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Market Dynamics Report

MARCH 14 2013

February 2013

Coal block futures activity increasing, Emissions on the move – volumes up and a shift to the exchanges.

Volumes in Coal were up month on month, broker bilateral market share moved up and the cleared market dropped. The two main exchanges participating in the cleared market swapped position for the first time this month. Exchange executions still only make up a very small percentage of this market but block futures activity – privately negotiated deals over a certain size reported to the exchange within a specified time period - is increasing. Since the Swaps to Futures event 15 October 2012, block futures activity has grown. We'll keep an eye on this as regulatory certainty in Europe emerges and the US market continues to evolve.

Emissions continues on its growth trajectory, with volumes up on all relative measures. The exchanges are benefiting most from these increased volumes, with exchange executions growing their share of the market during February. Broker cleared share dropped with broker bilateral making up the remaining volume. There has been a real shift to the exchange in the first two months of 2013.

Emissions has also grown to the third largest Euro Commodity grouping that we report on. UK Gas remains the largest grouping of total monthly contracts traded, and Euro Gas is second.

Volumes were up or flat month on month in all markets except Euro Power and Euro Gas. German Power volumes dropped and French Power volumes were down month on month, while TTF and German Gas were also down. What's behind these falls? Is the increase in renewable energy sources in the main German Power market causing demand for more traditional energy sources to flounder? Even with the fall in volumes, market composition did not move much, with broker bilateral gaining a percentage of the Euro Power market, and losing a small percentage of the Euro Gas market.

In Nordic Power market composition is relatively stable, with the market fully cleared and the broker cleared / exchange execution split hovering around an even split since May 2012. This month volumes were also down month on month.