Market Access

guarantee system

GUARANTEES
BANK GUARANTEES
NON-INTEREST-BEARING DEPOSIT

EXPOSURE

EXPOSURE
EXPOSURE ON MGP AND MI OR ON NETTING MARKETS
EXPOSURE ON MPEG
EXPOSURE ON MTE

MANAGEMENT OF DEFAULT

MANAGEMENT OF DEFAULT

GUARANTEES

In order to operate on the energy markets or on the PCE, Participants will submit – alternatively or cumulatively - financial guarantees as:

1. first demand bank guarantee issued by banks registered as provided for in Article 13 of Legislative Decree no. 385 of 1 September 1993, and which have a long-term rating awarded by at least one of the following rating agencies: Standard & Poor's Ratings Services, Moody's Investor Service, Fitch and DBRS. The rating must be at least BBB- of the Standard & Poor’s or Fitch scales or Baa3 of the Moody’s Investor Service scale or BBB low of the DBRS scale;
2. non-interest-bearing deposit to be made to the bank account held by GME with the bank in charge its Electricity Market treasury services.

PA Participants can provide guarantees only as non-interest-bearing deposits to be made to the bank account held by GME with the bank in charge of its Electricity Market treasury services.

In the Day-ahead Market (MGP), Intraday Market (MI-A/MI-XBID), and in the Spot Gas Market (MPGAS), use is made of  the integrated guarantee management system (or "netting") characterised by an overall net exposure covered by a single amount of guarantee, without any segregation among the markets concerned.

For each type of guarantee that is submitted, the Participant can decide to divide the related amount on the basis of the operations to be carried out on the different markets managed by GME, or he/she/it can submit a guarantee for the netting markets and for the other markets/platforms.
Indeed, according to the terms and conditions defined in Technical Rule n. 04 ME, the Participant can allocate part of the guarantee given to cover the exposures that may arise both on the netting markets and on the MPEG, MTE, MTGAS and/or PCE, by submitting the guarantee allocation form that it is available here.

With regard to operations on the MI-XBID, the Participant, through the Local Trading System (LTS) platform, must reserve a guarantee amount from the portion intended for the netting markets for a specific flow date. This reserved amount can be modified at any time, it being understood that in case of a decrease, the reserved amount must not be committed.

Depending on the allocation defined, the guarantees provided by the Participant are reduced by an amount defined as maintenance margin, set at 3% of the total amount of the guarantees for the MGP/MI, MPGAS, MPEG, and PCE, and at 10% for the MTE and MTGAS.

Once the bank guarantee has been provided, its amount and/or period of validity can be updated of the amounts and/or of its validity period by submitting a specific form or its allocation can be changed.

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BANK GUARANTEES

The bank guarantee, the form modifying the bank guarantee or the related updating letters must be submitted or sent (where possible by registered letter with return receipt or courier) only to the bank in charge of GME's treasury services. Upon receipt, the bank will place a stamp on the document with the time/date of receipt, which will become the "date of submission".

The bank guarantee must be sent to the address of the bank in charge of GME's treasury services:

Banca Popolare di Sondrio Società per Azioni
Viale Cesare Pavese, 336 - 00144 - Roma
To the att.n: Ufficio Crediti (Credits Dept.)

For the acceptance of the bank guarantee, the issuing bank must send a swift 799 message to POSOIT22ROM specifying in the field 21 "138-GME" and the following text in the field 79 (free text): “Si conferma che la fideiussione (o lettera di aggiornamento o lettera di patronage) n. ... di € ... nell’interesse dell’operatore .... è stata da noi emessa in data .... e le firme ivi apposte hanno il potere di impegnare il nostro Istituto per siffatte garanzie” (Courtesy translation: We confirm that we have issued the bank guarantee (or updating letter or letter of patronage) no. ...... of € …. in favor of the Participant on...... and that the signatures affixed thereto commit our bank to fulfil the obligations arising from the aforesaid bank guarantee).

Market Participant may at any time request the return of the bank guarantee according to the terms and conditions established in ME Technical Rules n. 04.

For the purpose of guarantee submission and related update letters, the documents must be drawn up according to the templates attached to the Electricity Market Rules and available in the appropriate "forms" section, otherwise the documents cannot be accepted.
The bank guarantee forms to be used for guarantee submission to cover the payoffs related to different markets on which each Participant intends to operate, as well as the update forms for the bank guarantee amounts are:

1. Integrated Bank Guarantee without expiration form for participation in the netting markets (MGP/MI-MPGAS), MPEG, MTE, MTGAS and PCE, and related form of update letter for amounts of the bank guarantee;
2. Integrated Bank Guarantee with expiration form for participation in the netting markets (MGP/MI, MPGAS), MPEG, PCE and related form of update letter for amounts and/or validity period of the bank guarantee.

According to the terms and conditions defined in ME Technical Rules n. 04, the Participant that has submitted a bank guarantee to GME, compliant with the templates prepared by the latter, can distribute this guarantee, by submitting to GME the guarantee distribution form available here. Without clear mention of allocation by the Participant, the whole bank guarantee provided will be used to cover the exposure on the netting markets.

The Electricity Market Participant (admitted, in case, to the PCE) that is also a Gas Market Participant - with a bank guarantee submitted to GME compliant with the models in force until the day before the date of operational start-up of the netting markets - can continue to use this guarantee for the purpose of presenting suitable offers also on netting markets:

1. by submission of bank guarantees according to the new forms attached to the Electricity Market Regulations, and withdrawing those already given, if the conditions are met, or 
2. by making the existing ones compliant through the specific form of letter modifying the bank guarantee.

The Participant of the Electricity Market alone is not required to make any adjustments to the bank guarantees in place at the start date of the netting. On the other side, this Participant will have to make the adjustment only if it is subsequently admitted to the Gas Market or when it intends to modify the amount of the bank guarantee without expiration.
For types of bank guarantees not suitable to the Electricity Market Regulations in force from the start date of the netting markets, the Participant can decide to divide the related amount according to the operations that it intends to have on the different markets covered by these bank guarantees, that is to say among MPG/MI, MPEG, MTE and PCE by submitting the guarantee distribution form (ante netting) according to the terms and conditions defined in ME Technical Rules n. 04.
For further information, it is possible to check the Operating guide to the new integrated management system of guarantees on the spot markets of electricity, MGP and MI, and natural gas.

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NON-INTEREST-BEARING DEPOSIT

The bank details of the account, to which the bank transfer must be performed, are:
Banca Popolare di Sondrio
IBAN IT97 H056 9603 2110 0000 7220 X46
SWIFT CODE POSOIT22

The reason for payment shall mention the following heading: “deposito infruttifero con facoltà per il GME di poterne disporre”.
Market Participant may at any time request the return and/or the repartition of the non-interest-bearing deposit according to the terms and conditions established in ME Technical Rules n. 04.

For further information, it is possible to check the Operating guide to the new integrated management system of guarantees on the spot markets of electricity, MGP and MI, and natural gas.

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EXPOSURE

On the ME, GME defines the exposure of each Participant based on the risk of potential non-fulfilment of the obligation on each market and requires that the same would be covered by adequate guarantees.
According to the operations on each market, separate exposures will therefore be calculated, each one for a single trading day referring to a single day of flow and subsequently aggregated by payment date (settlement).
Therefore, during the proposal and the further steps to the settlement, GME carries out the financial adequacy checks aimed at verifying that the guarantee given is adequate with respect to the single exposure held (See ME Technical Rules N. 07).

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EXPOSURE ON MGP AND MI OR ON NETTING MARKET

In principle, a purchase in the MGP and MI generates exposure equal to the whole value, while a sale does not generate exposure, unless it is at a negative price or does not emerge from the market matching between the bid/ask price and the extent of the non-arbitrage fee in the case of MI sessions on consumption units.
During adequacy checks, after the end of the market sitting in the MGP and MI-A and in order to accept bids/asks for the determination of the auction results, the bids/asks submitted generate exposure according to the worst-case scenario of enhancement of the same in the event they will be accepted, i.e. taking into account they are accepted the sole offers to buy at a positive price and to sell at a negative price.
During the adequacy verification phase, each proposal presented on a MI-XBID trading book generates exposure based on the entire value of the purchase offers at a positive price, or the offers for sale at a negative price.

After the auction’s results and following each matching on MI-XBID, until the settlement date, it’s determined the net position resulting from the algebraic sum of the buy positions and the sale ones. So the net buy positions and net sale positions at a negative price determine for each flow day an exposure equal to its value, valued at the bid/ask price of awarded, while net sale positions at positive price resulting per each flow day determine the possibility to offset the debt exposures related to the same settlement date.
Limited to trading by portfolio on MI-XBID, any imbalances in the MI-XBID program for purchase or sale, attributed to the Participant and valued at the prices defined by the dispatching regulations, respectively fall within the exposure or credit suitable to offset debt exposures on the same settlement date.
If the Participant is also admitted to the MGAS, he/she/it will have a net position determined as a whole arising from the exposures or credit positions generated respectively in the MGP/MI of the ME and in the MPGAS.

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EXPOSURE ON MPEG

In principle, a (positive price) purchase in the MPEG of the differential price product, or potentially a negative price sale, generates exposure equal to 100% of the value given by the algebraic sum of the offered price and the PUN or, if it is not yet known, of its estimate (MPEG check price), while a sale does not generate exposure, even under certain conditions, it can compensate.

At the bidding stage, the exposure is determined considering the most potential unfavorable of market matching of all the bids/asks together with the net position already traded. At this stage, the exposure is enhanced considering the price determined by the algebraic sum of the price subject of the bid/ask, i.e. the differential with respect to the PUN, and its check price determined by GME.
After the market matching, each position generates absorption of guarantee equal to the equivalent value in case of a debit, valued at the differential price combined plus its check price, while generating no exposure in case of a credit.

After knowing the value of the reference PUN, the exposure value is updated in order to consider the entire value of the debt and credit position, valued at the combined price plus PUN.

In conclusion it should be noted that the net buy positions determine absorption of guarantee for each flow day, while the net sale positions, after knowing the PUN, determine the possibility to offset the debt exposures that have the same settlement date.

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EXPOSURE ON MTE

While submitting the bids/asks in the MTE for products with baseload and/or peakload profile, they determine exposure equal to the mark to market between the reference check price for the contract subject of the bid/ask and the price quoted in the proposal (see ME Technical Rule n. 07).
When the market matching has occurred, the net positions of contracts still under trading generate exposure as a function of enhancement to the respective check prices, determined by GME, and the risk parameter, α, thus providing any offset due to the recognition of correlation between different profiles of the same contract by the risk parameter, ß, and correlation between the different delivery periods by the risk parameter γ.

Upon the registration of the net delivery position in the MTE, the net buy position generates exposure equal to the entire value of the position, valued at the average buy price.

Subsequently, for contracts already delivered but not yet the subject of settlement, the net buy positions generate exposure equal to the total value of the position, valued at the trading price, while the net sale positions generate an appropriate credit to offset debt exposure on the same settlement dates.

The risk parameters used for the purposes of financial check of the amount of the guarantee, are as follows:

1. the parameter α is associated with each product according to the following table:
   
2. the parameter ß is equal to 70%;
3. the parameter γ is equal to 70%.

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MANAGEMENT OF DEFAULTS

The guarantee system adopted in the ME consists of several levels of supervision:

1. financial guarantees in the form of first-demand bank guarantees or non-interest-bearing deposit. In order to submit adequate bids/asks, the Participant may post, alternatively or cumulatively, a guarantee in the form of a first-demand bank guarantee meeting the requirements indicated in the Integrated Text of the Electricity Market Rules, or in the form of a non-interest-bearing deposit;
2. guarantee fund, established at the Energy and Environmental Services Fund and managed by it pursuant to ARERA’s Resolution 502/2016/R/GAS as subsequently amended by ARERA’s Resolution 376/2019/R/COM. The Guarantee Fund is used by GME to cover the defaults of all the Participants or the bank issuing the bank guarantee, if the financial guarantees issued are insufficient or the issuing bank fails to comply.
   This Guarantee Fund is also used for the default of Participants by right of ME and MGAS.
3. own funds of GME for a maximum yearly amount of 2.5 million EUR. This amount is intended cumulatively, both in the electricity market and in the natural gas market, to cover the debts of defaulting Participants, with the exception of Participants by right, or the failure to fulfil obligations by the issuing banks;
4. Risk pooling mechanism defined by ARERA as established in its Decision of 28 September 2009 - ARG/elt 138/09 as supplemented by Decision of 2 October 2009 - 2009 - ARG/elt 142/09.

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