About ASX New Zealand Electricity Futures and Options
What are New Zealand Electricity Futures?
ASX New Zealand Electricity Futures and Options are standardised and centrally cleared contracts for difference (CFD) that are cash settled against two grid reference nodes (Otahuhu and Benmore) in the New Zealand electricity market.
What are New Zealand Electricity Options?
An option is a contract between two parties giving the buyer of the option the right, but not the obligation, either to buy or sell the underlying ASX New Zealand Electricity Futures contract at a set price, on or before a predetermined date.
Options are financial products that, for the buyer of the option, effectively provide a form of price protection.
Benefits of trading New Zealand Electricity Futures and Options
There are a number of benefits associated with trading ASX New Zealand Electricity Futures and Options, including:
- the existence of a transparent forward price curve that can be referenced for investment, trading and risk management purposes
- an Exchange For Physical (EFP) mechanism that accommodates the exchange of OTC swaps and options for futures contracts and options (or vice versa)
- a Block Trading mechanism that enables market participants to bi-laterally arrange large transactions (5MW or greater)
- ease of access to inter-regional hedging and trading strategies
- simplified contractual arrangements that preclude the need to negotiate ISDA agreements with new counterparties
- the effective mitigation of counter-party credit exposure through the largest futures clearing house (by value of trade) in the Asia Pacific
- hedge cover for new entrants and a new asset class for financial market participants seeking diversity in their commodity portfolios
- synergies with existing and forthcoming energy and environmental product markets at ASX
- seamless integration with existing financial institutions and brokers that already service the New Zealand and broader global energy and environmental markets.
- Contracts against two relevant grid reference points - Otahuhu (North Island) and Benmore (South Island)
- Cash settled - no physical delivery
- Contract size - 1MW
- Minimum Block Trade threshold of 5 lots
- Quarterly futures and strips out to three calendar years
- Strip options out to three calendar years
- NZD currency denomination
- A product design which mirrors the Australian Electricity Futures and Options already listed on ASX
- An alternative asset class for financial institutions and trading houses with existing energy trading desks.
How can the market be applied?
There are a number of reasons why participation occurs in a futures and options market. The participant may wish to:
- hedge their particular market exposure or financing risk
- mitigate counterparty credit exposure within their existing portfolio
- speculate on the price direction or price correlation of a commodity/commodities
- arbitrage OTC and futures markets
- trade inter-regional spreads such as Benmore versus Otahuhu
- gain exposure to a new asset class
ASX New Zealand Electricity Futures and Options are not suitable for all traders and investors. Before trading ASX New Zealand Electricity Futures and Options, you should carefully assess your experience, investment objectives, financial resources and other relevant considerations and consult your licensed financial services adviser. In particular, you should understand the implications of leverage, additional margin calls and unlimited losses on your investments.