Glossary

Additional Margin

The additional margin serves to cover the losses which might be incurred on account of close-out of futures and options positions. These losses essentially depend on the price movement in the underlying security. The maximum price movement expected in the underlying security is called the additional margin parameter.

Additional Margin Parameter

Parameter describing the maximum expected price movement of an underlying security. The additional margin parameter is used for the calculation of the additional margin.

American Option

An option which can be exercised on each day of trading until the last day of trading.

Ask

Sell order

Assignment

If an option is exercised, the clearing house assigns a sell position in the same option to the buy position executed in options by means of a drawing procedure.

At-the-money

An option with regard to which the market price of the underlying security equals the exercise price is at-the-money.

Auction

Form of trading for ascertaining the price and for matching of buy and sell orders to form transactions. During the auction all the orders in the order point are matched to form transactions at a specified point in time. Usually that price is established as the auction price at which the biggest quantity of contracts is bought and/or sold.

Balance Area

Energy account which the transmission system operator keeps for every user of the system in accordance to a balance area agreement. In the account feeding, withdrawals and the transfer of energy to other balance areas (schedule) are booked in order to establish the deviation in the energy balance of every user.

Balance Area Agreement

All contractual agreements between the transmission system operator and the grid user regarding the settlement of power and natural gas deliveries.

Balancing Area Responsible Party

Grid user as counterparty of a balance area agreement which is responsible for the settlement of balancing group deviations.

Base Load

Characterizes the type of load for the delivery of electricity or the procurement of electricity with a constant output over 24 hours of each day of the delivery period.

Batch processing

Daily vespertine process of the clearing house. It includes position keeping as well as calculation and posting of margins for all transactions that are cleared and settled by the clearing house.

Bid

Buying order

Block Order

Combination of up to 24 partial orders regarding hour contracts for power. The partial orders have to refer to different hour contracts of the same delivery day and of the same place of delivery (TSO). A block bid can be a buy order (all partial orders are buy orders) or a sell order (all partial orders are sell orders). All partial orders of block bids are either executed jointly or they are all not executed jointly.

Call

Call option. An option which authorizes the buyer to buy a specific number of the underlying security at the exercise price.

Call for additional cover

If the deposited margin of a Clearing Member or Non Clearing Member does not fulfil the requirements of the daily calculated margin (under funding) the Clearing Member or Non Clearing Member is requested for additional cover (margin call). Clearing members and Non Clearing Members have to fulfil the additional payment.

Carbix

Index for EU emission allowances which is calculated on each exchange day in an intra-day-auction on the EEX Spot Market at 10.30 am.

Cascading

Positions in year futures and quarter futures are fulfilled through cascading. On their last day of trading these futures are replaced with equivalent futures with shorter delivery periods.

Cash Settlement

An exclusive financial fulfilment of transactions is called cash settlement.

CDM

Clean Development Mechanism. CDM is a project based mechanism in the international emission trading system based on article 12 of the Kyoto Protocol. In CDM Projects, a company from one Annex-1-Country (i.e. an industrialized country) invests in an emission reduction project that is carried out in a Non-Annex-1-Country (i.e. a developing country). From 2008 onwards the reduced amount of emissions in the host country will be credited to the investing country or the investing company. CDM Projects are registered and certified by the United Nations Framework Convention on Climate Change (UNFCCC).

CER

Certified Emission Reduction. CERs are generated by Clean Development Mechanism (CDM) Projects. One CER corresponds to a carbon credit of one tonne CO2 equivalent. Since 2008 CERs can be credited up to a certain percentage of the total reduction liabilities of operating facilities within EU ETS.

Clearing

Financial and physical settlement of transactions as well as collateralisation of transactions

Clearing House

An institute which acts as a central counterparty for transactions (CCP). The clearing house organises the accounting of receivables and liabilities, the delivery of the transactions and the collateralisation of the transactions.

Clearing Member

Participant in the clearing procedure who has a clearing license.

Close-out

An open position in futures or in options is closed out by concluding an opposite trade. This means a long position can be closed out with a short position and vice versa. After close-out no receivables or liabilities remain from the transactions.

Collective account

Account of the clearing house kept at the German national register for EU emission allowances in which the EU emission allowances traded on the exchange are kept in trust by the clearing house.

Continuous Trading

Unlike in an auction, price formation in continuous trading is done during a given period of time in which transactions take place continuously. As soon as two orders are executable they will be matched immediately. Competing orders in the order book are prioritised by firstly price and then time

Contract

Standardized unit of measurement for transactions. The contract specifications determine the arrangements of any given contract, for example the quantity of the commodity and the maturity date of the delivery.

Contract value

The contract value is established on the basis of the product of market price and contract volume of the contract.

Control Area

Defined grid area with regard to which a transmission system operator is responsible for balancing. Control areas serve as places of delivery of power contracts.

Current Liquidation Margin

The current liquidation margin covers losses which might be incurred on account of liquidation of a transaction. The losses depend of the price spread between the market price and the price of the matured contract.

Day-Ahead Market

Part of the spot market where a commodity is tradable one day before delivery.

DEHSt

German Emissions Trading Authority at the German Federal Environment Agency which keeps the national German register for EU emission allowances. The collective account of the clearing house is kept there.

Delivery

The physical fulfilment of transactions is called delivery.

Delivery Margin

The delivery margin has to be furnished for net short positions in TTF Gas Base Load Month Futures before the beginning of the delivery phase. The delivery margin covers possible demands which the gas transmission system operator might have towards the clearing house on account of demands of the gas transmission system operator towards the Clearing Member or Non-Clearing Member.

Delta

The amount by which the option premium changes if the underlying security changes by one unit.

Derivatives

Collective term for futures and options

Derivatives market

Market on which futures and options are tradeable.

ECC

European Commodity Clearing AG. Central counterparty for all transactions effected on EEX.

Emissions trading

Emissions trading is a market based approach in order to achieve climate protection goals. The sale of emission allowances to a higher price than an emission reduction action would cost or the purchase of emission allowances in case of higher costs of emission reduction actions provides an incentive for companies to engage in emission trading. Due to the limited amount of allocated emission allowances evolves a market in which also companies without emission reduction liabilities take part (cap and trade system).

EU ETS

EU Emission Trading Scheme - the emission trading system of the European Union launched in January 2005 as first international emission trading system. The first trading period of the EU ETS expired at the end of 2007, the second trading period takes place from 2008 until 2012.

EUA

EU Allowance. One EUA is the minimum trading unit in EU emissions trading. One EU allowance enables the owner to emit one tonne CO2 equivalent.

Eurex System

The Eurex System is an electronic trading and clearing system for futures and options markets. Eurex System is used on the derivatives markets of EEX.

European Option

An option which can only be exercised on the last day of trading.

Exercise

Declaration by the buyer of an option stating that he wishes to buy or sell the underlying security under the conditions specified in the options contract.

Exercise price

Synonym for strike price

Expiry Month Factor

In addition to the additional margin parameter, the expiry month factor is used for the calculation of the additional margin for net positions in physically settled month futures as soon as this future is in the delivery phase.

Final Settlement Price

The final settlement price is the price established at the end of the trading period.

Future

A future is the binding contractual obligation to buy (buyer of futures) or to deliver (seller of futures) a specified amount of a commodity at a specified price during a specified period of time in the future (delivery period).

H-gas

In general there are two qualities of natural gas: L (low) and H (high). Because of the higher methane concentration (87 - 99 vol %) H-gas has a higher caloric value while L-gas possesses a lower methane concentration (80 - 87 vol %). On EEX H-gas can be traded.

Iceberg Order

Buy or sell order which is specified by means of its limit, total quantity and peak quantity. The Iceberg Order is placed in the order book in partial orders to the amount of the peak quantity. As soon as a partial order has been executed, a new partial order to the amount of the peak quantity is placed in the order book. This process is repeated until the total quantity of the Iceberg Order is executed.

Implicit volatility

The volatility taken into account in an option premium.

In-the-money

A call option (call), in the case of which the market price of the underlying security is above the exercise price, or a put option (put), in the case of which the market price of the underlying security is below the exercise price is in-the-money.

Initial Margining

The initial margin covers the intra-day risk from spot market transactions on power and natural gas.

Internal accounts

Inventory accounts of trading participants for EUA which are kept in trust by the clearing house. Changes in the inventory arising on account of delivery and acceptance, depositing in fiduciary safe custody and returning of allowances from fiduciary safe custody are booked on these internal accounts.

Intra-Day Margin

Additional margin which has to be deposited in the course of an exchange trading day in highly volatile market situations.

Intra-Day Market

Part of the spot market on which the trading participants can trade a commodity up to one hour prior to the beginning of the delivery.

Intrinsic value

The intrinsic value of an option corresponds to the difference between the current market price of the underlying security and the exercise price of the option provided this entails a price advantage for the buyer. The intrinsic value is always zero or bigger than zero.

Limit order

Buy or sell order which is entered with a position limit; it is executed at said limit or at a better limit.

Long position

The trading participant holds a long position after buying a security (e.g. a futures contract). The long position remains until the maturity or close-out of the position.

Margins

Margin to be furnished in cash or in securities which the Clearing Member has to deposit with the clearing house and which the Non-Clearing Member has to deposit with its Clearing Member. There are six types of margins: the current liquidating margin, the initial margin, the premium margin, the additional margin, the spread margin and the delivery margin.

Mark-to-Market

With the help of the mark-to-market procedure profits and losses from open futures positions, which are caused by price changes in the futures, are calculated on a daily basis. The changes in the value of the individual positions are established on the basis of the daily settlement prices. The settlement of these changes in value is carried out with credit notes or margin calls.

Market area

Term used in natural gas trading. A market area is operated by a grid gas company. The number of market areas is determined by physical restrictions and property lines in the natural gas industry. A market area serves as point of delivery of natural gas contracts.

Market Clearing Price

Synonym for auction price. The market clearing price corresponds to the intersection between the aggregated supply and demand curve.

Market Coupling

Market Coupling is a method to manage capacity congestions between adjacent power spot markets. In general this is designed as an implicit auction and requires a coordination of spot auctions of the exchanges involved.

Market Maker

A market maker is a trading participant who holds a bid and an ask order (quote) simultaneously for a minimum period of time on the exchange trading day. Market makers serve to ensure basic liquidity.

Market order

Buy or sell order which is entered without a price limit. The unlimited order is executed at every price.

Market order matching range

Price corridor around the last price traded, within which market orders in futures can only be executed.

Matching

Combining of performable contracts in the order book.

MCP

Shortcut for market clearing price

Mistrade

A transaction which was effected as a result of a misentry is called mistrade.

Nomination

The delivery of schedules to the transmission system operator or grid gas company is called nomination.

Non-Clearing-Member

Participant who does not have a clearing licence. Instead of acting as a Clearing Member he takes part as a Non Clearing Member in the clearing process. This requires the cooperation with a Clearing Member via an NCM agreement.

Open Interest

Characterizes the number of all open positions in a specific futures or options contract.

Opening of a position

If a new position is created when a future or an option is bought or sold, it is referred to as the opening of a position.

Option

Binding contractual obligation. The right to buy (call option, call) or to sell (put option, put) a certain number of the underlying security at the exercise price on the exercise day.

Option Holder

Buyer of an option

Option premium

See option price

Option price

Price of an option. Synonym of option premium.

Option series

Call and put with the same characteristics with regard to the delivery period, maturity and exercise price.

Option Writer

Seller of an option

Order

Orders are binding buy or sell orders from trading participants.

OTC

Shortcut for over-the-counter. An OTC contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future.

OTC clearing

Service offered by exchanges. OTC transactions which correspond in their contract specification to exchange transactions can be registered. In this case clearing and settlement of the OTC transactions will be done by the respective clearing house.

Out-of-the-money

A call option (call), in the case of which the market price of the underlying security is below the exercise price, or a put option (put), in the case of which the market price of the underlying security is above the exercise price is out-of-the-money.

Payment

Financial fulfilment of a trade

Peak Load

Characterizes the load type for the delivery or procurement of electricity at a constant load over 12 hours from 08:00 am until 08:00 pm on every working day (Monday to Friday) during a delivery period.

Phelix

Phelix means Physical Electricity Index. Calculated on a daily base the Phelix is the average price for base load (Phelix Day Base) and peak load (Phelix Day Peak) electricity traded on EEX Spot Market.

Physical fulfilment

Trading participants are able to combine the financial fulfilment of their futures positions (see cash settlement) with a 'physical fulfilment' on the spot market of EEX by buying or selling the underlying of the future.

Point of delivery

The places of delivery for e.g. electricity or natural gas are the zones of the respective transmission system operator.

Position

All futures transactions in a futures and options contract are submitted to a new evaluation at the respective current market price and summarized into one position at the market price.

Premium margin

The premium margin has to be deposited by the seller (taker of an option) of the option. It remains in force until the last day of trading or until closing out. It covers the costs of closing out at the settlement price. The premium margin is adjusted to the current settlement price constantly. The buyer of an option does not have to deposit a margin.

Principle of most executable volume

The principle of most executable volume describes the method of setting the price in an auction. The price, which is established in accordance with the principle of most executable volume, is the price at which the highest volume can be combined with the lowest surplus.

Product

All futures and / or options contracts of the same underlying form a product. The futures contracts are defined by their maturity in addition. The option contracts are defined by the maturity, the option type (call or put) and the exercise price in addition.

Put

An options contract which authorizes the buyer to sell a specific number of the underlying security at the exercise price on the exercise day.

Quote

Simultaneous placing of bid and ask orders by a trading participant.

Register

A sort of deed book for EU emission allowances which is kept as a national register by every country. In Germany, this register is kept by the German emissions trading authority (DEHSt) at the federal environment office.

Safe custody

Only those EU emission allowances can be traded which are kept in trust by ECC AG in its collective account at DEHSt.

Schedule

A schedule is an instruction to the transmission system operator (TSO) to book power or natural gas between two balance areas. Physical delivery of contracts is fulfilled by means of reporting of schedules to the TSO.

Settlement

Settlement is the financial and physical fulfilment of a transaction.

Settlement Day

Days on which the financial and/or physical settlement of the transactions is effected.

Settlement Price

Price for each individual futures and options contract which is established by the exchange on a daily basis

Short position

The trading participant holds a short position after selling a security (e.g. a futures contract). The short position remains until the maturity or close-out of the position.

Spot market

Market on which transactions regarding products are concluded and/or registered which are settled within a period of two settlement days. Settlement can take place immediately (intra-day), the following day (day-ahead) or two days ahead.

Spread

The range between best bid and best ask is called spread.

Spread Margin

A spread margin has to be furnished for open spread positions in futures. The spread margin is used to cover any losses which might be incurred on account of margin calls which have not been fulfilled or of close-out of a spread position from derivatives market transactions. Essentially, such losses depend on the price change of the time spread. The maximum expected price change in the time spread is referred to as the spread margin parameter.

Stop Limit Order

Buy or sell order which is placed in the order book as an limited order as soon as the stop entered is reached in trading.

Stop Market Order

Buy or sell order which is placed in the order book as an unlimited order as soon as the stop entered is reached in trading.

Strike Price

The price at which the underlying security is bought or sold upon exercising of an option.

Tick

Smallest unit in which the price of a future or of an option can change.

Time Spread

Difference in the price of two futures contracts with the same underlying security but different maturities.

Trade

Executed part of an order resulting from matching of buy and sell orders.

Trade Confirmation

Confirmation of a trade effected on the exchange.

Trader

Employee of a trading participant which is admitted by the exchange as a trader.

Trading day

The days specified by the respective exchange on which trading takes place.

Trading participant

Company which is licensed by the exchange as a trading participant on the spot and/or derivatives market.

TSO

Shortcut for transmission system operator.

TTF

The Title Transfer Facility, more commonly known as TTF, is a virtual trading point for natural gas in the Netherlands.

Underlying

The underlying price of futures and options contracts. An underlying might be a delivery of a commodity (electricity, natural gas, emission allowances), indices (Phelix base, Phelix peak, API #2, API #4) or in the case of options, a future.

Variation Margin

Profits and losses, which result from changes in the value of positions in futures, are settled in cash on a daily basis. This daily profit and loss settlement is also referred to as a mark-to-market procedure. The daily credit or debit resulting from this is called the variation margin.

Virtual trading point

Term used in the natural gas industry. A virtual trading point is a virtual point of delivery in a market area which serves as transfer point for the settlement of natural gas deliveries within this market area.

Volatility

Volatility is a measure of the price fluctuations in the course of one day. The clearing house analyses the price movements in the underlying securities and time spreads and derives their volatility from this. The additional margin parameter and the spread margin parameter can then be determined on the basis of volatility.

Xetra

The Xetra system is one of the trading systems used on the EEX Spot Markets.