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NASDAQ OMX
THE IMPACT OF CHANGE IN FINANCIAL POWER TRADING
DANISH ENERGY DAY COPENHAGEN 2015
Bjørn Sibbern
Global Head Nasdaq Commodities and
President Nasdaq Copenhagen
NASDAQ OMX
NASDAQ: WHO WE ARE
IGNITE YOUR AMBITION 2
Over the past decade, Nasdaq has transformed its business from a U.S.‐based equities exchange to a diversified global financial technology company. Today, the company is firmly established as a leading provider of trading, exchange technology, information and public company services across six continents.
NASDAQ TICKER SYMBOL: NDAQMEMBER OF S&P 500
OUR MISSION >We provide market‐leading technology solutions and intelligence to help businesses and investors succeed in today’s global capital markets.
OUR VISION >We connect business, capital and ideas to advance today’s global economies.
ACTIONS ON BANK GUARANTEES ‐ LOBBY PROCESS
Where are we:• Support from 7 Nordic and Baltic Governments (have written a letter to the Commission)• Nasdaq has together with other parties (EFET, Eurelectric, UK Energy, CEER, EACH) included bank guarantees in the EMIR review consultation where we have asked for a prolonging of the exception when included in the review. The goal is a permanent solution
• Support from The Council of European Energy regulators (CEER) that also responded to the EMIR review consultation. CEER represents 33 European national energy regulators including the EU 28 Member States.
• Nordic FSAs written a supporting letter to ESMA in August 2015
Going forward• Must stay close to the Nordic Ministries to keep up the political pressure.• Stay close to other European countries where we have support and try to get support from additional European countries (Portugal, Spain and Poland have confirmed support).
• Keep up the pressure towards the Commission, MEPs and ESMA. • The commission is now reviewing the EMIR submissions. When will the EMIR review report be sent to the European Parliament and council?
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OBJECTIVE: SECURE THAT NON‐FINANCIAL COUNTERPARTIES CAN USE NON FULLY BACKED BANK GUARANTEES BEYOND MARCH 2016
ACTIONS ON BANK GUARANTEES – PLAN B
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• Work in parallel with good solutions for our members to reduce negative effects from the loss of bank guarantees, e.g. GCM banks
• Listing Nordic electricity futures Q3‐15Will DS Futures be preferred by hedgers due to accounting principles (IFRS)? And/or retail needs? DS Futures will not be taken out for nowDual listing of DS futures and futures & avoid fragmentationDo we need to list futures in order to attract more financial players to the market?
Nasdaq and our members will cooperate together on these issues to create the best solutions
99© Oliver Wyman
WHAT IS CHANGING?
Narrower exemption from auhorizationBroader range of commodities transactions in scopeKnock‐on effects on scope ofEMIR, MAR and REMITPosition limits, management, reporting and disclosure
New trading venue category:
Orginized Trading Facility (OTF)
Systematic internaliser category
extended to non‐equities,
including commodities
Mandatory trading of liquid,
clearable derivatives on
orginazed venues
New rules for venues and CCPs,
recognition of non‐EU venues
Harmonized EU regime for
access to trading venues, CCPs
and indexes
Controls on algoritmic/high
frequency trading
New transparancyrequirements for non‐equities, includingcommoditiesIncreased equity market transparancy requirementsConsolidated tape for equities and – from 2019 –non‐equitiesExtension of Transaction reporting
Commodities TransparancyMarket Structure
CLEARED VOLUMES NORDIC POWER
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Low volatilityLow pricesOversupplyFunds and banks exitingRegulationsPolitical influence
0
500
1 000
1 500
2 000
2 500
3 000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Cleared volumes Nordic Power Yearly 2005‐2015 (TWh)
On Orderbook Off Orderbook
TERMINATED «FUNDS»
• Adapto Advisors • Alfakraft• Interkraft Energy Fund• NK Funds• Electris Energy Fund• Navitas Power Fund• Elexir (MK)• Norden Absolute Energy• Orkla Energy Fund• Plenum Power Surge• European Energy Fund• NEF Nordic Power index• Kortlongs
Majority of their investments were allocated to Nordic Power.
Earlier in periods with low volatility, positions were increased in the Nordic power market for the investment companies to meet return targets.
Today we see increased competition from other commodities/ asset classes in periods were volatility is hovering on low levels.
WHAT HAPPENED TO THE OPTIONS VOLUME?
• The low volatility combined with several banks and funds out of the market have had a big impact on Option and Delta volumes.
• Existing power funds have not delivered good enough returns to get attention from potential investors.
• Less use of options in hedging.
Historically options represented between 15‐20% of total cleared volumes, in 2014 1%.
OPEN INTEREST TWH
15
Open Interest MWENOYR‐16 9227ENOYR‐17 7062ENOYR‐18 3152ENOYR‐19 1396ENOYR‐20 451
0
100
200
300
400
500
Open Interest Nordic Power Monthly (TWh)
Series1
MARKET SHARE PER PRODUCT CATEGORY
17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percentages of Cleared volumes for Different Nordic Power Product Categories Yearly 2006‐2015 (TWh)
Year Week Quarter Month Day
MARKET SHARE PER CUSTOMER CATEGORY
18
0.00
30.00
60.00
90.00
120.00
150.00
180.00
210.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Jan‐11
Mar‐11
May‐11
Jul‐1
1
Sep‐11
Nov
‐11
Jan‐12
Mar‐12
May‐12
Jul‐1
2
Sep‐12
Nov
‐12
Jan‐13
Mar‐13
May‐13
Jul‐1
3
Sep‐13
Nov
‐13
Jan‐14
Mar‐14
May‐14
Jul‐1
4
Sep‐14
Nov
‐14
Jan‐15
Mar‐15
TWh
On Orderbook traded Market Share per Customer CategoryMonthly 2011‐2014
Turnover Credit Institution Finance/Fund Fundamental
FOCUS AREAS EUROPE
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Bank Guarantees• Continued support for both Direct and GCM Membership models• Product structure: Future vs Forwards (DS Futures)
Distribution• Onboard GCM – Financial members outside the Nordics often prefer GCM• New ISV
Product development• Asian options• Average weighted monthly futures • Nordic power futures• Renewable production index• New Markets – Continue our success on German Power• More short term contracts?
Capital efficiency• Reduced no. of lead days• Inter Commodity Spread Credit (ICSC) on EPADs
GLOBAL STRATEGY AND GROWTH APPROACH
GTMS Strategy ‐ 201520
• Nasdaq Commodities’ strategy is to expand into a global unit
• Be a leading Global Commodity exchange and clearing house
• Our geographical extension include NFX (Nasdaq Futures, Inc.) in the US, Asian Strategy for Freight and Steel, the German Power initiative and soon other European Power markets
• Continue to build a global product portfolio
• Advantage of Nasdaq’s global brand
• Increase distribution through GCMs / FCMs
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THE NASDAQ MARKET MODELGLOBAL PRODUCTS - SCANDINAVIAN EXCHANGE AND CCP
21
Europe
Asia
US
Global Clients Norwegian Exchange
Swedish Clearinghouse
p
The Nasdaq business model is also used by the other competing exchanges and ccps
Nasdaq Commodities Product offering
22 ants
EXISTING PRODUCTSEXISTING PRODUCTS
ELECTRICITY• Nordic • German• UK• Dutch• El‐Cert• NFX: US Futures ofElectricity, Oil, Nat Gas
ELECTRICITY• Nordic • German• UK• Dutch• El‐Cert• NFX: US Futures ofElectricity, Oil, Nat Gas
EMISSIONS• EUA • EUAA• CER
EMISSIONS• EUA • EUAA• CER
GAS• UK Gas• Spark spreads
GAS• UK Gas• Spark spreads
FUTURE DEVELOPMENTSFUTURE DEVELOPMENTS
• Nordic Futures • Continental energy markets• Renewables• Steel
• Nordic Futures • Continental energy markets• Renewables• Steel
FREIGHT• Dry• Tankers • Fuel Oil• LPG• Iron ore
• Coal
FREIGHT• Dry• Tankers • Fuel Oil• LPG• Iron ore
• Coal
SEAFOOD• SalmonSEAFOOD
• Salmon
NASDAQ FUTURES NFX – PRODUCT SCOPE
• Energy Trading is highly concentrated in a limited number of contracts (key benchmarks).
• Nasdaq Futures (NFX) are targeting the key Energy benchmarks in oil, U.S. Natural Gas, and U.S. Power
• The oil products includes the critical distillates needed to support the trading of the “whole” barrel
• Due to the power production mix in the U.S., there is a tight trading relationship between power and natural gas
and our initial product suite will meet the hedging needs of the vast majority of the market participants
• We intend to expand the product suite beyond the initial scope within the first 12 months based on
customer feedback and demand
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Benchmark Oil Complex:1. WTI Crude Oil (CME)
1. Futures and options2. Brent Crude Oil (ICE)
1. Futures and options3. Fuels ‐ Heating & Gasoil, Gasoline
1. Futures
Benchmark U.S. Natural Gas: 1. Henry Hub
Futures and Options2. Natural Gas Basis to Henry Hub
Futures
Benchmark U.S. Electricity (Power): 1. All major Independent System Operators (grid operators) including:
1. Pennsylvania/Jersey/Maryland (PJM), New England, Mid‐West, California