November 2015: Volumes up, cleared market share up, record in API2 exchange executions
Volumes were up MoM for the fourth month in a row in November, up 8% to 7.125m monthly contracts traded. Could this be a seasonal anomaly? 2012, 2013 and 2014 all saw volume drops MoM November vs October. The Gas markets were again the contributors of growth this month, with UK Gas growing 16% and Euro Gas growing 11% vs. Oct-15, while all other markets were down MoM.
Market structure moved towards clearing in November, with all groupings except Coal seeing an increase in cleared market share: Emissions grew 2%, UK Gas grew 5%, Euro Power grew 1%, Euro Gas grew 6% and UK Power grew 1%. Within this, several individual markets saw record cleared volumes - TTF, Gaspool, German Power, French Power and Italian Power. What is driving the increase in the cleared market this month? We saw volume growth in UK Gas and TTF which may explain some of the growth, although in the past we have seen our theory - that the cleared market increases when liquidity increases - dispelled in months where volumes have dropped but cleared market share has risen. The Emissions and Power market groupings also saw volumes drop but cleared market increases in November.
So we see mixed volume growth across the commodity groupings, but consistent market structure changes. What's happened this month that supports these movements? There was a lot of chatter regarding the implementation of MiFID II – would this have had any bearing on volumes and market structure? The commodities markets around the world are being hit by low prices, driven by oversupply, mild weather, and other fundamentals. Increasing volatility is generally aligned with increasing volumes – is there a similar connection between price (a reflection of market fundamentals) with market structure change?
Coal has effectively been a fully cleared market since late 2013, with the majority of traded volumes occurring at a broker venue and then cleared post trade. Exchange executions have been a fairly small feature of this market. November sees API2, the largest coal market, posting record volume in exchange executions. Cleared market share between the two major clearinghouses active in coal, CME and ICE, has been mixed all year. This month, ICE gained 10% share, up to 27% of the API2 & API4 cleared market. This is in contrast to the last few months, as CME had over 80% share of this market since July.