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Electricity at BME Clearing

Electricity

The MIBEL Electricity contracts registered in the Clearing House are swaps and futures traded in MEFF as trades arranged directly between members (or between members’ holders).

They are both agreements between two parties to buy or sell a specific quantity of electricity at a fixed price on a future date.

The difference between futures and swaps is the frequency of the variation margin.

  • In swap contracts, the variation margin is not settled daily, although it is settled periodically. 

  • In futures contracts, the variation margin is settled daily.

The Clearing House provides a mechanism that guarantees the successful completion of trades to both counterparties. The Exchange specifies standard contract features to facilitate trading.

How Are They Used?

There are three different types of trading strategies:

  • Hedging: these contracts are a tool for managing price risk. Buyers and sellers can hedge their spot positions against unfavorable price movements, reducing or eliminating market risk. Hedging entails taking a forward position that offsets an existing position and may be total or partial.

  • Speculation: the aim is to take a position in the market risk and obtain a profit resulting from a correct anticipation of future price trends.

  • Arbitrage: this strategy entails simultaneous trading in various instruments in order to leverage temporary price distortion. The MEFF contracts are very similar to the products traded OTC, which provides opportunities for arbitration.

The existence of participants with different trading interests in these contracts promotes market liquidity and efficiency.

Features

Financial contracts are accepted for registration, i.e. they are settled in cash.

The underlying asset is the delivery of notional electricity, during all relevant hours depending on the type of product, in the Polo Español del Mercado Ibérico de Energía (MIBEL):

  • Base Load: Delivery of the underlying asset from the first hour of the day (0:00 to 00:59) until the last hour of the day (23:00 to 23:59) of all the days included in the delivery period. There will be an additional hour or an hour less for the spring and autumn daylight saving time changes. It has a Flat Profile: all relevant hours compute the same.

  • Peak Load: Delivery of the underlying asset from the ninth hour of the day (08:00 to 08:59) until the twentieth hour of the day (19:00 to 19:59) of every Monday, Tuesday, Wednesday, Thursday and Friday included in the delivery period. It has a Flat Profile: all relevant hours compute the same.  

The unit of registration is 1 MWh or 100 kW (0.1 MW).

The nominal or multiplier of the contract is determined in MWh, using the following formula:

  • For contracts with a unit of registration of 1 MWh:

        MWh* No. of contract days * No. of product type relevant hours

  • For contracts with a unit of registration of 0.1 MW:

    0.1 MWh* No. of contract days * No. of product type relevant hours.

For spring and autumn daylight saving time changes, there will be an additional hour (if the day has 25 hours) or an hour less (if the day has 23 hours).

The contract is priced in euros per MWh (or in euros per 100 kW, if the unit of registration is 100 kW), with a maximum of 2 decimal places.

Registration hours are from 8:00 to 19:00.

The delivery period for the different contracts is defined according to the following table:

​Contract ​
​Delivery period  ​
​Swap
 Annual, Quarterly, Monthly, Weekly and Daily​
​Future​
​Annual, Quarterly, Monthly and Weekly​ ​

The following are the differences between the products:

  • Swap contracts do not have a daily variation margin and future contracts do.

  • Annual and quarterly contracts (for swaps and futures) expire through the cascade process (see the corresponding section) in which, on the trading business day prior to the first day of the delivery period, they are converted into smaller contracts (for example, a quarterly contract is converted into three monthly contracts).

  • Monthly and weekly swap contracts expire on the last day of their delivery period and, on the next business day (except for Saturdays and Sundays), the variation margin of this contract arising from the difference between the trade price and the settlement price at product’s expiration is settled.

  • Daily swap contracts expire on the same day as the contract and, on the next business day (except for Saturdays and Sundays), the variation margin of this contract is settled. 

  • Monthly and weekly futures contracts have a daily variation margin calculation, always against the previous day’s price.

The delivery period of an annual, quarterly, monthly, weekly and daily contract is the number of days included in the year, quarter, month, week and day, according to the type of product:

​Contract​ ​
​Delivery period  ​
​​ Daily​
​​ Day​​
​​ Weekly​​
Full week: the first day will be Monday and the last day will be Sunday.  

Business week: the first day will be Monday and the last day will be Friday.  

​Weekend: the first delivery day will be Saturday and the last day will be Sunday.
​Monthly​​
Full month: the first day will be the first day of the month and the last day will be the last day of the month.​
Quarterly​​
The first day will be the first day of January, April, July and October, as applicable, and the last day will be the last day of March, June, September and December, as applicable.​​
Annua​
 For annual contracts, the first day will be the first day of January and the last day will be the last day of December.​​

A nominal or multiplier is associated for each base/peak combination and term, depending on the number of hours of the delivery period (e.g., base quarterly 90 days with a 23-hours day, base quarterly 91 days with 24-hours day, base quarterly 92 days with 24-hours day, etc.).

The number of hours depends on the term of the contract, the calendar and the relevant hours of each contract. For example, the following applies to base and Mini contracts:

​Contract​
​Delivery period​
Days
​Nominal (MWh)​
Mini nominal  (MWh)​
​ Week ​
​Whole – No time change​ ​
7
168
​16,8​
 ​Whole – March with time change​ ​
7
167
​16,7​
​​​Whole – October with time change​ ​
7
169
​16,9​
​Weekend – No time change​
2
48
​4,8​
​Weekend – March with time change​
2
47
​4,7​
Weekend – October with time change​​
2
49
​4,9​
Month
​​February​ 
28
672
​67,2​
​February (leap year)​ ​
29
696
​69,6​
​​​January, May, July, August and December​ ​
31
744
​74,4​
April, June, September and November​​
30
720
​72,0​
​March​​
31
743
​74,3​
​October​ ​
31
745
​74,5​
​Quarter​​
​First​​
90
2.159
​215,9​
​​First (leap year)​ ​
91
2.183
​218,3​
​Second​​
91
​2.184​
​218,4​
​Third​​
92
​2.208​
​220,8​
​Fourth​​
92
2.209
220,9
Year​
​Normal​​
​365​
​8.760​
​876,0​
​Leap year​ ​
366
8.784
878,4

The product coding follows the following scheme. The first two alphanumeric characters identify the type of derivative:

 Electricity Future​
​FT​
​​ Electricity Swap​
​SW​
​Mini Future (0.1 MWh)​
FM
​Mini Swap (0.1 MWh)​
SM

Product coding is governed by the following scheme:

  • The third character identifies the Base (B) or Peak (P) profile.  

  • The fourth character identifies settlement by cash (C).

  • Lastly, the delivery period and its details are defined. 

  • In the case of annual products, the year is identified with two digits.

  • In the case of quarterly products, the quarter is identified first with one digit and then the year with two digits.

  • In the case of monthly products, the month is identified first with three characters with the first letters of the English name, and then the year with two digits.

  • In the case of weekly products, the week of the year is identified first with two characters. Then it is defined whether it is a full week (K), business week (B) or weekend (E), followed by the year with two digits. 

  • In the case of daily products, the daily product (D) is identified first, followed by the day of the month, then the month with three characters including the first three letters of the name in English, followed by the year with two digits.

​Contract ​
​Electricity ​
Mini
Base
​Peak​
Base
Peak
​Annual (CAL)​
​FTBCCAL22​
-
​FMBCCAL22​
-
​Quarterly (Q)​  ​
​SWBCQ122​
-
​SMBCQ122​
-
​Monthly (M)​
​FTBCMJAN22​
​FTPCMJAN22​
​FMBCMJAN22​
​ FMPCMJAN22​
​Full Week (WK)​ ​
​SWBCW03K22​
​-​
​SMBCW03K22​
-
 ​Business Week (WB)​ ​
-
​FTPCW03B22​
-
​FMPCW03B22​
Weekend (WE)​​
​SMBCW03E22​

​SMBCW03E22​
-
Daily (D)​​
​SWBCD05JAN22​
​SWPCD05JAN22​
​SMBCD05JAN22​
​ SMPCD05JAN22​​​

The following contracts are open by default:

  • At least every day of the current month and every day of the month following the current month.

  • The next four full-week and weekend base contracts and the next two weekly peak contracts.

  • The next six monthly base contracts and the next two monthly peak contracts. 

  • The next eight quarterly base contracts and the next two quarterly peak contracts.

  • The next two annual base contracts.

Upon members’ request, other contracts with a defined delivery period may be opened for registration.

All contracts, except for monthly, weekly and daily contracts expire through the cascade process. This process breaks down contracts that are nearing their expiration date, which is the first day of the delivery period, into contracts with shorter delivery periods than the original contract, so that hedges can be made on these contracts with others which are in the registration period, and in order to settle the energy covered by the delivery period.

The cascade process takes place on the last business (trading) day before the first day of the delivery period once the trading has closed.

The cascade consists of the following:

  • An annual contract is broken down into 4 quarterly contracts. The open position will be closed in the annual contract and opened in the quarterly contracts. 

  • A quarterly contract is broken down into 3 monthly contracts. The open position will be closed in the quarterly contract and opened in the monthly contracts.

For Swap Contracts

The following diagram shows an example of the cascade process breakdown of a swap contract.

Open position of annual swap contracts:

​SW– Annual​
​SW Q1​
​SW Q2​
​SW Q3​
​SW Q4​
​SW Q1​

​SW M1​
​SW M2​
​SW M3​
​

For Futures Contracts

The following diagram shows an example of the cascade process breakdown of an annual futures contract.

Open position of annual futures contracts:

​FT– Annual​
​FT Q1​
FT Q2​
FT Q3​
​FT Q4​
FT Q1​

​FT M1​
​FT M2​
​FT M3​
​

The shaded boxes are contracts used to perform the cascade process that closes a position.

The trades used to produce the cascade process do not generate any fees. Z-type trades are used at the daily settlement price.

For annual contracts

For swaps, the annual contract is closed at the price at which the trade was registered and the quarterly contract is opened at the same price (registration price of the original annual swap).

In the case of futures, the annual contract is closed at the final settlement price of the annual contract, and the four quarterly contracts are opened, also at the final settlement price of the annual contract.

For quarterly contracts

For swaps, the quarterly contract is closed at the price at which the trade was registered and the monthly contract is opened at the same price (registration price of the original quarterly swap).

In the case of futures, the quarterly contract is closed at the final settlement price of the quarterly contract and the three monthly contracts are opened, also at the final settlement price of the quarterly contract.

Overview

The following table summarizes the cascade process for each contract:

​Contract of origin​
​Cascade process​
Annual Swap ​
Quarterly Swaps​
​Quarterly Swap​
​Monthly Swaps​ ​
​Monthly Swap​
​No cascade process​​
​Weekly Swap​
​No cascade process​​
​Daily Swap​​
​No cascade process​​
Annual Future​
​Quarterly Futures​ ​
 Quarterly Future​​
​Monthly Futures​
 ​Monthly Future​ ​
 No cascade process​  ​
​Weekly Future​ ​
No cascade process​  ​

Ways to download backoffice information:

BME-PC:

BME Clearing Energy provides a web portal for members of its Energy segment, with extensive information on the activities of the Clearing House, as well as details of the activity of each member, trades carried out, open positions, details on settlements and the required margins, etc.

Access to the portal is granted using a private key and password. If you do not yet have this information or would like to request an additional user, please contact the Clearing Operations Helpdesk at +34 91 709 58 51 or at the following e-mail address: clearinghelpdesk@grupobme.es.

The service is free of charge and offered exclusively to members of BME Clearing Energy to give them quick access to information and statistics on their trades with the Clearing House. The results are displayed in tables and all information can be sorted, filtered, grouped, hidden, reordered, etc. In short, it can be customized according to the needs and preferences of each entity. The reports generated on the screen can also be exported in different formats (txt, Excel or PDF, among others). If the settings are changed, the last used settings will be saved.

MEFFSTATION

The configuration option on the main MEFFSTATION menu enables the automatic download of files at the end of the session. Members can configure the files they wish to download, as well as the folder in which they wish to store them.

At any time during the session, members can force the generation of transfer files by using the “Actions” option on the main menu. They will have information on files at the beginning of the session, or files that become available in the course of the day. Information on settlements and margins is only available at the end of the session.

With remote access, the transfer files are already configured to be generated automatically at the end of the session.

If you wish to obtain the transfer files during the session, you can force their generation from the main menu actions and they will be downloaded to the specified address. 

Transfer files may be requested from the Clearing Operations department if members experience any problems with the download.

The description of the Energy segment settlement transfer files is available in the “MEFFStation Settlement Data Files” document.

SFTP Server

Obtaining files at the end of the session with the SFTP server:

Through the SFTP connection, the end-of-day files (MEFFStation Settlement files) can be downloaded. The files contain information for the last five days, since they are renewed in such a way that the last five days always appear. The files are available once the market closes.

Contact Us

Do not hesitate to send us your inquiry. 

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Connection and Registration

BME Clearing Energy uses proprietary technology: the S/MART platform and the same central host as for all the other MEFF products.

BME Clearing Energy members have access through:

  • TRAYPORT: MEFF Energy has a connection with Trayport and the brokers so that trades can be registered through the Trayport screens.

  • MEFFSTATION via VPN connection: Members can access Windows servers installed in BME’s data centers in Madrid (Las Rozas and Plaza de la Lealtad), where the MEFFStation application runs. 

  • BME-PC Energy Portal: A web portal with information on the operations carried out at the Clearing House.

MEFF allows the registration of trades (Trade Register) as transactions arranged directly between members (or between members’ holders) in swaps and futures as follows:

  • Through the MEFF TRADE ENTRY web portal

  • Through Trayport

In the first case, members will receive access codes to the WEB MEFF TRADE ENTRY portal and the following two situations may occur: 

  • A member registers a trade with another member as counterparty. MEFF will send a notification to the other counterparty asking to accept the trade. The member acting as the counterparty must accept the trade.

  • A broker registers a trade whose contracting parties are two other members. In this case, both counterparties will be notified of the trade and must accept the trade.

Trading through Trayport is automated. This means that MEFF receives the transaction record and requests that both counterparties accept the trade.

In all cases, once the trade has been accepted by the counterparty members, it will be verified that the trade passes the price and volume filters of MEFF and BME Clearing in order to be sent to the Clearing House where it will be registered. If the trade passes the filters, it will be verified that the member has sufficient margin as a condition for trade registration. Trades may be confirmed through the web portal, by voice or by email. For more information, please refer to the relevant circulars: 

MEFF: “Transactions arranged directly between members (or between members’ holders) and brokered transactions in the Energy Segment”.

BME CLEARING: “Register of transactions arranged directly between members (or between holders of the same member) reported by MEFF, in respect of contracts belonging to the Group of Energy Contracts admitted to trading in MEFF”.

Members may sign give-up agreements authorizing one or more brokers to confirm transactions.

Clearing and Settlement

Open Position

Once a trade is registered, an open position is created, according to which:

  • Transactions with opposite signs for the same contract are netted; for example, the purchase of two 2022 annual contract futures and the sale of futures from the same contract leave an open position of one sold contract of the 2022 annual contract.

  • In segregated client accounts, which have a “gross record”, trades of opposite signs for the same contract are not netted; following with the above example, the purchase of two 2022 annual contract futures and the sale of three futures of the same contract leave an open position of two futures purchased and three futures sold from the 2022 annual contract.

Although there is netting at the open position level, trades logically have a variation margin settlement.

Live Trades

Although trades with opposite signs on the same contract are normally netted (except in accounts that have a “gross record”), the system does not delete the trades but keeps them recorded.

This record is important for swap contracts.

In a futures contract where there is a daily variation margin, the contracts are fungible, and since the variation margin updates all contract prices at the daily settlement price of the session, the netting of trades is complete. However, for swap contracts, details of the live transactions are necessary to know the update of the value pending settlement.

Daily settlements are made using a standard multilateral settlement in the Bank of Spain account through the TARGET2 System.

The clearing member requires an account in the TARGET2 payment module. If it does not have one, it may designate a payment agent with a treasury account in a central bank of the Eurosystem to make settlements through it.

Variation Margin

The variation margin applies to annual, quarterly, monthly and weekly futures contracts. Therefore, it should not be considered for swaps.

During the life of a futures contract, until its last trading day, a daily variation margin takes place, based on the difference between the settlement price and the last settlement price (for day trades: the price of the trade, for the rest: the settlement price of the previous session). On the last day of registration, the variation margin calculation is based on the difference between the final settlement price and the last settlement price.

Settlement at Expiration

Settlement at expiration is performed for monthly, weekly and daily swap contracts.

Settlement takes place once the contract delivery period has ended. The day of settlement at expiration is established by Circular.

On the specified date, BME Clearing will automatically generate expiry trades (type V).  

For Swaps and Futures: The settlement price at expiration is derived from the arithmetic mean of the hourly price of the daily market of all relevant hours of the contract of the delivery period of the product. The hourly price of the daily market is the price published by the Operador del Mercado Ibérico de Energía – Polo Español, S.A. (OMEL) for that specific day and time. In the event of discrepancies between the Spanish and Portuguese prices, the Spanish price will be used.

In the case of a peak daily swap, it would be the arithmetic mean of the relevant hours (from 8:00 to 19:59) of that day.

  • In the case of a monthly swap, the settlement price on expiration will be the arithmetic mean with two decimal places of the hourly price of the Spanish system for all the relevant hours of the month in question. In the case of a base monthly swap, it would be the arithmetic mean of all the hours in that month.

  • In the case of a weekly swap, the settlement price at expiration will be the arithmetic mean with two decimal places of the hourly price of the Spanish system for all the relevant hours of the week in question. In the case of a base weekly swap, it would be the arithmetic mean of all the hours in that week.

  • Finally, in the case of a daily swap, the settlement price at expiration will be the arithmetic mean with two decimal places of the hourly price of the Spanish system for all the relevant hours of that day in question. In the case of a peak daily swap, it would be the arithmetic mean of the relevant hours (from 8:00 to 19:59) of that day.

If the expiry date is a holiday or weekend, the settlement is generated on the first business day thereafter.

Information relating to variation margins is available in BME-PC, under Settlements - Variation Margins, where the results for each of the trades carried out are detailed. Settlement at expiration for swaps and futures, and mark-to-market settlement for futures, will appear. The option to view historical data is available.

​Product​
Frequency​ ​
​Settlement​  ​
Cascade process​ ​
​Mark-to-market adjustment margin​
​Swaps​
Annual​  

Quarterly  
Not applicable​​
Annual - Quarterly Swap

Quarterly - Monthly Swap
Yes
​Swaps​
 Monthly​
 Weekly
Diary (from the Future)
​At expiration​
Row 2, Column 4
Yes
Futures​
Annual
​Quarterly ​
​ Monthly​​
​Weekly​
​Daily​
​Annual – Quarterly Future 
​Quarterly - 
Monthly Future​
No 

Fee Settlement

Registration and settlement fees

The fee for a trade is settled on the next business day after a trade is executed and will vary depending on the MWh registered. It is calculated as follows:

        Fee = Transaction volume * Contract MW No. * Rate charged

Where:

  • Contract MW No.: number of MWh of a contract, identified in the corresponding contract type multiplier.

  • Rate charged: unit amount of the price corresponding to the type of registered trade, contract and holder concerned, in euro cents/MWh.

In other words, the contract multiplier must be taken into account when calculating fees:

                 Fee = Trade volume * Contract multiplier * Rate charged

Information on fees is published in circulars. Details of the fees charged are available in the BME-PC Portal.  

Margin requests ensure that members can cover the settlements resulting from their trading operations.

The margins to be posted by members and the risk calculations are determined for each segment. BME Clearing currently has five segments: Financial Derivatives, Equity, Repos, IRS and Energy.

Margins are managed under the “cross default” principle for members and the “no contamination” principle between segments.

This means that, if a member defaults, in accordance with the “cross default” principle, it does so in all segments, and the cost of the overall close must be covered by the member’s individual guarantees, regardless of the segment to which the default corresponds. 

Nevertheless, BME Clearing’s specific margins and those posted collectively by members for each segment adhere to the “no contamination” principle. This means that if a clearing member is active only in the financial segment, it will not be exposed to potential losses resulting from the default of a clearing member in the Energy segment, and vice versa.

Types of Margins

The margin system has four basic components: initial margins, individual member’s margins, default fund provided by members and BME Clearing margin.

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Guarantee per Position 

It is calculated for each account. The margin per position is deposited with BME CLEARING if the client's accountis opened as an individual account in the central register and is deposited with the member if the client's accountis opened as a segregated account in the Member's detail register. Thisguaranteecovers the risk of eachpositionin extreme but plausible conditions. 

Method of calculating the guarantee per position: 

There are 3 compensationgroups: 

  • Electricity, close to delivery. 

  • Electricity Short-term base/peak (daily contracts and theoretical cascade of weekly and monthly).  

    • Base 
    • Point 

  • Electricity, other base/peak contracts (annual, quarterly and monthly contracts).  

    • Base 
    • Point 

Different intervals are established according to the compensation group. In general, the closer to delivery, the greater the guarantee due to greater price volatility. 

Theoretical cascade 

Those contracts whose delivery period is totally or partially contained within the delivery period of another contract, and present positions of opposite sign, will have priority in the compensation and the spread guarantee will be equal to 0. 

Based on the theoretical cascade process defined in the corresponding instruction or the one that replaces it, and in accordance with the rules defined in said Instruction, the contracts are broken down into smaller parts (contracts with shorter delivery period), offsetting the identical contracts resulting from said process that have opposite signs, resulting in the offset position (delta bought or delta sold) with a guarantee spread equal to 0. 

Unlike the actual waterfall, the theoretical waterfall will be performed for those contracts that are in delivery and for the monthly and weekly contracts that become front. The list of contracts is as follows: 

  • Annual contracts will be broken down into quarterly contracts. 

  • Quarterly contracts will be broken down into monthly contracts. 

  • Monthly contracts will be broken down into daily contracts. 

  • Weekly contracts (including weekend contracts) will be broken down into daily contracts. 

Intra-Matrix Compensation 

Different contracts in opposite signs within an offsetting group are offset: for example, a long March base contract with a short quarterly base contract. For this purpose, the compensated hours are calculated and the guarantee is applied per compensated position within the same group, and the non-compensated hours are calculated and the entire guarantee is applied. 

The guarantee per position offset within the same group, which is applied within each group of contracts and is the maximum between a fixed amount and the price difference of the contracts. 

If there is more than one pair of contracts to be offset, priority is given to the pair of contracts with the same expiration date. In this case, we start by compensating the types of contracts with a higher number of hours. If there are contracts with different maturity dates, priority is given to the pair of maturities with maturity dates closest to each other, since these are the most closely correlated. If there is more than one pair and the distance between contracts of the same pair is equal between pairs, we start with the most distant expiration date 

Intermatrix Compensation 

There are trade-offs between the different matrices. The guarantee credit or discount is calculated based on the minimum fluctuation of each group. 

On a monthly basis, price volatilities are reviewed and the parameters for the calculation of guarantees are established. They are published in the Circular "Parameters to be used for the calculation of the guarantee per position". 

Value adjustment 

Contracts that do not have daily profit and loss settlement (swaps) are subject to mark-to-market adjustments. In other words, these contracts do not have daily profit and loss settlement but the mark-to-market adjustment varies depending on the original contract price. For this reason, this Variation Margin is not settled in cash, but is taken into account, to a greater or lesser extent, for the calculation of the Position Margin. 

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