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Market Dynamics Report

APRIL 12 2013

March 2013

Brokers on the rise in Emissions and Coal, block futures continue to grow, first EMIR deadline passes and new players enter NBP market.

March saw brokers recover market share in both the EUA and CER emissions contracts. In EUA's, broker cleared and broker bilateral share increased. CER's saw broker share increase both in terms of broker bilateral and broker cleared. Although YTD volumes are up vs. 2012, total volumes in EUA's declined vs. last month. CER volumes YTD are down vs. 2012. What is driving the liquidity back towards the brokers? Is it the uncertainty regarding the criteria for issuing CER contracts? The decline in total market volumes MoM in both the EUA and CER markets? A reduction in price volatility following the steep falls in 2012? Any thoughts are welcome.

In the coal markets, cleared market share increased. In API2, broker cleared market share increased at the expense of broker bilateral. Within the cleared API2 market, the balance of power remains delicately poised between exchanges. Block futures contracts as a proportion of exchanges total API2 & API4 volume continued to grow in March, vs. February and January. On three separate days in March, a significant proportion of an exchange's API2 contracts were block futures, with the majority executed this way a single day in March. This can be interpreted as a direct result of the implementation of Dodd-Frank.

March 18th saw the first deadline for the new EMIR regulatory compliance come into force, the impact of which is expected to be borne out in an increase in clearing, at least for financial (non-hedging) participants. March saw an increase in clearing in Emissions and Coal as above, NBP as well as in German Power. It is too early at this point to confidently state that the increase in clearing this month in these contracts is directly linked to EMIR, or indeed whether these increases mark any significant trend however it is something we will continue to monitor as the effect of these changes plays out. With an exchange launching NBP contracts as well as a new broker launch, the dynamics of the NBP markets could be particularly interesting in the coming months.