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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.
* 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.
