Institutional and Organizational Designs of Natural Gas Hubs: An Introduction to the Iberian Gas Hub

1. The role of OMIClear as CCP in the iberian gas hub
P bl Vill l COOPablo Villaplana, COO
OMIClear
“Institutional and organizational designs of the gas hubs in Europe: an
introduction to the iberian gas hub”
1
Bilbao, 24 June 2014

2. Index
1. OMIClear: who we are?
2. OMIClear as CCP. What we do?
3. Work in progress
2

3. IntroductionIntroduction: OMIClear: OMIClearIntroductionIntroduction: OMIClear.: OMIClear.
WhoWho wewe areare
3
WhoWho wewe areare

4. OMI institutional organization
OMI Operador Mercado IbéricoOMI: Operador Mercado Ibérico
Portugal Spain
OMELOMIP SGPS
Holding (Portugal)
OMEL
Holding (Spain)
10%
10%
50% 50%
50%50%
CommonOMIP
Exchange (Portugal)
OMIE
Exchange (Spain)
Common
Board
50% 50%
O B dOMIClear
Clearing House (Portugal)
Own Board
4
OMIClear: regulated CCP under Portuguese financial legislation, “recognized “ (international
agreement) under spanish and portuguese energy regulation. EMIR authorization in process.

5. Global Business Model (CCP – power and
natural gas)g )
Clients
Mandatory flow of
exchange trades
Buyers
Non mandatory flow
of OTC transactions
(Buyers)
Trading
Buyers
O C C
Members
Clearing HouseClearing House
OTC Contracts
ExchangesExchanges
Clearing
Members
Brokers
Trading
Members
OTC Contracts
Clients
(Sellers)
Sellers
Over-The-Counter TradesOrganized/Regulated Markets

6. Participants (CM & TM) LocationTM – 1
TM – 1
TM – 1;
CM - 1
TM – 12; CM - 3
TM - 4; CM - 3; FSA - 3; PSA - 2 Rascasse
Energy
Europe
TM – 3; CM – 2; FSA - 2
TM – 1
PSA – 1
Europe
Limited
TM – 1
The Liverpool
Limited
Updated 31 May 2014
TM – 29; CM – 7; FSA – 2; PSA - 14
ExchangeExchange Clearing HouseClearing House
PSA – 1TM – 2;
Limited
PartnershipTotal: 55 Total: 17Kyonynsys
Century, S.L.U.

7. OMICl CCP OMICl CCP OMIClear as CCP. OMIClear as CCP.
WhatWhat wewe dodoWhatWhat wewe dodo

8. OMIClearOMIClear as a Central Counterpartyas a Central Counterparty
- OMIClear’s activity is devoted to the role of Clearing House and Central
Counterparty (CCP) in trades made on several derivatives products: Power &
Gas, energy and capacity, through ETD (Exchange Trading Derivatives) or
OTC.
- As CCP, OMIClear becomes the buyer counterpart to every seller’s Clearing
Member and the seller counterpart to every buyer’s Clearing Member, as soon as a
trade is registered in OMIClear.
- As CCP, OMIClear performs the netting of positions
- As CCP, OMIClear register and manages the positions, performs risk
management and settlements (physical and financial) that arise from the trades
Buy Position:
+ 15MW
Clearing Member
Sell Position:
- 10 MW
Reduction of
M b ’ Ri k
Margin
Less
collateral
8
C ea g e be
Account
Net Position = +5 MW
Member’s Risk
Exposure
g
Reduction
collateral
required

9. Risk MinimizationRisk Minimization
The CCP ensures the multilateral Clearing of positions reducing risks such as:
Counterparty Risk
Guarateeing the fulfilment
of contract’s obligations of
both counterparties
Cash Settlement
Risk
both counterparties
Operational Risk
Debits & Credits are
settled multilaterally
G
Reliable clearing system
that calculates and
provides on real time basis
i & l iin TARGET2
payment system
gains & losses, margins,
collateral movements,
operational limits, statistics
Systemic Risk
If M b d f lt lIf a Member defaults only
affects the CCP instead the
market as a whole
9
OMIClear is at the final phase of the EMIR re‐authorization process

10. Systemic Risk reduced Systemic Risk reduced
Systemic Risk without CCP Systemic Risk with CCP
Default
Member
Default
Member
Member Member
Member
A
Member Member
Member
A
F B F B
Member
C
Member
E
Member
C
Member
E
Member
D
Member
D
10Entities affected by the Default

11. OMIClear’sOMIClear’s Risk ManagementRisk Management
A Multilayered SolutionA Multilayered Solution
Clearing
Members Risk
Margins based
on Positions
Assessment Exposure
P&L Daily
Settlements
Clearing Fund
11

12. Clearing Clearing MembersMembers
Clearing Members (CM) are the counterparties of OMIClear in the clearing
and settlement activities regarding the CCP
To manage the
Guarantees with CCP
(own / client /client
Participates
(directly / indirectly)
(own / client, /client
with segreg.&portab.)
To become the Buy
or Sell (directly / indirectly)
in the Positions
cash settlement
CM
Counterparty when
the Positions are
registered in CCP
(Open Offer Model)
CM
Functions &
Obligations
Provide relevant
Information to CCP
When acting for
clients’ account, must
replicate obligations
12
whenever requested
replicate obligations
required by CCP to
the clients

13. Clearing Clearing Member TypesMember Types
A. General Clearing Members (GCM)
 Own & Clients trades clearing
OWN CLIENTS
B. Direct Clearing Members (DCM)
 Own trades clearing
 Clearing for dominated companies (>90% share capital) OWN
can be considered as Own Clearing
13

14. Initial MarginInitial Margin
Purpose: Minimize the Risk of having to close out positions, in a short time period, belonging to a
Clearing Member that enters into default
Applies when
there is a
“Potential Risk
E ” Always a
Responsibility
of a Member
Exposure”
Covered with
Guarantees
(Cash / Bank
with open
positions
IM
Guarantees /
Securities)
IM
Applies to both
Trading &
Based on a
concept of
Porfolio
Other complementary
Delivery Period
of contracts
Porfolio
(SPAN based
model)Based on the
max price
elements of the margin
model are “Variation
Margin” and “Mark to
14
max. price
varation within
“X” days
Market”

15. One Single Collateral Pool to Cover Multiple
OMIClear Services
With OMIClear, Participants can pledge 1 single collateral (e.g. cash and/or bank
guarantee) to cover responsibilities arising from their participation in multiple productsg ) p g p p p p
or services:
Example:
40%1 single collateral pool
( G /
To cover positions
i f
tly
40%
(Bank Guarantee and/or
cash)
=> margins of
Spanish Power
futures contracts
20%
To cover positions
=> margins of Gas
Capacity Rights
Accepted Collateral:
15%
25%
T iti i
Cash
Bank Guar. Gov. BondsTo cover positions =>
margins of Spanish
15
To cover positions => margins
Financial Power Transmission
Rights (PT-SP & SP-PT)
margins of Spanish
Gas spot and
forwards contracts

16. OMIClear’sOMIClear’s Default Waterfall Default Waterfall
Collateralised
C ll t li d
Additional Guarantee (if applicable) of default CM
Margins of defaulting CM (IM, VM, BM, SM, NRPLM) Collateralised
Default
CM Collateralised
Clearing Fund (CF) contribution of default CM
OMICl D di t d F d
CF Autonomous Reserve
CM
CF contributions of non-
defaulting CM
OMIClear Dedicated Funds
SIG - Skin in the Game
g
CF Additional
Responsibilities of
non-defaultingNon Defaulting non-defaulting
CM
Non-Defaulting
CMs
16
Last Update:
28.Feb.2014

17. Specific advantages of OMIClear as a CCP in the
Iberian gas hub
 Reduction of counterparty risk – OMIClear as CCP
minimizes default probability OMIClear have default
g
Mitigation of credit minimizes default probability. OMIClear have default
procedures in place already tested and approved by the
regulators (CMVM and finalizing EMIR process)
g
risk (counterparty)
 Most players in the gas hub are already members of
OMIClear as CCP in the power market
Broad participation (iberian non iberian; utilities
Market participants
both at the Iberian
power and gas  Broad participation (iberian, non-iberian; utilities,
financial players,…)
power and gas
market
 Market participants may use one collateral pool to cover
their market risk exposure both for power and natural
gas
Possibility of using
one collateral pool for
both power and NG gasp
 OMIClear has a portfolio margin based on SPAN model
17
‘Portfolio Margin’ for
multiple products
 OMIClear has a portfolio margin based on SPAN model
that could allow for inter-commodity spreads

18. Work in progressWork in progress
18
p gp g

19. Development of a Gas Hub in Iberia and OMIClear
• OMIClear is already working with BOTH trading platform initiatives (OMIE
gas and IBGH) to clear and settle natural gas physical products with delivery in g ) g p y p y
the virtual point (AOC).
– Short term and forward market: daily, weekly, BoM, monthly, year products …
– Physical contracts.
– Possible expansion to the Portuguese hub or joint virtual point (regulation)
– Physical regulation (TSOs role) matter: OMIClear is following the discussions that y g ( ) g
trading venues are maintaining with the TSO (Enagas – GTS) in order to define the
general framework and the relationship between “trades” and physical nominations
and balancing mechanisms
• OMIClear is working to identify those changes (instructions, IT systems, risk
management models,…) that would be needed to be developed or modified in
order to be able to clear and settle natural gas productsorder to be able to clear and settle natural gas products.
– OMIE gas – adapting the model to a short‐term organized market (energy regulation)
– IBGH ‐ main architecture will be applicable (EMIR) and more work is needed on the
i t (li idit & l tilit d l l d t i d & i i ti
19
margin system (liquidity & volatility model – closed out period & price variation
(EbMPS))

20. Gracias!
Obrigado!
Thanks!Thanks!
Pablo Villaplana
+351 21 000 60 05
pablo.villaplana@omiclear.pt
20
p p @ p