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ICE Announces Plans to Implement EU Market Correction Mechanism and Related Price Cap on TTF Natural Gas
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Rhea-AI Summary
Intercontinental Exchange (NYSE: ICE) has announced its implementation strategy for the EU's Market Correction Mechanism (MCM) Regulation, effective February 15, 2023. The rule changes will prohibit market participants from placing orders above the price cap when the MCM is active, with specific exemptions. Additionally, ICE will launch a parallel market for TTF futures and options on its London-based exchange from February 20, 2023, offering clients an alternative in case of price cap triggers. The settlement price methodology will remain unchanged to reflect fair market value.
Positive
Launch of a parallel market for TTF futures in London to provide optionality for market participants.
Commitment to maintaining fair market value in settlement prices despite regulatory changes.
Negative
New rules could restrict trading activities for certain market participants under the MCM Regulation.
AMSTERDAM & LONDON--(BUSINESS WIRE)--
Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology, and market infrastructure, today announced how it intends to implement the European Union’s Market Correction Mechanism Regulation (MCM Regulation) and related price cap on TTF natural gas derivatives, in time for entry into force of the regulation.
ICE Endex, based in the Netherlands and operator of the world’s most liquid trading venue for TTF natural gas futures and options, plans to change its Rulebook to promote compliance with the MCM Regulation, effective February 15, 2023, subject to completion of relevant regulatory processes.
Once the MCM Regulation enters into force, the Rules of ICE Endex will forbid market participants from submitting orders to the exchange order book in TTF derivatives above the price cap when the correction mechanism is activated, unless clients are eligible to make use of the exemptions granted in the Regulation. For details on the intended Rulebook changes and related guidance in respect of the MCM Regulation, please see https://www.theice.com/endex/circulars.
At the end of each trading day, ICE Endex determines and publishes settlement prices for all contracts listed on the exchange. The existing methodology and approach used to determine and publish these prices will remain unchanged to ensure that settlement prices continue to reflect fair market value of TTF futures and option contracts. This may mean that settlement prices of TTF futures and options may deviate from the price cap when it is not reflecting fair market value.
Meanwhile, ICE’s extensive engagement with customers confirms that they require continued access to a market which supports them in their need to manage risk, seamlessly hedge, and access and participate in the price discovery process, regardless of the level of the natural gas price. Therefore, ICE is preparing to launch a parallel market for TTF futures and options contracts on its London-based exchange ICE Futures Europe from February 20, 2023, subject to completion of relevant regulatory processes. This will provide market participants with optionality in the event the natural gas price rises, and the risk of the MCM price cap being triggered increases.
“ICE’s purpose is to create markets to allow our customers to manage their risk and we have a duty to our customers to provide solutions to the problems they face,” said Trabue Bland, SVP, Futures Exchanges at ICE. “We plan to implement the MCM on TTF contracts traded from ICE Endex in a manner that will preserve the market structure as best as possible. Simultaneously, we are preparing an alternative venue in London to act as an insurance option for customers if the MCM prevents them from trading and adequately managing their risk exposure.”
TTF futures contracts on ICE Futures Europe will mirror those on ICE Endex but will not be subject to the MCM Regulation and related TTF price cap. They will be physically delivered, whereby contracts held to expiry will result in the delivery of natural gas at the Dutch Title Transfer Facility (TTF) Virtual Trading Point.
ICE Futures Europe is already home to many of ICE’s natural gas markets. This includes the successful TTF 1st line contract which plays an integral role in pricing and risk management of global natural gas portfolios; ICE’s UK gas benchmark NBP; ICE JKM LNG (Platts), the benchmark price for natural gas for North-East Asia; the newly listed LNG futures for North-West Europe and South-West Europe, and the German THE, French PEG, and Italian PSV Natural Gas 1st line contracts.
About Intercontinental Exchange
Intercontinental Exchange, Inc.(NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks to connect people to opportunity. We provide financial technology and data services across major asset classes that offer our customers access to mission-critical workflow tools that increase transparency and operational efficiencies. We operate exchanges, including the New York Stock Exchange, and clearing houses that help people invest, raise capital and manage risk across multiple asset classes. Our comprehensive fixed income data services and execution capabilities provide information, analytics and platforms that help our customers capitalize on opportunities and operate more efficiently. At ICE Mortgage Technology, we are transforming and digitizing the U.S. residential mortgage process, from consumer engagement through loan registration. Together, we transform, streamline and automate industries to connect our customers to opportunity.
Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 3, 2022.
What is the new regulation announced by ICE regarding natural gas derivatives?
ICE is implementing the EU's Market Correction Mechanism Regulation, effective February 15, 2023, which includes a price cap on TTF natural gas derivatives.
When will ICE launch the parallel market for TTF futures and options?
ICE plans to launch a parallel market on February 20, 2023, to provide an alternative trading venue outside the MCM Regulation.
How will the MCM Regulation affect trading on ICE Endex?
The MCM Regulation will prevent market participants from submitting orders above the price cap during its activation, affecting trading strategies.
What is the impact of the MCM on settlement prices for TTF contracts?
The methodology for determining settlement prices will remain unchanged, which may lead to deviations from the price cap based on fair market assessments.
