Market Dynamics Report

DECEMBER 11 2012

November 2012

NBP continues to move to the exchanges, while Dodd-Frank plays its hand in the global markets

Exchange executed volume grew in the NBP market this month, reaching another market share record. Broker bilateral is just maintaining majority share of the market, while broker cleared is fairly steady. NBP looks to be headed towards a similar composition as Emissions, with the cleared market comprised of majority exchange executions rather than broker clearing volume. Volumes for the month fell vs October – traditionally a characteristic that would drive stronger broker share. What is driving the shift of execution volume in NBP to the exchange? Is NBP traded alongside Brent, the exchange's major oil contract? Can the brokers win back share or indeed is this their focus? Or has the NBP market matured to such an extent that it is fast becoming a financial player's playground, with high frequency execution and regular position movements?

On the regulatory front, the globally traded commodity markets have been changing to accommodate the framework of Dodd-Frank. This month, we've seen a shift to clearing in Coal – with the cleared market taking a majority share of the total API2 & API4 markets, the highest we've seen. The main proportion of this was broker cleared. Total coal volumes were up MoM and YTD. In emissions we have seen a shift back to the brokers, with less than half of the EUA and CER futures market being transacted via a broker. This shift is a result of increased activity in block futures. Emissions volumes were up MoM and YTD.

There are certainly some interesting trends to keep an eye on including the largest Euro Commodity market shifting onto the central limit order book (CLOB) and the move to clearing in Coal. We look forward to tracking the impact of these changes in 2013.