right lets stoke the fire....

[Pitscum]

listen up guys..what wud you do......

emissions mkt......

otc, where its delivered for the first time ever dec 1st or something pretty close.......and you cannot on pain of death go into delivery short...... vs

future, which deliver 18th dec (or something)

so, if you're short otc , long dec future, you facked by my reckoning........

spd currently, .13 bid, otc over futures........


what wud you do?????

 

[jimbo57]

listen up guys..what wud you do......

emissions mkt......

otc, where its delivered for the first time ever dec 1st or something pretty close.......and you cannot on pain of death go into delivery short...... vs

future, which deliver 18th dec (or something)

so, if you're short otc , long dec future, you facked by my reckoning........

spd currently, .13 bid, otc over futures........


what wud you do?????

I dont know anything about emissions market, but it strikes me that there are some parallels between the Brent forward otc market and its futures (although futures are cash settled).
Looking at the otc leg, you say pain of death delivering short, but surely there are organisations trading in the otc emissions market that own "equity" i.e. will use a short otc position to deliver this equity into the market each month and thus realise its value in the marketplace.

At first site it looks like the otc market is eminently sqeezable, but this may not be the case if the above is true.

Just my 2p worth

 

[Pitscum]

mkt has gone .15 bid...no offers.........

 

[Directional]

you saw a backwardation between the future and the OTC right?

 

[charliechan]

how does backwardation happen in an emissions market? i thought backwardation was for the cost of carry? would there be any cost of carry as you are trading a right to pollute, not the actual fuels that pollute? or am i in the wrong ball park on this one?

can you hedge the contract?

what against? crude? or perhaps a bendy bus or routemaster depending if you are long or short?

 

[Pitscum]

this is the situation:

otc market. physical delivery 1st dec. it is against every rule of the european unionemisssions mkt to enter this expiryand delivery date short carbon emissions.

futures mkt: physcial delivery after dec19th.

therefore you have 18 days where, if you sold the otc to buy the futures, you have net exposure.

therefore, otc over futures premium is currently .15 bid, no offers. why? several big thick banks are short the otc and long futures thinking they were being clever without working out what the expiry dates were...........

 

[Directional]

lol - interesting conundrum. how do you deliver a load of pollution if you accidentally get caught short on expiry.

 

[Directional]

lol - you are quite right, excuse my gaffe.

Being short a conventional product would be delivery. Emissions are different in this rather important detail as buyers are buying the right to pollute, so sellers have to be able to deliver this right, or else have spare pollutable capacity to offload.

Better make space in the garage for a few contract loads of assorted detrius Pitscum?

 

[TWI]

What I find interesting about emissions is the carry between the years 05/06/07. Since the 05/06 contracts are deliverabble against one another in the OTC market the spread should reflect only the cashflows hence be equivalent to the EU interest rate. As it is, it is actually far less than this and in case of 05/06 even backwardated. You can only effectively play this if you are a physical player but the pricing will probably sort itself out a little and so reflect reality for the 06/07 period.
Real flag right now is the political pressure to ensure that any particular country is not too short the certs and so finding ways to allocate additional allowances. UK has just done this and effectively made the market longer. This has put pressure on a market that would otherwise have gone up substantially with the gas and power price.