Environmental Engineering Reference
In-Depth Information
Figure 9. Daily off- and in-exchange volumes in ECX EUA Futures with annual maturities from De-
cember 2005 to December 2012
27
varying shares of on- and off-exchange traded
volumes:
Firstly, it is still kind of a regularity that daily
futures trading volumes jump up or down by a
100% and more from one trading day to the next.
Spot market volumes show patterns of variability
similar to futures markets. Average daily trading
volumes in the most liquid market at BlueNext
sometimes peaked at almost 10 million tons in the
first half of 2009. Today, daily volumes average at
about 2 million tons a day. But still, daily jumps
of more than 100% are for sure not exceptional.
Secondly, characteristic patterns can be ob-
served in Figure 9 where extreme increases in
daily volumes are accompanied by relatively
high shares of off-exchange trading compared to
on-exchange trading. Such patterns suggest that
off-exchange trading venues attract relatively more
trades when trading activity is high. As Figure 10
shows, off-exchange trading in exchange-listed
and centrally cleared futures contracts is a common
characteristic of emissions and electricity markets.
Trading off-exchange through IDB venues
offers the advantage that combinations of trades
can be arranged simultaneously. This is, for ex-
ample, very attractive if a trader wants to trade
the clean-spark-spread or clean-dark-spread with
minimal execution risk. A broker would provide
this service by simultaneously arranging the three
legs of the spread transaction, i.e. by legging into
the gas, emissions and power market at once. The
fact that an even higher share of electricity con-
tracts is traded off-exchange suggests that spread
trading with electricity could be one of the reasons
for emissions trading volumes moving off-ex-
change. Finally, there is also good reason to assume
that in periods where market liquidity and prices
are under stress it is less risky to have an IDB
working larger orders off-exchange compared to
exposing such orders in a transparent exchange
order book market. Eventually, the variability of
daily volumes across spot and futures markets
together with the remarkable shifts between on-
and off-exchange trading hint at relatively high
levels of uncertainty and frictions in the market.
Interaction of Spot and
Futures Markets
New commodities and financial markets need time
to achieve reliable and efficient price discovery.
We look at the relation between spot and futures
prices to provide some further evidence on the
conjecture that there is still remarkable variabil-
