|Legal construction for cancelling auction because of the price “significantly under” the level of the secondary market used by EEX|
|Saturday, 02 February 2013 01:08|
Does the EEX forget that the difference between the auction clearing price and the price of the secondary market must be “significant” for cancelling the auction? The communication of the EEX of 18 January 2013 rises the above doubt.
In recent days there could be observed the operation of the interesting invention of the Article 7(6) of the EU ETS Auctioning Regulation which reads:
“Where the auction clearing price is significantly under the price on the secondary market prevailing during and immediately before the bidding window when taking into account the short term volatility of the price of allowances over a defined period preceding the auction, the auction platform shall cancel the auction.”
On 18 January 2013 the European Energy Exchange (EEX) posted the communication (the source http://cdn.eex.com/document/123997/20130118_Cancellation_EUA_Auction.pdf) stating that the EEX:
“... in its capacity of the transitional auction platform for the Federal Republic of Germany, could not execute today's auction of EU Allowances (EUA) for the third trading period, because it would have cleared below the price on the secondary market. The reference price is calculated on the basis of the secondary market price during and immediately before the bidding window.
Due to the fact that minimum reserve price has not been reached, the auction could not be executed at the regular time. Therefore, EEX has decided to extend the call phase and re-open the bidding window for another 15 minutes. However, this measure could not ensure the reserve price required for the successful execution of the auction. In accordance with the auctioning regulation, governing the auctions, EEX has finished the auction without result.
In accordance with the rules governing the auctions the auction has been cancelled.
The auction volume will now be evenly distributed over the next four scheduled auctions.
The auction calendar will be adjusted accordingly and an updated version will be published soon.”
However, in contradiction to the clear design of the Auction Reserve Price in the California cap-and-trade scheme where there is a predetermined minimum price at which allowances will be sold to auction participants (2013 Annual Auction Reserve Price Notice issued by the California Air Resources Board on December 3, 2012 specified the 2013 auction reserve price at $10.71 for allowances to be auctioned in 2013 for the quarterly auctions as part of the current auction (2013 vintage allowances) and advance auction (2016 vintage allowances)), Article 7(6) of the EU ETS Auctioning Regulation refers only to the enigmatic expression of the price “significantly under” the level of the secondary market.
From the auction participants’ perspective the concrete Californian Auction Reserve Price set in advance at the concrete threshold appears more transparent than the EU ETS construction which in principle serves the same objective.
More light on the whole issue could be shed if information on the methodology to define what constitutes an auction clearing price “significantly” under the prevailing secondary market price before and during an auction, however, Article 62(1)(i) makes this information confidential and not accessible to the general public.
Recital 17 in the preamble to the Auctioning Regulation explains the reasons for the above provisions in the following words:
“The auction clearing price can be expected to be closely aligned to the prevailing secondary market price, whereas an auction clearing price significantly under the prevailing secondary market price is likely to indicate a deficiency of the auction. Allowing such an auction clearing price to prevail could distort the carbon price signal, disturb the carbon market and would not ensure that bidders pay fair value for the allowances. Therefore, in such a situation, the auction should be cancelled.”
The problem is that the EEX in its communication of 18 January 2013 only states that the auction of the same date “have cleared below the price on the secondary market” and that “In accordance with the auctioning regulation, governing the auctions, EEX has finished the auction without result.”
The word “significant”, which the Auctioning Regulation strictly require in relation to the extent of the price gap is not used in the EEX press release as well as the entire methodology for comparisons in that regard is not revealed.
The latter point is in accordance with Article 62(1)(i) of the said Regulation, while whether the price gap was in fact “significant”, as the Auctioning Regulation requires, it can’t be acknowledged taking into account the language of the communication of 18 January 2013 only.
In conclusion: EEX – more transparency, please!