Consultation on ASX Electricity Options strike increment
Thu 1 Jun 2023
ASX Notice 0521.23.06 contains information on ASX's consultation on changes to the strike increments across quarterly Australian and New Zealand Electricity Options. The proposed change involves increasing the strike increment to $5 from the current $1 increment. ASX would like to invite formal feedback from Market Participants on the below proposal, expressing support for or raising any concerns regarding the change. The consultation will be open for feedback until 30 June 2023.
ASX Australian and New Zealand Electricity Option strikes are currently listed in price increments of $1. Traditionally, option strikes are listed with finer strike increments when the underlying market price is low and widen as market prices move higher in order to facilitate more efficient and effective strike listing and trading.
Over the past 12 months, domestic and global energy markets have experienced higher pricing and increased volatility due to a confluence of factors including unplanned outages, coal plant closures, the Ukraine war and higher international gas and coal prices. Market pricing indicates that the effect of these events are expected to persist, albeit to a lesser extent, over the coming years. In line with sustained higher energy prices, ASX is proposing to increase the option strike increments to $5 from the current $1 across all quarterly Australian and New Zealand Electricity Option contracts (BN, BV, BS, BQ, EE and EA) in order to facilitate more timely and efficient strike listings. Position analysis shows that 98% of quarterly ASX Australian Electricity Options, and 100% of New Zealand Electricity Options Open Interest is at the $0 or $5 increment, indicating broad market preference for wider strikes.
Please note that strip options (HN, HV, HS, HQ, EB and EF) would remain unchanged and continue to list at $1 strike increments. Existing Electricity Option strikes already listed at the $1 increment would remain unchanged i.e. listed in $1 increments. Existing Electricity Option positions and Open Interest would also remain unchanged.
In the event that electricity prices were to decline substantially below current levels, the Electricity Option strikes may be reverted to the finer $1 increment, subject to market feedback and regulatory clearance.
What do I need to do by when?
Market Participants are encouraged to respond to ASX by 30 June 2023 (email: commodities@asx.com.au) should they have any feedback or concerns regarding the proposed change. A follow up Market Notice will be sent in July 2023 to confirm the outcome of the consultation and any next steps.