Ability of U.K. Carbon Prices to Surge, Plunge Will be Sometimes Subject to 15 Second Hold System (1)

–The U.K. carbon market will have a much bigger interval price limit than the EU equivalent post Brexit

By Mathew Carr

May 17-18, 2021 — LONDON: The new U.K. emissions trading system will be subject to “Interval Price Limits” when it begins Wednesday, according to ICE Futures Europe.

The Interval Price Limit (IPL) will curb large price movements to within 1 pound per ton within given time frames, 3 seconds or 15 seconds, ICE said in a notice Friday (see link below box).

https://www.theice.com/publicdocs/circulars/21078.pdf

“For each contract there will be a set limit, the IPL, to which prices can move within a set time frame known as the re-calculation time. If a bid or offer attempts to breach the IPL, the market will enter a hold period preventing any further trading beyond the limit until the end of the hold period. Trading can still continue during the hold period within the upper and lower parameters of the IPL. At the end of the hold period new parameters are set based on the prevailing market prices.”

See this tweet for some context from the FT:

I asked ICE Futures Europe about interval price limits, this is what it said:

“Interval price limits are in place for example with ICE EUA futures as well.  These are the interval price limits for EUAs:

                                           IPL                       IPL Recalculation             IPL Hold

ICE EUA Futures               € 0.50                 3 Seconds                         15 Seconds

IPLs are in place for many ICE futures contracts, such as Brent, WTI, Low Sulphur Gasoil, TTF, NBP, coffee, sugar, our interest rate contracts like Sterling Futures and SONIA/ SOFR…

… Interval Price Limits are designed to limit large price movements from occurring within a given time frame.

There is a set limit to which prices can move within a set time frame and this is the re-calculation time. If a bid or offer attempts to breach the IPL the market will enter a 15 second hold period preventing any further trading beyond the limit until the end of the hold. Trading can still continue during the hold period within the upper and lower parameters of the IPL. At the end of the hold period new parameters are set based on the prevailing market prices.  And ‘prevailing market’ means where the current best bid and offer are i.e. its a legitimate two way market.”

(Updates with additional comments from ICE)

NOTES:

CONTEXT:
https://carrzee.org/2021/05/11/u-k-sets-carbon-cost-containment-price-about-42-above-eu-market/
https://carrzee.org/2021/04/30/a-different-sort-of-political-risk-will-make-the-u-k-carbon-market-fun-to-trade/
https://carrzee.org/2021/02/24/five-years-later-and-after-the-fact-brexits-still-set-to-roil-europes-carbon-market/

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