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Trayport: June euro commodities market
The shift to clearing is more visible than ever and is significantly impacting volumes
This month sees a real crystallisation of the shift to clearing
in the euro commodities markets. The largest euro commodity
market, NBP (natural balancing point) UK natural gas, crossed
over half of the cleared market share threshold for the first
time during June 2014. Euro gas and coal also recorded the
highest monthly cleared market share.
A theory that we have often quoted in this editorial is that of
an expected shift to clearing in high volume months, as traders
do not require a broker to find liquidity for them –
it is there in the market already. June 2014 showed strong
month on month volumes in all markets bar emissions, which
supports this theory.
Yet June is the second lowest volume month of the year by
monthly contracts traded – comparatively, January to
April saw higher volumes but lower cleared market share.
Are we now seeing the fundamental shift to clearing in the
market? What's driving the shift – is the impact of
the recent regulatory changes starting to show itself in the
core euro commodity markets? Or has the structure of the
market shifted, with new participants requiring different
post-trade risk management? As always, we will keep a keen
eye on these changes over the coming months.
The cleared market represents both the exchange executed
and broker cleared portions of volume. This distinction is
important as the market structure of the groupings above
varies even with similar cleared market shares. For
example, while both the emissions and coal groupings have
similar cleared market shares, the majority of emissions
cleared volume is from exchange executions, while all of
the Coal cleared volume is broker executed and then given
up into clearing.
What remains to be seen is the form that clearing in the
remaining euro commodity groupings will take –
will we see cleared markets that look more like Emissions,
or ones that look more like Coal?
Strong growth in TTF (title transfer facility) Dutch
natural gas volumes saw this market grow to a record level
of the total NBP market in TWh terms in June 2014. Broker
bilateral TTF volumes are larger than NBP volumes and if we
look at the total broker market (both bilateral and
cleared), it is larger than NBP. Internally we've been
debating when the TTF market might catch up to NBP in total
What do you think? Will it ever catch up? If it does, when
will it happen? Will it overtake?