Delivery Model

Physical settlement of expired futures positions is carried out by ECC. As a specialized Clearing House experienced in the physical delivery of commodities, ECC offers a fully integrated delivery management for spot and derivatives transactions. Furthermore ECC offers the fastest physical delivery process for emissions in today's market environment and contributes to the reduction of settlement risks in the delivery chain of trading participants.

Trading participants are required to pre-deposit Emission Allowances on the ECC settlement account at the German registry of DEHSt (Deutsche Emissionshandelsstelle) for the expired futures position at least one settlement day before delivery. At maturity, futures positions are booked out of the clearing system and provided to ECC for the creation of delivery instructions. The payment instruction out of the DVP instructions is created and incorporated into the standard cash settlement process for Bundesbank payments.

Managing Delivery Risks

If a buying trading participant fails to pay for the physical delivery on the delivery day, then ECC freezes the pending delivery instructions of the trading participant to cover possible close-out losses, if a default of a Clearing Member caused the failure to pay. If payment takes place delayed (technical default), ECC releases the frozen Emission Allowances and continues with the settlement process.

If a selling trading participant is late or does not deliver, the following process applies:

1. Buy-in Process
The late seller remains obliged to deposit the required Emission Allowances into the ECC settlement account at the registry or to close-out delivery obligations by a counter-trade on the spot market as soon as possible. Should a selling trading participant fail to meet its obligations, ECC buys-in the missing Emission Allowances via EEX on the spot market in one or more buy-in attempts. The first buy-in is triggered five settlement days after the failed delivery date (d+5), the latest buy-in ten settlement days after the failed delivery date (d+10). The cost for the buy-in and a contractual penalty is charged to the failed seller.

2. Final Cash Settlement
If the buy-in process is not successful, ECC applies a cash settlement on d+10. The cost for this cash settlement is charged to the failed seller. In addition, a contractual penalty is inflicted on the trading participant in default.