Environmental Engineering Reference
In-Depth Information
Choices of Trading Venues
•
Time-to-market and low entry barriers:
The spot and futures emissions markets
emerged in the shipping channels of estab-
lished energy and electricity markets. The
early movers NordPool, EEX and ECX
made maximum use of existing trading and
post-trade processing infrastructure and
connectivity of their respective core mar-
kets in electricity for EEX and NordPool
and in energy for ECX with ICE Futures.
Market participants were able to plug-and-
play, i.e. to trade emissions markets side by
side via their existing connectivity to the
European energy markets.
•
Market and cost efficiency:
The technical
and functional integration with existing
exchange markets delivers synergies on
all layers of the market's value chain. In
particular, it leverages cross-market syner-
gies on the clearing layer.
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The multilat-
eral clearing of trades also allows for the
standardization of processes and legal ar-
rangements and the pooling of collaterals.
Finally, the variety of exchanges and clear-
inghouses ensures competitive pricing of
trading and clearing services.
•
Competition and Innovation:
As it is the
case for most other energy markets there is
fierce competition on pricing as well as on
product innovation between exchanges but
also between exchanges and Inter-Dealer-
Brokers (IDB) to attract trading flows. In
fact, off-exchange trading in exchange-
listed and centrally cleared futures domi-
nated by far the early days of futures trad-
ing under the EU ETS.
There are several trading venues and market places
where it is possible to trade EUA and/or futures
thereof. EUA can be traded in spot markets such
as BlueNext (Paris), Energy Exchange of Austria
(EXAA, Vienna), NordPool (Oslo) and European
Energy Exchange (EEX, Leipzig). There is also
a pan-European platform called Climex Alliance
where it has been possible to trade spot contracts
since July 2005. Spot trading means that the actual
EUA is traded and delivered from the buyer to
the seller immediately within a reasonably short
settlement period. Furthermore, in NordPool,
European Climate Exchange (ECX/ICE Futures,
London) and EEX, it is also possible to trade
derivatives contracts with EUAs as the underly-
ing commodity. The ECX with a market share of
76% of the total 50 billion ton traded across EUA
futures and spot markets is by far the most liquid
futures market. BlueNext with a market share of
22% was dominating spot trading in 2009.
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It is important to note that the European Com-
mission considers that the number of markets in
which to trade the European Union Allowances
should be appropriate from the point of view
of the agents participating in them. This means
that each country can create its own market or
that different private trading platforms can be
organized. So, although there is a sole European
emissions market, trading can be done through
different markets around Europe. In all markets
the underlying asset is the EUA but the spot and
futures contracts that can be traded are slightly
different. Pricing relations between the different
venues suggest that this approach did not hamper
efficient and transparent price discovery. Price
differentials can, in general, be explained by
differences in contract design and in post trade
processing.
This competitive and decentralized bottom up
approach to form the market architecture delivered
on three key drivers for market success:
Horizontally, the current market architecture
of the EU ETS as depicted in Figure 6 spans
from regulated exchange markets to IDB venues.
Almost all of the exchanges launched emissions
trading as an add-on to their market presence in
other product classes in the energy markets -
