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:
The following diagram is an example of the cascade process breakdown of an annual swap contract:
|SW – Annual|
|SW Q1||SW Q2||SW Q3||SW Q4|
|SW M1||SW M2||SW M3|
The following diagram is an example of the cascade process breakdown of an annual future contract.
|FT – Annual|
|FT Q1||FT Q2||FT Q3||FT Q4|
|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 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 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.
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|
|Quarterly Future||Monthly Futures|
|Monthly Future||No cascade process|
|Weekly Future||No cascade process|
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