© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. 1 Presentation to ERCOT Technical Advisory Committee November 3, 2011 A.

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Presentation transcript:

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. 1 Presentation to ERCOT Technical Advisory Committee November 3, 2011 A Central Counter Party Discussion: Options Available For ERCOT

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. 2 The NASDAQ OMX Group, Inc. February 2008 NASDAQ the technological powerhouse with 37 Years of expertise as the pioneer in electronic trading and leading electronic stock market Merged with OMX - 22 years expertise owning and operating exchanges and integrating exchange technology worldwide, including 15 years supporting NordPool’s exchange and clearing operations where 95% of trade volume of 421 members is cleared and power trade volume is 6x the underlying (vs 1.5x in US); To form The NASDAQ OMX Group, Inc.

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. Central Counter Party (CCP) - Background CFTC is requiring ERCOT to substantially comply with the credit reforms being implemented within the other organized wholesale electric markets to obtain an exemption from Dodd-Frank regulations. One requirement is better bankruptcy protection for the netting of transactions “within” the ISO markets -Today ERCOT and the ISO’s/RTO’s are only market administrators; they do not take title to power – they are not a counterparty to the transactions. -“Mutuality” (counterparty relationship) between the parties must be established to NET a market participant’s exposure should it file bankruptcy. CFTC considers a Central Counter Party (CCP) as the preferred netting solution for ISO markets -A CCP takes title by being the Buyer to every Seller and Seller to every Buyer in the ISO market. 3

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. NASDAQ OMX-ERCOT Management Discussions: Two Options -ERCOT becomes its own CCP -ERCOT retains a third party CCP CFTC Process -ERCOT’s stated intent to become its own CCP in the CFTC exemption filing does not preclude ERCOT from subsequently implementing the third party CCP option. Allow Stakeholder process to fully compare and vet both options 4

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. ERCOT 3 rd Party Option by NASDAQ OMX NASDAQ OMX would be the CCP for all transactions in the ERCOT markets: NASDAQ OMX takes title to the commodity as the Buyer to every Seller and the Seller to every Buyer. NASDAQ OMX provides a similar service in the OTC market today. ERCOT is still the market operator. ERCOT will continue to provide the same back office functions, but as agent for NASDAQ OMX. 5

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. ERCOT will continue to: Administer its protocols and operating agreements Administer all of its markets Operate the Grid and be responsible for Maintaining Reliability Conduct all of its transmission planning and generation interconnections services and activities 6

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. NASDAQ OMX will not: Take on market or price risk Maintain open positions Provide offers to sell or bids to buy energy or other products Have the discretion regarding which transactions clear the markets or the prices at which they clear 7

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. Potential 3 rd Party CCP Benefits in ERCOT Market Meets CFTC CCP requirements No major changes in ERCOT processes No impact on unsecured credit in ERCOT market Incremental benefits that are not available to Market Participants should ERCOT become its own CCP -The Option to Maximize Collateral Efficiency in the ISO and OTC markets. -The Option to use and net NASDAQ OMX monthly settlements and/or ERCOT weekly settlements -Potential to reduce risk in the ERCOT markets Costs -No charge for the base CCP service -Fees charged only to those using the optional services. 8

© Copyright 2011, NASDAQ OMX Commodities Clearing Company. All rights reserved. 9 NASDAQ OMX Contacts: General: Richard Gutierrez ISO CCP Technical: Phil Gootee –