Financial energy futures

Future contract is a contract (liabilities of the parties) at a specified future date at a price and contract volume fixed at the moment of the exchange transaction. Settlement price is calculated by the exchange at the end of the trading session. Settlement price is used as a basis for: - Variation margin calculation. - Price limits determination. - Minimal initial margin requirement. Variation margin is amount in money terms that is calculated during the clearing session and determines change in participants’ financial liabilities. Variation margin increases or decreases the initial margin and potentially determines trader’s profit or loss. Price limits – values that used for transaction price limitation and basic margin calculation (initial margin). Initial margin is amount of money to be collateralized in order to guarantee payment of open position liabilities. Margin amount is estimated risk of portfolio, that is calculated on the basis of initial margin requirement. Last trading day - the last trading date when the contract may be concluded (hereinafter- closing date of contract conclusion) is the last date of the contract delivery period. Clearing session – part of trading day when Clearing Center performs: - Calculation and transfer of variation margin; - Initial Margin calculation; - Total margin adequacy Contract Execution – contract price equating to the average index value. Basic Concepts

ECPМ- YY.XX ECBМ- YY.XX EUBМ- YY.XX EUPМ- YY.XX SKBМ- YY.XX SKPМ- YY.XX Where the first symbol refers to the price zone (E- first price zone, S – second price zone), second symbol refers to the hub of the price zone (C - «Center», U - «Ural», K – «Kuzbass», third symbol refers to delivery hours (B – base load hours, P – peak load hours), fourth – delivery period (M - month), next coming the number of the delivery period within the year and finally the year of delivery. All contracts are financial, there is no delivery of underlying asset, fulfilled by financial settlement - by transfer of variation margin. The underlying asset of contracts is hourly average value of the hub index in specified price zone during specified delivery hours. Example: The underlying asset of contract «ECBM-02.10» is hourly average value of the hub index in «Center» hub of the first price zone during all hours in February, Derivative instruments of the Exchange

Contract price is measured in index points multiple integer of one index point. Value of one index point is 1 RUR. Example: The average price of electric energy in «Center» hub of the first price zone during all hours is 700 RUR/MW*h, contract index value «ECBM-2.10» is 700 points. Contract volume is equal to product of the number of index points being the underlying asset by the number of delivery hours of the relevant type within the contract settlement period divided by 10. A tenfold decrease of the contract volume is due to the fact that the contract is designed on the basis of supply/consumption of 100 KWh, and the index value measured in RUR per 1 MW. Example: «ECBM-2.10» contract volume = 700 * 672 /10 = RUR. Tick size – minimum allowed change of the contract price is 1 point Example of price change: Tick size value is essential to calculate Variation Margin and Initial Margin. Tick size value is equal to the number of supply hours of the relevant type within the contract settlement period divided by 10 (ten), measured in RUR. Example: Tick size value of «ECBM – 2.10» = 672/10=67,2 RUR. Future contract specifications BuySell

Initial data: Delivery period – calendar month (February 28 days). Delivery hours – base load hours (24 hours) Number of delivery hours = 28*24=672 hours. Delivery volume – 100 KW*h. Contract price (hedged price of buying/supply) – 600 RUR/MW*h Contract volume = 100 KW*h * 672 hours = 67,2 MW*h or 67,2 MW*h * 600 RUR/MW*h = RUR. Future Trades Model

The variation margin is calculated and paid in the period from the first day of the contract conclusion before the date of contract execution, inclusive. The contract execution day is a trading day following the last day of the contract delivery period. Variation margin is calculated as follows: VМo =(Pi-Z)*W i/S VМi =(Pi-Pi-1)*W i/S VМo– variation margin of the contract on which the calculation of variation margin previously was not performed; VМi – variation margin of the contract on which variation margin calculations carried out earlier; Z – contract price; Pi – the current (last) settlement contract price on day i; Pi-1– the previous settlement contract price; Wi– tick size value on day i; S – tick size The final value of variation margin (for example VMi) on the contract execution day is determined during the evening clearing session. At determining liabilities the current settlement price is calculated as the average of all indices’ values, published by the Exchange for all days of the contract period. Terms of calculating the variation margin (VM)

Example of VM calculation On the 1 st of February the consumer (hedger) buys one future contract. The contract price is 600. Tick size = W i =672/10=67,2 VMi Formulas: VМ i =(P i -Z)*W i /S, VМ i =(P i -P i-1 )*W i /S The 1 st of february P i = 620, Z=600, W i =67,2 S=1 VМ 1 =( )*67,2 /1= 1344 RUR The 2 nd of February VМ 2 = ( )*67,2 /1=–672 RUR From 3 rd till 26 of February VМ = ( )*67,2 /1=1814,4 RUR The 1 st of March average index value for 28 days VМi= ( )*67,2/1=336 RUR The total variation margin for February: VМ = VМ 1 +VМ 2 +VМ VМi VМ = ,4+336=2822,4 RUR Contract price 600 Date (i) Delivery hours Price VМ Feb. 3…26 Feb Feb.1 March. VМ VМ2 VМiVМi Total VМ Future market Settlement date February 27-28, weekends, so Closing date of contract conclusion is the 26 of February. The day of contract execution is the 1 st of Mach as the last delivery day is 28 of February.

Settlement price Settlement future contract prices are determined on the basis of day and evening trading sessions. Day trading session - duration from till Evening trading session - duration from till Method of settlement price determination when anonymous transactions were recorded during the trading session SellPriceBuy The price of the last anonymous transaction is 636. The best bid is 637 which is higher than the price of the last anonymous transaction. According to the method, settlement price will be If at the end of a trading period the price of the best active buy/sell bid is higher/lower than the price of last anonymous transaction, then the estimated price of future contract is taken as the price of the active bid. Example: Window applications 1.1 Settlement price of future contract is equal to the last anonymous transaction except particular case indicated in paragraph 1.2 SellPriceBuy The price of the last anonymous transaction is 637 According to the method, settlement price will be equal to the last anonymous transaction

2. Settlement price determination when no transactions were recorded during the trading session. The previous settlement price is 630. The are not any bids for the sale. Best buy bid price is 632, that is higher than the settlement price 630. According to the method the settlement price will be equal to 632 SellPriceBuy SellPriceBuy Best bid price for the purchase is 632. Best bid price for the sale is 640. According to the method the settlement price will be equal to ( )/2=636. Settlement price 2.1. If at the end of trading period there are some active buy and sell bids the settlement price is determined as average value between the best prices of active sell bid and buy bid. Example: 2.2 If at the end of trading period the price of the active buy/sell bid is higher/lower than the previous settlement price, then the settlement price is determined as the price of this active bid. Example: The previous settlement price is 630 There are no buy bids, the bid with the price of 632 doesn’t satisfy terms 2.2. According to paragraph 3, Settlement price will be equal to 630. SellPriceBuy SellingPricePurchase The previous settlement price 630 There are no active bids. According to paragraph 3, Settlement price will be equal to In other cases, settlement price is equal to the previous settlement price

Final settlement price calculation method Final settlement price is estimated as arithmetic average of all Index values being the underlying asset of a contract within the contract settlement period. Final Settlement Price =( … )/28 Date (i) Number of delivery hours Value Feb Feb Feb 28 Feb Spot-Market 27 Feb 657 Index value at i-day

MIMR – Minimal initial margin requirement is calculated as percent of settlement price, usually 4-10 %. IM – initial margin calculation is based on the daily price limits which depend on settlement price volatility. On a steady market MIMR = IM. On a volatile market MIMR > IM. Total margin is calculated on the whole portfolio. It’s size depends on portfolio risk and estimated as a net realizable value of client’s positions. An example of IM calculation : Future Settlement price for = 620 Let’s assume that the daily price limits for is -5%/+5%. Low price limit High price limit Tick size for is 67,2 RUB. Tick = 1 point. IM for for opening 1 st position is ( )*67,2/1=4 166,4 RUB. Initial margin calculation

Total margin calculation Total margin calculation example for Broker’s client: Initial Margin on for «ECBМ » contract = 4 400, for «SKBМ » contract = ) 20 «ECBМ » contracts bought: IM*20= 4 400*20= RUR. 15 «SKBМ » contracts bought : IM*20= 4 000*15= RUR. M 1 = = RUR. 2) 10 «ECBМ » contracts sold: IM*(20-10)= 4 400*10= RUR. M 2 = RUR Total margin = = RUB. IM calculation example for Broker: Client №1 has bought 20 «ECBМ » contracts : IM*20= 4 400*20= RUR. M 1 = RUB. Client №2 has sold 10 «ECBМ » contracts : IM*10= 4 400*10= RUR. M 2 = RUB. Client №3 has sold 15 «ECBМ » contracts: IM*15= 4 400*15= RUR. M 3 = RUB. Broker’s position - 10 «SKBМ » contracts: IM*10= 4 000*10= RUR. «ECBМ »: max(20;10+15)=(10+15)* 4400= RUR. Total Margin for Broker = = RUR.

Trading hours Trading hours (MSC Time): Trades Intermediate clearing (daytime clearing) Trades Evening clearing Trades