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Market Dynamics Report

June 2016 saw volumes increase to the third highest volume this year, with 8.353 million monthly contracts traded, up 21% vs. May 2016. With the Brexit vote towards the end of the month, how much of this increased liquidity occurred in the last trading week of June? Will we expect continued market volatility and increased liquidity as the uncertainty surrounding Britain's exit from the EU settles into markets? Looking at previous years, we see similar growth in volume for June vs. May for all years except 2012, where we saw negative growth in volumes June vs. May. YTD volumes are also high, with total volumes traded Jan – Jun 2016 of 48.208 million monthly contracts, up 22% vs. the same period last year.

The main drivers of the volume growth this month were Euro Gas and Euro Power, contributing 54% and 25% of the volume growth respectively. Coal's second largest month since our records began contributed 8%, Emissions contributed 10%, UK Gas contributed 4% and UK Power was the only market that shrank June vs. May, contributing negative 1% of total market volume growth.

TTF recorded its second highest volume traded since our records started, at 2,086 TWh, up 31% MoM. Broker bilateral volumes of 1,498 TWh were the largest since our records began. This large growth pushed TTF past NBP to again be crowned king of the markets for the month, at 119% of NBP's volume for June. There seems to be a monthly swing between NBP and TTF for the top position, while YTD we are steady as TTF has been the largest by YTD volumes since February. All other Euro Gas markets showed growth MoM except PSV, with volumes down 24%.

Euro Power growth was driven almost solely by German Power, with volumes up 48% MoM to 764 TWh traded. This is the largest volume seen since January 2013. This is also coupled with a 3% gain in broker bilateral market share vs. May 2016. How much of this growth in volume is related to price volatility driven off the API2 market dynamics (see below)? CEE Power and Nordic Power were the only other two power markets that recorded growth in volumes MoM – up 43% and 7% respectively.

The coal market has been fascinating to follow this month, with shifts in price not seeming to be linked to fundamental drivers, although news out in the last couple of weeks have indicated there may be some supply concerns. We have seen a rising coal price since January, and this is having an effect on German Power prices. While the LEBA volatility measure for API2 dropped during June (18%
vs. 23% in May), volumes in API2 hit a record high of 380 million metric tonnes traded, up 42% vs. May. There was also a shift in market dynamics, as broker cleared dropped to 81% market share and exchange executions grew to a record 7% market share (the previous high of 4% was recorded in September 2011). We have not seen the same change in API4, as exchange executions remained at low levels in June. YTD exchange executions are 4% of total API2 volumes, a gain of 3% vs. all previous years. What is driving this very early stage trend to exchange executions in API2? Is it actually a trend or a blip? Is it related to rising prices? To new participants or to existing participants seeking anonymous trading options?

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