What are the UK Emission Allowance Auctions?
ICE was appointed to host UK emission allowance (“UKAs”) auctions on behalf of the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS) following the announcement from the UK Government and Devolved Administrations in December 2020 of the planned launch of a UK Emission Trading Scheme (ETS) to replace the UK’s participation in the EU ETS.
When will the UK Emission Allowance Auctions begin?
The UKA auctions will commence on 19 May 2021.
How often will the auctions take place and for what quantities?
The UKA auctions will take place every other Wednesday between 12.00pm and 14.00pm U.K. time. The 2021 auction schedule can be found in the UKA Auction Calendar.
The ICE UKA auction contract will be a one-day spot contract.
How will the auctions operate?
A description of how the auctions operate can be found here.
The auctions will take place on WebICE, ICE’s front end trading platform. Bidders will be able to bid directly by submitting the price and number of lots during a two-hour bidding window. A description of how to use WebICE can be found here.
Bidders in the auction bid for a number of lots. The minimum bid size is one lot and each lot represents 500 allowances. The UKA Auction contract specification can be found here.
During the bidding window bidders may enter or withdraw and amend bids and cannot view the bids of other participants. Successful bidders receive the same auction clearing price regardless of the bid price. At the close of the bidding window, ICE will determine the auction clearing price by ranking the total quantity of bids received in descending order of the bid price. The bids are then matched against the volume offered for sale. The price at which the total quantity matches or exceeds the offered quantity will be the auction clearing price for the auction. All bids above the auction clearing price will be matched and there will be a random allocation for all bids at the auction clearing price if the total bid quantity in the auction exceeds the offered quantity.
Within 15 minutes of the close of the bidding window, a notification will be sent to successful bidders confirming the auction clearing price and the matched quantity.
Successful bidders are required to pay ICE Clear Europe in full by 09.00am UK time on the day following the auction. Upon receipt of payment ICE Clear Europe will commence the transfer of allowances from its registry account to the registry accounts of the successful bidders held by the Clearing Members.
Who is eligible to bid in the auction?
Article 16 “Persons eligible to apply for admission to bid” of the UK Auctioning Regulations sets out the following entities as eligible to bid in the UK Auctions:
Intermediaries are required to ensure that their clients are eligible to bid.
Participants should refer to the UK Auctioning Regulations for the complete list of criteria.
What are the requirements for admission to bid?
Participants are required to fulfill certain admission criteria which are set out in full in Article 17 “Requirements for admission to bid” of the UK Auctioning Regulations. This includes the requirements for participants to show that they hold a nominated holding account; hold a nominated bank account; satisfy due diligence in relation to the ownership, integrity and nature of their business; and satisfy financial standing requirements. Participants should refer to the UK Auctioning Regulations for the complete list of criteria.
Do I have to be regulated by the financial conduct authority ("FCA") in order to bid in the auction?
The bidding for emissions allowances in the UK ETS is regulated by the FCA. Members and market participants are reminded that holding all the necessary authorisations and licences to access the ICE Futures Europe Auction Platform is required by the Exchange Rules. Members and market participants should check the FCA Handbook (available here: https://www.handbook.fca.org.uk/) to ensure they are in compliance with the necessary requirements.
How do I apply to bid in the auctions?
All participants must satisfy the eligibility and admissions criteria set out in Articles 16 and 17 of the UK Auctioning Regulations and have the necessary regulatory permissions or exemptions.
All participants must have an arrangement in place with an ICE Clear Europe Clearing Member and an Exchange Member or an Auction-only Access Provider. The practical arrangements vary according to whether you are an Exchange Member, an existing non-member participant in ICE Emissions markets or a new participant. Details of these arrangements can be found in the Rules and Procedures here. ICE will provide access to WebICE.
Are there rules and procedures?
Yes. These can be found on the ICE website.
Is there a minimum bid price?
As a Recognised Investment Exchange, ICE Futures Europe operates an orderly market at all times and as such has the right to reject bids which it considers unrepresentative of market value in either direction. In this regard, the ICE Futures Europe will apply reasonability levels to bids entered in the auctions.
Is there a reserve price, and if so how is it set?
The UK Auctioning Regulations stipulate that where the Auction Clearing Price is significantly under the price prevailing in the secondary market, the auction shall be cancelled.