Turkish firms baffled by electricity price spike following bourse liquidity surge

Turkish electricity traders were left baffled following an unexplained intra-day price spike on the Borsa Istanbul screen on Monday.

The spike followed an unexpected surge in liquidity on what had until then been an underused platform.

The baseload contract for delivery in July was steadily bid up throughout most of the morning session, according to trade information seen by ICIS.

It then became particularly volatile around midday, changing hands at TL156/MWh, or around €50.60/MWh, at 12.10 Istanbul time, yet by 12:51 it was trading at TL170.20/MWh – a 9% jump in just 30 minutes.

Evidence showed the spike was no one-off, erroneous deal, often referred to as a “fat finger” trade: Another 121 separate clips were recorded during the half-hour spell, 117 of which nudged the transacted value higher, or at least kept it flat.

In many cases, each subsequent deal, transacted around 10 seconds after the previous one, nudged the value up by TL0.1/MWh, a pattern that was repeated over and over.

Quiet, then the fall

The price then fell sharply to TL158.00/MWh by 14:30 Istanbul time and gradually retreated to TL157.5/MWh over the following 25 minutes.

One trader said no deals were concluded between the 12:51 and 14:30 window which coincided with the Turkish lunch break. This was backed by the trade data seen by ICIS, while a source at Borsa Istanbul also confirmed the information.

At the same time as the exchange price spike was playing out, prices were quoted within a TL150.00 – 160.50/MWh bid-offer spread on over-the-counter (OTC) broker screens, suggesting a freak shift in fundamentals was not behind the spike.

This created an estimated TL10.00/MWh arbitrage opportunity between OTC and exchange screens throughout the earlier part of the session.

July Baseload also changed hands in several clips on OTC screens, including one at TL159.50/MWh some 50 minutes before the exchange spike.

One source who took part in Monday’s trading session on the Borsa Istanbul platform said there were between five to ten participants active on that screen.

However it was not immediately clear what caused the July Baseload price spike on the exchange.

Liquidity surge

Liquidity started to pick up on the VIOP electricity platform of Borsa Istanbul last Thursday when the number of trades amounted to 172, with 173 on Friday. Monday then saw 465 deals. Prior to this liquidity was very low, with a single figure daily trade count.

The volume of a contract traded on the exchange screen is calculated as the number of days in the respective contract multiplied by the number of hours in a day multiplied by 0.1, the lot size.

This means that in volume terms the three days’ transactions amounted to 18GWh on Thursday, 24GWh on Friday, and 69GWh for Monday. The bulk of traded volumes covered July Baseload.

The surge explained?

The platform was first set up in 2011 as part of the Turkish Derivatives Exchange (TurkDEX). It was subsequently transferred to Borsa Istanbul in 2013 when the outfit was established following the merger of TurkDEX, the Gold Exchange and the Istanbul Stock Exchange.

Trading interest on the electricity futures platform has been wafer-thin ever since its establishment because participants could not take positions directly but had to use brokerage services.

The surge in liquidity last week therefore took the market by surprise, particularly as most traders had grown used to seeking the flexibility of OTC screens.

“Recently, a lot of training activities have been organized with Turkish energy sector participants,” a source at Borsa Istanbul said. “On the other hand, there has been a remarkable increase in the number of member and customer visits.”

Another Borsa Istanbul source claimed the surge in liquidity may be explained by many companies looking to hedge positions or simply attempting to avoid paying stamp tax which amounts to 0.948% of the financial value of a written contract. The levy is charged on OTC trades, but exchange deals are exempt.

A source at the Turkish energy traders’ association (ETD) confirmed the organisation had been encouraging companies to use the VIOP platform.

ICIS revealed earlier in March that Borsa Istanbul was expecting to offer a variety of products including baseload yearly products for the following two years, three quarterly contracts as well as monthly products. aura.sabadus@icis.com