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Energy Balancing Credit Committee London, 22 November 2010 Jeroen van den Heuvel Collateral Position at xoserve.

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Presentation on theme: "Energy Balancing Credit Committee London, 22 November 2010 Jeroen van den Heuvel Collateral Position at xoserve."— Presentation transcript:

1 Energy Balancing Credit Committee London, 22 November 2010 Jeroen van den Heuvel Collateral Position at xoserve

2 2 Request for change in collateralization with xoserve APX-ENDEX Collateral setup Current collateralization with xoserve Consequences of current setup Proposed solution Historical data analysis Balance Information Content

3 3 Dear members of the Energy Balancing Credit Committee, APX ENDEX is operating as the balancing responsible party for the UK Gas market. As the balancing party, APX ENDEX is treated by National Grid and xoserve as a regular member of its transmission system and is therefore required to cover its outstanding position with sufficient collateral. APX ENDEX covers its required collateral by means of cash, but due to the implications on its internal processes, APX ENDEX is hereby proposing an alternative method to cover its required collateral without impairing the credit requirements of xoserve. APX ENDEX operates as an exchange and is therefore not taking an active position in the market. Consequently, the only position it holds at National Grid is effectively an intermediary position held on behalf of its members. Members trading on the APX ENDEX exchange are required to cover their positions through either cash or a letter of credit. APX ENDEX in turn uses the cash collateral placed by its member to cover the collateral required by xoserve. This current structure is deemed rather inefficient, since APX ENDEX is not able to automatically upload the member’s cash position into the trading platform as the amount needs to be manually adjusted for the portion being transferred to xoserve. In order to prevent these manual workarounds, APX ENDEX is proposing to pledge rather than physically transfer the required collateral. This would effectively grant the same level of security towards xoserve but avoids manual adjustments to the cash accounts held by APX ENDEX in the name of its members. The pledge would be put in place by means of a bilateral contract between APX ENDEX and xoserve where ABN AMRO, our house bank, will confirm in writing that it will honour the pledge agreement at all times. Furthermore, ABN Amro will provide real time account information to xoserve based on MT940 (or MT942) statements, where xoserve will at all times be assured that APX ENDEX does indeed hold sufficient collateral to cover its position at xoserve. Currently, ABN AMRO’s credit rating does not meet your minimum eligibility criteria. However, considering the banks overall position and the fact that it is pledging an already fully secured position will hopefully enable this committee to recognize ABN AMRO, for the purpose of this proposal, as a creditworthy counterparty. The remainder of this presentation provides some illustrative background on the proposed pledge solution. We hope this solution satisfies your requirements, and we are looking forward to continue and further develop our current working relationships. Yours sincerely, Jeroen van den Heuvel Group Finance Manager APX ENDEX

4 4 APX-ENDEX Collateral setup Member AMember BMember CMember D ABN Account Eurolight trading Platform Position Account Member A Position Account Member B Position Account Member C Position Account Member D Automated bank upload 1:1 relationship between bank and position accounts Manual Entry Letter of Credit

5 5 Current collateralization with XOServe xoserve requires us to deposit cash or a letter of credit with a minimum credit rating Currently, APX-ENDEX settles its collateral requirement in cash Due to the volatile nature of the required collateral, a letter of credit is too static and too expensive. The cash is taken from available member’s collateral deposits and transferred to xoserve This is agreed between APX-ENDEX and its members via the membership rules Members deposit the cash collateral into a mutual “short term” collateral account or an individual long-term collateral account. The cash used to securitize the xoserve position is taken from the “Short term” collateral account. Member’s collateral is used to securitize xoserve exposure. Account balances need to be manually adjusted!

6 6 Manual Entry Consequences of current setup Member AMember BMember CMember D ABN Account Eurolight trading Platform Position Account Member A Position Account Member B Position Account Member C Position Account Member D Manual Entry Short term collateral pool xoserve Cash Transfer Letter of Credit

7 7 Proposed solution 1/2 Securitization based on pledge rather than actual cash transfer APX ENDEX pledges the total sum of the available cash collateral to xoserve. xoserve will receive real time account information (MT940/942) to ensure proper monitoring of credit status. xoserve will have quicker confirmation on required collateral position as cash transfers take a few business days to process. In the rare event of a shortfall, APX ENDEX will transfer additional cash to cover the shortfall (no change to current procedure). The solution enables APX ENDEX to streamline its processes across all markets For xoserve there are no more cash collateral transactions to be processed. Pledge will be confirmed and honoured by ABN Amro No rule changes for members required

8 8 Proposed solution 2/2 Member AMember BMember CMember D ABN Account Eurolight trading Platform Position Account Member A Position Account Member B Position Account Member C Position Account Member D Automated bank upload 1:1 relationship between bank and position accounts Manual Entry xoserve Pledge Letter of Credit

9 9 Historical data analysis

10 10 xoserve electronic banking application 10 Balance information 10 Member AMember BMember C ABN Account Balance Account Member A SWIFT MT 940/942 Messaging Balance Account Member B Balance Account Member C Aggregate balance pledged accounts Monitoring the security position on a daily basis requires up-to-date information on aggregate balances of all pledged accounts. This may be achieved by means exporting the relevant data through SWIFT messaging. This data can be uploaded in xoserve’s electronic banking application in the form of third party accounts. Options: SWIFT MT 940 End of day statement SWIFT MT 942 Intraday statements; sent out up to 6 times a day

11 11 Next Steps Agree on proposed solution Sign pledge agreement Setup MT 940 account balance reporting Refund all outstanding cash collateral from xoserve to APX ENDEX

12 12 Energy Balancing Credit Committee London, 22 November 2010 Jeroen van den Heuvel Thank you for your attention

13 13 Amsterdam World Trade Center Strawinskylaan XX Amsterdam The Netherlands T F Amsterdam World Trade Center Beethovenstraat WZ Amsterdam The Netherlands T F Nottingham Ergo Building, Mere Way Ruddington Fields Nottingham NG11 6JS United Kingdom T F London 6th Floor 21 Southampton Row London WC1B 5HA United Kingdom T F


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