REMIT reporting - options

ACER's Frequently Asked Questions (FAQs) on REMIT transaction reporting

Question 3.1.8

How to report a bilateral contract (initially classified as a non-standard contract and also reported in a non-standard format) in cases of any price fixing events (e.g. the client exercises an option)? This especially concerns such events which could be interpreted as a standard contract in a stand-alone perspective. (Vanilla) options are considered as being standard contracts (Table 1) and reportable in Phase 1 if executed over an OMP or identical to a product admitted to trading over an OMP (although the REMIT reporting requirement would be met if the trade falls within the scope of EMIR and has been reported as such).

ANSWER

Please see the example in Annex II to the TRUM. In Section 2 of the annex there are several examples on how to report bilaterally traded contracts and executions under those non-standard contracts.

If the price fixing event (e.g. the client exercises an option) is related to a non-standard contract reported with Table 2, then the event should be reported with (Table 1) under the framework of a non-standard contact and not be interpreted as a standard contract.

Please see Q. 3.1.28 whether the execution should be reported as EXECUTION or BILCONTRACT contract, also considering that examples reported in Annex II to the TRUM are non-exhaustive.

On the contrary, vanilla options that are considered as standard contracts should be reported with Table 1 and reportable in Phase 1 if traded over an organised market place and do not have reportable executions associated to them.

ACER's Frequently Asked Questions (FAQs) on REMIT transaction reporting

 Question 1.1.13

How can we distinguish a contract with optionality embedded in it and reportable lifecycle events from an option that does not have life cycle events?

ANSWER

In our view there are at least three different type of contracts with optionality.

1. Options with given strike price(s) and traded at organised market places

2. Options with given strike price(s) and traded bilaterally

3. Option with complex price structure.

In cases (1) and (2) above, there is no lifecycle event reporting requirement for the exercise of the option itself. However, if a new contract for the supply of gas or electricity is signed, then a trade report for that contract must be reported separately. The exercise of the option is not a reportable event, the new contract, the one that was created as a result of the option exercise, is a reportable trade. 

However, the Agency recommends market participants to consider linking the transaction resulted from the option exercise to the option itself through the field linked transaction ID (32) to avoid possible false positive signals to the market monitoring activity of the Agency and/or the National Regulatory Authorities. e.g. if a call option with a strike price of EUR 50 it is exercised, then market participants will report a separate trade for the price of EUR 50. However, if the market price of that forward on the day of the option is exercised, or the new contract is created, is EUR 60 this may cause a false positive signal to the market monitoring activity of the Agency and/or the National Regulatory Authorities.

ACER's Frequently Asked Questions (FAQs) on REMIT transaction reporting

Question 3.3.2

Reference to:

- Article 3(1) of the Implementing Acts. List or reportable contracts: Options, futures, swaps and any other derivatives of contracts relating to electricity or natural gas produced, traded or delivered in the Union.

- Option Details from ANNEX "Details of Reportable Contracts" in the Implementing Acts: Tables 1 and Table 2

- TRUM, Table 1 #44: Option Exercise Date

"A European style option can only be exercised at the maturity date."

- TRUM, Table 1 #46: Option Exercise Date:

"This field identifies the date at which the option holder has the right, but not the obligation, to buy or sell the commodity or underlying instrument at a specified price on or before a specified date. In the case of an American, European or Asia option style, one exercise date is reported. In the case of a Bermudian option style, several dates may be reported."

The issue:

1) How should market participants report strip options?

2) What is the reporting guidance from ACER for fields #44 Option Style and #46 Option Exercise date (Table 1) in regards to strip options? According to TRUM guidance, only Bermudian options can have more than one exercise date. For European option style, only one exercise date is required to be reported based on same text in TRUM.

Example:

Business Case: Market Participant A is trading strip options European style.

According to Market Participant A's perspective, a strip option of the European style is a series of vanilla European options (a series of European puts or a series of European calls) on a number of consecutive contracts (e.g. January, February and March), each with the same strike price, but with a different expiry date.

Example: A strip option is concluded for delivery in January/February/March (three consecutive months). There are three exercise dates; each exercise date is two days before delivery start (e.g. 29th of December for delivery in January, 30th of January for delivery in February, 27th of February for delivery in March). Market Participant A has the right, but not the obligation, to exercise the option with delivery for January on 29th of December. In line with that, on 30th of January Market Participant A has the right, but not the obligation to exercise the option for delivery for February with the same strike price, and the same for delivery in March.

According to our current interpretation strip options are a kind of concatenated European style options, thus our interpretation is the report in the following manner:

- Field #44 Option Style: Report as "European option style"

- Field #46 Option Exercise Date: Report all relevant exercise dates of the strip option in this field, i.e. not just one exercise date as per the existing ACER guidance.

We would be grateful for ACER's views on this envisioned approach, please.

Answer

We understand that the option described above can be reported as:

- Field #44 Option Style: "European option style"

- Field #46 Option Exercise Date: the field should be repeated three times, where each value corresponds to a different exercise date, relevant to the individual delivery period (see below)

- Fields #49 and #50 Delivery Start/End Date: these two fields should also be repeated three times, once for each corresponding delivery period (in this case it is one month per each delivery period).

The example below clarifies further the way to report the three fields above.

Option details

Delivery profile