent regulatory changes starting to show itself in the core Euro Commodity markets? Or has the structure of the market shifted, with new participants requiring different post-trade risk management? As always, we will keep a keen eye on these changes over the coming months.

The cleared market represents both the exchange executed and broker cleared portions of volume. This distinction is important as the market structure of the groupings above varies even with similar cleared market shares. For example, while both the Emissions and Coal groupings have similar cleared market shares, the majority of Emissions cleared volume is from exchange executions, while all of the Coal cleared volume is broker executed and then given up into clearing. What remains to be seen is the form that clearing in the remaining Euro Commodity groupings will take – will we see cleared markets that look more like Emissions, or ones that look more like Coal?

Strong growth in TTF volumes saw this market grow to a record level of the total NBP market in TWh terms in June 2014. Broker bilateral TTF volumes are larger than NBP volumes and if we look at the total broker market (both bilateral and cleared), it is larger than NBP. Internally we've been debating when the TTF market might catch up to NBP in total volume. What do you think? Will it ever catch up? If it does, when will it happen? Will it overtake?