Q&A - Delivery Mechanism, Registries and VAT

When do the ECX Futures Contracts expire? When do I have to pay and when do I receive my allowances?
The ICE ECX EUA and CER Futures Contracts expire at 17:00 hours UK local time on the last Monday of the contract month. Where this falls on a Non-Business Day for the contract, or there is a Non-Business Day for the contract in the 4 days immediately following the last Monday, (e.g. if the Monday is a Business Day, but a Non-Business Day(s) such as Christmas Day and/ or Boxing Day falls on the Wednesday/ Thursday of that week), the last trading day shall be the penultimate Monday of the delivery month.

Contract	March	June	September	December
2009	30	29	28	14
2010	22	28	27	20
2011	28	27	26	19
2012	26	25	24	17
2013 only EUA Futures	n/a	n/a	n/a	16
2014 only EUA Futures	n/a	n/a	n/a	15

Example : Dec 09 contract

The delivery and payment dates and times for the ECX EUA Dec09 which expires on Monday 14th December 2009 at 17:00 GMT:

SELLER

(Under the ICE Futures rules the Seller's Clearing Member)

Delivery: By 19:00 on 16 December (LTD+1) the Seller must have input the Transfer Request to transfer the EUAs or CERs to the ICE Clear Europe Person Holding Account at the ICE Clear Europe nominated Registry.

Payment: By 10:00 on 18 December (LTD+3) the Seller will receive the payment from ICE Clear Europe.

BUYER

(Under the ICE Futures rules the Buyer's Clearing Member)

Delivery: By 19:30 on 18 December (LTD+3) the Buyer will have received the EUAs or CERs in the nominated Person Holding Account.

Payment: By 10:00 on 17 December (LTD+2) the Buyer pays full contract value to ICE Clear Europe.

This is a summary of the information contained in the 'User Guide - ECX CFI' : Section 5.5 (pages 22 and 23.)

*Note that for CERs, this is currentyl restricted to the UK Registry only. There is a provision for the Exchange to notify the market, from time to time ot the Registries from which the Seller's Clearing Member may make delivery and to which the Clearing House may make delivery. Therefore, on the basis that both the UK Registry and the Registry of another Member State have met the Eligibility Criteria, the Exchange would allow delivery from/ to that Registry. ICE Futures Europe Clearing Members who are active in the delivery of CER Futures will be required to open a Person Holding Account in the UK Registry or a Registry notified to the market by the Exchange which has met the Eligibility Criteria. This will be subject to legal advice and on the basis that the Registries have met the definition of Registry.

When do the ECX Options Contracts expire?
The ICE Futures ECX EUA and CER Options Contracts cease trading at the end of the Designated Settlement Period (16:15 hours UK local time) on the third Business Day prior to the expiry of the relevant ICE ECX Futures Contract month. All in-the-money options will exercise into the Futures Contract automatically, at-the-money options will expire.

The ICE ECX EUA and CER Futures Contracts expire at 17:00 hours UK local time on the last Monday of the contract month. Where this falls on a Non-Business Day for the contract, or there is a Non-Business Day for the contract in the 4 days immediately following the last Monday, (e.g. if the Monday is a Business Day, but a Non-Business Day(s) such as Christmas Day and/ or Boxing Day falls on the Wednesday/ Thursday of that week), the last trading day shall be the penultimate Monday of the delivery month.

Delivery Month	ECX Options Expiry	Underlying Futures Contract Month	ECX Futures Expiry
September 2009	23 September 2009	Dec-09	14 December 2009
December 2009	9 December 2009	Dec-09	14 December 2009
March 2010	17 March 2010	Dec-10	20 December 2010
June 2010	23 June 2010	Dec-10	20 December 2010
September 2010	22 September 2010	Dec-10	20 December 2010
December 2010	15 December 2010	Dec-10	20 December 2010
December 2011	14 December 2010	Dec-11	19 December 2011
December 2012	12 December 2010	Dec-12	17 December 2012

When do the ECX Daily Futures Contracts expire? When do I have to pay and when do I receive my allowances?
Click here for full contract delivery information

What happens if a company doesn’t deliver its EUAs or CERs?
If a company fails to deliver its EUAs or CERs, ICE Clear Europe indemnifies the Buyer of any reasonable costs incurred as a result of the failed delivery. Reasonable costs may include the cost of going into the market to buy replacement credits. These costs are passed on to the defaulting Seller, who, additionally, is fined by ICE Futures.

What happens if a company can’t afford to pay for the EUAs or CERs it has agreed to buy?
A Buyer’s failure to take delivery or make payment doesn’t affect the Seller, whose payment is guaranteed by the Clearing House.

Further information on how delivery works can be found in the USER GUIDE.

Why is the Excess Emissions Penalty (EEP) excluded from the ECX Futures Contract?
Before we launched our ECX Futures Contracts, we consulted closely with industry and decided to exclude the EEP because the delivery mechanism is designed to ensure that delivery occurs. ICE Futures' rules and regulations are backed up by robust disciplinary and enforcement procedures that strengthen the delivery obligations.

In the unlikely event that a Buyer doesn’t receive allowances and incurs the EEP, note that there are four weeks following the March expiry before the end of the annual compliance date 30 April during which any problems could be resolved.

It is also important that it is unlikely that the EEP would be levied against a company involved in an ECX Futures transaction; therefore, there are substantial issues of legal claw-back.

Further, the EEP is effectively a trading risk that companies can hedge against.

*Note that for CERs, there is a provision for the Exchange to notify the market, from time to time of the Registries form which the Seller's Clearing Member may make delivery and to which the Clearing House may make delivery. Initially, this will be restricted to the UK Registry. Therefore, on the basis that both the UK Registry and the Registry of another Member State have met the Eligibility Criteria, the Exchange would allow delivery from/ to that Registry. ICE Futures Europe Clearing Members who are active in the delivery of CER Futures will be required to open a Person Holding Account in the UK Registry or a Registry notified to the market by the Exchange which has met the Eligibility Criteria. This will be subject to legal advice and on the basis that the Registries have met the definition of Registry.

Does VAT apply?

The UK's HM Revenue and Customs have confirmed that the trading of the ICE ECX EUA and CER Futures and the EUA and CER Daily Futures contracts on the Exchange between the Clearing Member and ICE Clear Europe is zero-rated for VAT purposes under the terms of the Terminal Markets Order.

Clearing Members are advised to seek their own advice in relation to the VAT treatment on the transfer of allowances between themselves and their client or for allowances used for their own purposes. Normal VAT rules apply between Clearing Members and their customers on delivery according to the rules of the country in which delivery occurs.

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