Ice to launch parallel TTF market to avoid price cap

Intercontinental Exchange (Ice) is to allow trading of TTF futures and options at its London-based Ice Futures Europe exchange, meaning participants will not be subject to the EU's price cap.

The EU in December agreed on a market correction mechanism (MCM), which is triggered when the price of the Ice Endex exchange-traded TTF front-month contract settles above €180/MWh for three working days and is €35/MWh above Acer's LNG reference price, at which point prices are limited to €35/MWh above the reference price. The mechanism is to be implemented on 15 February.

Ice intends to implement the MCM on trades made at its Netherlands-based Ice Endex exchange, but provide an alternative London venue for TTF trading which will not have to abide by the price cap.

Settlement prices published at the end of each day based on trades on the Endex exchange will continue to be calculated with the same methodology, and so could deviate from the price cap.

Ice described the London move as "an insurance option for customers if the MCM prevents them from trading and adequately managing their risk exposure".

Ice intends to launch the new venue on 20 February, subject to regulatory approvals. Front-month prices are well below the level at which the cap would be implemented. Argus assessed the TTF February contract at €54.25/MWh on Thursday, and neither condition for triggering the price cap has applied since 29 September, Argus analysis suggests.

Regulators have warned that the price cap could lead to market participants modifying their trading activities by moving towards markets where it does not apply, such as over-the-counter trading and hubs other than the TTF.

By Rhys Talbot