The Carbon Market Godmode Trader de Day Trader

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					        The Carbon Market




How to Trade ECX Emissions Contracts




              March 2008
Contents




 About ECX
 About The Market
 Why Trade on Exchange
 How to Trade
 Members List
 Contract Specifications
 OTC Clearing
 Fees & Margin
 Indices
 Appendices
                           2
About ECX


European Climate Exchange is the most liquid marketplace
for trading CO2 EU Allowances (EUAs) under the EU
Emissions Trading Scheme. ECX is part of the Climate Exchange
Plc group of companies, listed on AIM of the London
Stock Exchange.

• ECX CFI (Carbon Financial Instrument) contracts are:
  – Listed & traded on ICE Futures Europe electronic platform, a
    Recognized Investment Exchange
  – Regulated by the Financial Services Authority
  – Financially guaranteed by LCH.Clearnet

• ECX CFI contracts include:
  – Futures Contracts on EUAs (launched April 2005)‫‏‬
  – Options Contracts on EUAs (launched October 2006)‫‏‬

• ECX will launch CER Futures on Friday, 14 March 2008 and CER
  Options Contracts on Certified Emission Reductions (CERs)
  shortly thereafter.
                                                              BACK TO CONTENTS   3
       About ECX


                        EUA Volume Exchanges
                                      Feb 2008



ECX
83%




                                                                  Nordpool
                                                                    12%



                                                              Bluenext
                                                                 1%


                                                            EEX
                                                            4%




      Sources: ECX, Nord Pool, Bluenext, EEX.

            ECX               Nordpool           Bluenext           EEX
                                                                             BACK TO CONTENTS   4
      About the Market


• Volumes grow rapidly in the European Carbon Market
  – 260 million tonnes CO2 traded in 2005
  – 800 million tonnes CO2 traded in 2006
  – 1,500 million tonnes CO2 traded in 2007


• Increasing numbers of market participants
  in OTC and Exchange markets

• Growing activity boosting sophisticated products
  (spot, forwards, futures  swaps, structured products, options)‫‏‬




                                                              BACK TO CONTENTS   5
            Who is the Carbon Market?


Number of
companies

                                   Utilities


                              Cement                       Banks

                               Steel



                     Pulp and                                      Speculative traders
                    paper glass                      Oil

                      Other                                           Hedge funds




                                  Market product sophistication

                                                                          BACK TO CONTENTS   6
            Market Participants
            Geographic Location

Number of
companies

                                                     Northern Europe
                                   Southern
                                    Europe




                                              Western Europe – UK


                          Central –
                        Eastern Europe
                                                               International




            Less familiar with                                        Familiar with
            derivative products                                 derivative products
                                                                       BACK TO CONTENTS   7
                                           Price and volume ECX CFI Futures Contracts
                                           •‫ 49‏‬million tonnes of CO2 traded in 2005 with a market value of €2.1 billion
                                           • 452 million tonnes of CO2 traded in 2006 with a market value of €9 billion
                                           • 1 billion tonnes of CO2 traded in 2007 with a market value of €17.5 billion


                                    ECX CFI Contracts Monthly Volume                             ECX           ECX             EUA Dec-08 Sett
                                                                                                 Futures       Options
                              180                                                                                                    30.00

                              160
VOLUME (million tonnes CO2)




                                                                                                                                     25.00
                              140




                                                                                                                                             Settlement Price (€)
                              120                                                                                                    20.00

                              100
                                                                                                                                     15.00
                              80

                              60                                                                                                     10.00

                              40
                                                                                                                                     5.00
                              20

                               0                                                                                                     0.00
                                         5 - 05 -05 05 0 6 - 06 -0 6 - 06 -06 -06 0 7 - 07 -0 7 - 07 -07 -07 0 8
                                 - 05 -0            -
                              Apr Jun Aug Oct De c Feb- Apr Jun Aug Oct De c Feb- Apr Jun Aug Oct De c Feb-
                                                                         DATE
                                                                                                                         BACK TO CONTENTS    8
                                            Open Interest & Volume ECX CFI Options Contracts
                                                109 million tonnes of CO2 have traded in options on ECX / ICE Futures Europe
                                                                          since launch October 2006




                                          ECX CFI Options Volume                  Calls     Puts
                                                                                                                                       Monthly Options Open Interest                  Calls         Puts
                      30,000,000                                                                                     70,000,000

                      25,000,000                                                                                     60,000,000
Volume (tonnes CO2)




                                                                                                   Volume (mt CO2)
                                                                                                                     50,000,000
                      20,000,000
                                                                                                                     40,000,000
                      15,000,000
                                                                                                                     30,000,000
                      10,000,000
                                                                                                                     20,000,000

                       5,000,000                                                                                     10,000,000

                              0                                                                                               0
                                 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 8 8
                              t-0 v-0 -0 n-0 b-0 r-0 r-0 y-0 n-0 l-0 g-0 -0 t-0 v-0 -0 n-0 b-0                                 06 0 6 0 6 -07 -07 07 07 -07 07 -07 -0 7 07 07 0 7 0 7 -08 08
                            Oc No Dec Ja Fe Ma Ap Ma Ju Ju Au Sep Oc No Dec Ja Fe                                           ct- ov- ec-Ja nFe bMar-Apr- ayJu n- Ju lAug ep -Oct- ov- ec-Ja nFe b-
                                                                                                                           O N D                      M                S       N D
                                                              Date                                                                                             Date




                                                                                                                                                                                                      9
                                                     Open Interest

                                                     ECX CFI Futures Contracts Open Interest currently rests at 148 million tonnes
                                                                        ECX EUA Futures Open Interest Breakdown                                                                      Mar-08
                                                                                                                                                                                     2006
                              200                                                                                                                                                    2007
                                                                                                                                                                                     2008
                              180
VOLUME (million tonnes CO2)




                                                                                                                                                                                     2009
                              160                                                                                                                                                    2010
                              140                                                                                                                                                    2011
                              120                                                                                                                                                    2012

                              100
                               80
                               60
                               40
                               20
                                0
                                      06        06           6          06        06        06          07        07          7          07        07        07           08
                                  n          ar         y0          l          ep        ov         n          ar        y0          l          ep        ov          n
                               Ja          M          Ma         Ju          S         N         Ja          M         Ma         Ju          S         N          Ja

                                                                                                         DATE

                                                                                                                                                                  BACK TO CONTENTS     10
           Why Trade on an Exchange?




One centralised
                                       Transparency
pool of liquidity



                                          Credit risk
Easy & efficient
                                        management



                                       Regulated and
Low cost
                                       secure market




                                         BACK TO CONTENTS   11
How to Trade ECX Products


• There are two ways to access the market :


 – Become a Member in ECX CFI on ICE Futures;
    or

 – Order-Route as a customer of a Clearing
    Member on ICE Futures

• Access route decision will be driven by:
 – Nature of company
 – Type of trading activity
 – Volume of trading activity
 – Regulatory status

                                              BACK TO CONTENTS   12
Members List




               BACK TO CONTENTS   13
Clearing Members




    ECX CFI Clearing Members of ICE Futures able to offer clearing
         and trading services to third parties (‘order-routers’).
                                                                     BACK TO CONTENTS   14
ICE ECX Screen Shot




                      BACK TO CONTENTS   15
OTC Clearing
The EFP/EFS Mechanism


• The Exchange for Physical (EFP) and Exchange for Swap
 (EFS) mechanisms can be used by participants in the
 emissions markets who wish to avoid OTC risk exposure, by
 registering their positions with the Exchange for clearing by
 LCH.Clearnet.

• The EFP facility is used to clear OTC forward contracts and
 the EFS facility to clear OTC option or swap contracts.

• Both counterparties must have a clearing agreement in place
 with one of the ECX CFI Clearing Members on ICE Futures.
 The counterparties agree to cancel their OTC position and
 novate it into an exchange futures position.



                                                 BACK TO CONTENTS   19
ECX Indices
Morning Marker & Emissions Index

 ECX Emissions Morning Marker
 – A trade-weighted average of all ECX CFI futures trades within 15
    minute period from 9.00 –9.15 UK Local Time. Published shortly
    after 9.15 UK Local Time for the Mar 08, Dec 08, Dec 09 and
    Dec 10 contract months.


 ECX Emissions Index
 – A trade-weighted average of all ECX CFI futures trades over the
    course of the trading day. Published shortly after 17.00 UK Local
    Time for the Mar 08, Dec 08, Dec 09 and Dec 10 contract
    months.


• ECX indices are used by the market as benchmarks but are
 not tradable

• Available on www.ecx.eu (under Market Data)           BACK TO CONTENTS   22
        Other Information
        Authorised Data Vendors and VAT



Information Vendors to follow real-time ECX CFI data:
   - Bloomberg (EMIT for futures, tab 92), (OMON for options)
   - Reuters- futures: (0#CFI:) options: (CFI+) Calendar Spreads: (#CFI2Y)‫‏‬
   - CMS (UX)
   - CQG (UX)
   - E-Signal/Future Source/Comstock (LUX)
   - IDC (<17>t, UX)‫‏‬
   - ICE Energy Live (LUX)


VAT:
VAT of EUAs will be paid by the Buyer in the country where the Buyer is
located. Transfers of EUAs between the Member and LCH.Clearnet will
be zero-rated for VAT purposes.




                                                                              BACK TO CONTENTS   23
           Delivery Mechanism


Seller’s     Seller’s‫‏‬Clearing‫‏‬   LCH.Clearnet      Buyer’s‫‏‬Clearing‫‏‬          Buyer’s
Account     Member’s‫‏‬Account        Account        Member’s‫‏‬Account            Account




            EUAs are held in dematerialized form in National Registries connected
            to the CITL (EU Registry). The accounts refer to the National Registry
            account where the entity wishes to make / take delivery.

                                                                        BACK TO CONTENTS   24
                 Contacts



                                 Thank you for your time




Patrick Birley             Albert de Haan             Sara Stahl                     Henry Bakker
Chief Executive Officer    Commercial Director        Business Development Manager   Data & Communications Officer
Tel: +44 (0)207 382 7818   Tel: +44 (0)207 382 7800   Tel: +44 (0)207 382 7804       Tel: +44 (0)207 382 7806
patrick.birley@ecx.eu      albert.dehaan@ecx.eu       sara.stahl@ecx.eu              henry.bakker@ecx.eu




                                             www.ecx.eu



                                                                                               BACK TO CONTENTS      25
Appendices




 How to Access the Market
 How to Become an Order-routing Client
 How to Become a Member
 Membership Categories
 Trading Software Vendors
 Delivery Mechanism Details




                                         BACK TO CONTENTS   26
           How to Access the Market


  Non-            ICE                             Products
members:        Members

                              Clearing      ICE Futures Contract
Order-routing    General                            sets
 customers      Participant
                               Non-       Oils
                              Clearing
                                          Utilities

                              Clearing
                                         Emissions Trading Privilege
                                         

                  Trade
                Participant
                               Non-
                              Clearing   Enabled to trade ECX CFI


                                                       BACK TO APPENDICES   27
       How to Become an Order-routing Client



• No need to apply for ICE Futures Europe membership
• Client signs Terms of Business with Clearer
• Clearer provides either WebICE or ISV (Independent Software
  Vendor) solution for trading
• Client has direct electronic execution ability onto the ICE platform
  for the trading for ECX CFIs
• Trades are registered with LCH.Clearnet in name of clearer and
  client remains anonymous
• Access via a broker will be arranged
  between broker and Clearing Member
  and brokerage fees will be charged



                                                          BACK TO APPENDICES   28
             How to Become an ECX CFI Member of ICE Futures
             Europe


Complete:
a) Application Form;
b) Electronic User Agreement (EUA)‫‏‬
c) If Clearing Member: Have or be in the process of
   securing membership of LCH.Clearnet; or
   If Non-Clearing Member: Clearing Agreement;
d) Assign at least one Responsible Individual (RI) to
   trade;
e) Application processed and formally presented to
   the‫‏‬ICE‫‏‬Futures’‫‏‬Europe‫‏‬Authorisation,‫‏‬Rules‫‏‬and‫‏‬
   Conduct Committee for approval;
f) Pay application fee and annual subscription.


                                                        BACK TO APPENDICES   29
         ICE Futures Europe Electronic Trading




                                             ISVs
                                             •   Aegis Software
                                             •   Communicating Ltd
                                             •   CQG
WebICE                                       •   Easy Screen
                                             •   ECCO
                                             •   Ffastfill
                                             •   GL Trade
                                             •   ION Trading
                                             •   Neotick
ICE Central Matching Engine                  •   Nyfix
                                             •   Object Trading
                                             •   Patsystems
                                             •   RTS
  Trade registration system                  •   Rolfe & Nolan
                                             •   Stellar Trading Systems
                                             •   Trading Technologies
                                             •   Trayport
                              LCH
                                                 BACK TO APPENDICES   31

				
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