ASX Australian and New Zealand Electricity Contracts - Change to Options Daily Settlement Price process

Mon 27 Jul 2015

As per ASX Notice 0858.15.07 Market Participants are advised that, effective Trade Date Monday 3 August 2015, ASX will make enhancements to the Daily Settlement Price process for Australian and New Zealand electricity options contracts on ASX 24. No changes will be made to the Daily Settlement Price process for futures contracts.

The current Daily Settlement Price process is detailed in the Energy Market Policy (section 10).

The following enhancements will be implemented:

  • 1. An electricity options implied volatility surface will be derived using a new volatility smoothing algorithm to reflect the relative liquidity of the electricity market when compared to more liquid options markets.
  • 2. Valid trade and valid orders* will be considered in the determination of the Daily Settlement Price
    • a) Valid trades will have precedence over valid orders
    • b) Valid non-ATM trade and order data that changes the volatility of a particular strike will be preserved without being overridden by ATM volatility on the next trading day
  • 3. Block Trades will now be considered in the Daily Settlement Price process if received and approved by ASX prior to the close of the trading session
*A valid order is defined as:

a) an active order with a best concurrent Bid and Offer
b) a minimum duration of at least 10 seconds
c) a minimum order size of 1 contract
d) a maximum spread of 2% in implied volatility or 20 cents in premium between best concurrent bid and offer

ASX will issue an updated Energy Market Policy to reflect these changes ahead of the effective date of Monday 3 August.

What do I need to do and by when?

Participants are advised that the margin requirement is expected to marginally increase for OTM strikes. Margin report produced via the Actifio risk simulation environment which compares margins pre and post change in the Daily Settlement Price process will be available at Clearing Participants request. For further information or if you have any questions please contact Darko Roupell on the contact details below.

Need more Information?

Please contact:

Darko Roupell
Manager, Clearing Risk Quantification
T: +61 2 9227 0350