Liquidity: statutory consultation on the ‘Secure and Promote’ licence condition Power Trading Forum Martin Bell 12/12/13

2 Secure and Promote Licence Condition Objective 1 (availability of products which support hedging): Secure fair trading terms for small suppliers through Supplier Market Access rules Objective 2 (robust reference prices along the curve): Promote improvements in forward liquidity through a market-making obligation Objective 3 (an effective near term market): Reporting requirements to facilitate monitoring of day- ahead auctions Reminder – structure of our liquidity proposals

On 20 November, we published a statutory consultation on the proposed licence condition. This is a legal requirement before making changes to licences This stage focuses on the licence drafting. We would like to obtain feedback on the licence text. In particular, we want to check that it reflects our policy design The full set of documents we published were: Responses to the statutory consultation, and any feedback on the Impact Assessment and Guidance should be submitted by 18 December 3 Current stage – statutory consultation Notice with the proposed licence text Statutory consultation setting out our final policy design Draft Guidance on interpretation of the licence text Impact Assessment

4 Market making design (1) Our design for the market making obligation remains broadly as set out in June However, following responses to the last consultation, we have updated our policy design to improve its effectiveness Approach to market maker availability Trading windows have a number of advantages – these include: Post prices for 50% of trading hours each month Post prices for two hour- long trading windows each day Requirement in June consultation Requirement in November statutory consultation Guaranteed opportunities to trade every day Increased market depth Afternoon window aligns with activity in the gas market Practical benefits (eg monitoring compliance)

5 Market making design (2) Knock-on changes to availability rules As a result of moving to trading windows, some of the other availability rules also needed to be redesigned These rules are intended to provide protection for Secure and Promote licensees against specific risks, while still ensuring that the design delivers regular availability Reloading rule Five minute period to replace prices after trading a particular product Volume cap Net volume cap for a licensee of 30MW in a product per window Intended to mitigate risk of large open positions Fast market rule Licensees allowed to withdraw from market making in a product if the price moves by 4% in a window Intended to deal with situations of extreme volatility

6 Market making design (3) Reframed rules – in general, we want to leave licensees flexibility about where to market make Platform rules Uncertainty about the final shape - so we intend to carry out a review at an appropriate point European financial legislation Increased slightly for baseload products Bid-offer spreads Introduced short (three month) transition period with slightly wider spreads Full product range still available in transition period Transition period

7 20 Nov 2013 Plus 20 days 31 Mar 2014 Statutory consultation publishedDeadline for responses Decision to modify licences (at least 56 days before changes come into effect) Window for appeal to Competition Commission (20 working days) Licence condition implemented Contact details: Graham Knowles Martin Bell or Leigh Rafferty Timetable 18 Dec 2013 Early 2014