Over 113 million tonnes of OTC coal options cleared by LCH.Clearnet

Driven by record month of 17.2 million tonnes in April 2012

16 May 2012

More than 113 million tonnes of over-the-counter (OTC) coal options have been cleared by LCH.Clearnet Limited (LCH.Clearnet) since the contracts were launched in March 2011, driven by a record month in April of 17.2 million tonnes. In the first four months of this year, an average of 14.5 million tonnes was cleared each month which has contributed to a 78% increase in average monthly volumes in 2012 compared to average monthly volumes in 2011.

Demand for coal remains high in developing Asian economies.  This, combined with recent price volatility, is driving the appetite for options trading.  By clearing OTC coal options through LCH.Clearnet, market participants are able to manage their risk effectively.   

LCH.Clearnet uses daily volatilities supplied by LEBA to support its risk management processes. The end of day volatilities and swaps prices are obtained by polling LEBA members and calculating averages of submitted indications and volatilities. LCH.Clearnet uses these for the purpose of calculating daily margin.

On expiry, in- the- money options exercise into the underlying swaps contracts which are settled monthly against the Argus and IHS McCloskey API 2* or API 4* indexes, published in the Argus/McCloskey’s Coal Price Index Report.

‘We work closely with market participants to ensure that our offering caters specifically to their needs,’ Isabella Kurek-Smith, Director, Energy & Freight at LCH.Clearnet said. ‘The very apt nature of the service is demonstrated by the increase in OTC coal options cleared through LCH.Clearnet. This enables participants to continue to trade this vital commodity and to opt for the increased security that clearing brings.’

Alex McDonald, CEO of LEBA commented, ‘the coal options clearing facility provided by LCH.Clearnet in conjunction with daily prices and volatilities provided by LEBA members has gained rapid acceptance in the industry and we look forward to continuing this successful partnership’.

LCH.Clearnet has also recently announced a fee holiday for OTC coal swaps effective until 7 September 2012.

- Ends -

* API 2 and API 4 are trademarks of and are used under license from Argus Media Limited and IHS Global Limited.  All copyrights and database rights in the API 2 and API 4 indexes belong exclusively to Argus and IHS. Official prices for the API 2 and API 4 indexes are only available from Argus. Argus and IHS take no position on the purchase or sale of LCH.Clearnet’s financially settled listings.

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Contacts:

Greentarget (LEBA)

Melissa Rowling / Dafina Grapci-Penney – +44(0) 207 324 5490/84

LCH.Clearnet

Rachael Harper - +44(0) 207 426 7175

About LEBA

1. LEBA, the London Energy Brokers’ Association, is the industry association representing the FSA regulated wholesale market brokers in the over the counter (OTC) and the exchange traded UK and liberalised European energy markets. These brokers intermediate and facilitate bilateral contracts to be concluded between banks, trading houses, commercial enterprises, public utilities and integrated energy businesses, providing liquidity and price discovery to these markets as well as contributing significant liquidity to European exchange traded markets. The major products that they deal in include crude oil and refined petroleum products, gas, electricity and emissions.

2. The LEBA member firms that currently operate in the European gas, power, coal and emissions markets are:

3. Copyright © LEBA Limited 2012. LEBA encourages the reproduction and dissemination of its monthly volumes reports. Permission to reproduce or disseminate the data by members of the media is authorized on condition that it is attributed to LEBA. For queries on rights and licenses, please contact [email protected] . LEBA and the LEBA logo are trademarks of LEBA Limited, a company wholly owned by the trade association, the London Energy Market Brokers’ Association. No responsibility is accepted by or on behalf of LEBA for any errors, omissions, or inaccuracies in the Data. 

About LCH.Clearnet Group

The LCH.Clearnet Group is the leading independent clearing house group, serving major international exchanges and platforms as well as a range of OTC markets. It clears a broad range of asset classes, including securities, exchange-traded derivatives, commodities, energy, freight, interest rate swaps, CDS and euro- and sterling-denominated bonds and repos, and works closely with market participants and exchanges to identify and develop clearing services for new asset classes.

A clearing house sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When a trade is registered with a clearing house, that clearing house becomes the legal counterparty to the trade, ensuring financial performance of the trading parties; if one of the parties fails, the clearing house steps in. By assuming the counterparty risk, the clearing house underpins many important financial markets, facilitating trading and increasing confidence within these markets.

Initial and variation margin (or collateral) is collected from clearing members; should they fail, this margin is used to fulfill their obligations. The amount of margin is decided by the clearing house’s highly experienced risk management teams, which assesses a member’s positions and market risk on a daily basis. Both the soundness of the risk management approach and the resilience of its systems have been proven in recent times. LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.