Cascade Process

All contracts apart from monthly, weekly and daily contracts expire through the cascade process. This process breaks contracts down into those whose expiration date is close, which is the first day of the delivery period, contracts with delivery periods shorter than that of the original contract so that hedges can be made on these contracts with others which are in the registration period and so that the energy covered by the delivery period can be settled.

The last day for registration is the working day prior to the first day of the delivery period. The cascade process takes place on that day, once the registration period has been closed.

The cascade process consists of:

An annual contract is broken down into 4 quarterly contracts. The open position will be closed in the annual contract and will be opened in the quarterly contracts.
A quarterly contract is broken down into 3 monthly contracts. The open position will be closed in the quarterly contract and will be opened in the monthly contracts.

For swap contracts

The following diagram is an example of the cascade process breakdown of an annual swap contract:

Open Position of Annual Swap Contract
SW – Annual
SW Q1			SW Q2	SW Q3	SW Q4
SW Q1
SW M1	SW M2	SW M3

For futures contracts

The following diagram is an example of the cascade process breakdown of an annual future contract.

Open Position of Annual Future Contract
FT – Annual
FT Q1			FT Q2	FT Q3	FT Q4
FT Q1
FTM1	FT M2	FT M3

The shaded boxes are contracts used to produce the cascade process which close a position.

The trades used to produce the cascade process do not generate any fee. Type Z trades are used at the daily settlement price.

For annual contracts

For swaps, the annual contract is closed at the price the trade was registered and the quarterly contract is opened at the same price (registration price of the original annual swap).

In the case of futures, the annual contract is closed at the final settlement price of the annual contract and the four quarterly contracts are opened at the final settlement price of the annual contract as well.

For quarterly contracts

For swaps, the quarterly contract is closed at the price the trade was registered and the monthly contract is opened at the same price (registration price of the original quarterly swap).

In the case of futures, the quarterly contract is closed at the final settlement price of the quarterly contract and the three monthly contracts are opened at the final settlement price of the quarterly contract as well.

Summary

The following table summarizes the cascade process for each contract:

Contract of Origin	Cascade Process
Annual Swap	Quarterly Swaps
Quarterly Swap	Monthly Swaps
Monthly Swap	No cascade process
Weekly Swap	No cascade process
Daily Swap	No cascade process
Annual Future	Quarterly Futures
Quarterly Future	Monthly Futures
Monthly Future	No cascade process
Weekly Future	No cascade process