Payment collateral

To be able to make purchases, agents in the production market must provide collateral that will enable them to meet any liabilities taken on in relation to their purchases on the production market.

Failure to provide collateral will prevent an agent from acting as a buyer on the production market, such that their bids will be rejected.

In order be able to operate on the intraday continuous market, agents will use the same collateral they have formalized to operate in the day-ahead and intraday auction market. It will only be necessary for them to indicate in advance what volume of that collateral they wish to allocate to the intraday continuous market. This amount will automatically be taken from the surplus collateral available for the day-ahead market and for intraday bids and will be allocated exclusively to the intraday continuous market.

Payment Collateral

To be able to make purchases, agents in the production market must provide collateral that will enable them to meet any liabilities taken on in relation to their purchases on the production market.

Failure to provide collateral will prevent an agent from acting as a buyer on the production market, such that their bids will be rejected.

In order be able to operate on the intraday continuous market, agents will use the same collateral they have formalized to operate in the day-ahead and intraday auction market. It will only be necessary for them to indicate in advance what volume of that collateral they wish to allocate to the intraday continuous market. This amount will automatically be taken from the surplus collateral available for the day-ahead market and for intraday bids and will be allocated exclusively to the intraday continuous market.

Can collateral be submitted electronically?

The market operator published the 3/2020 Instruction on 12 November, "Formalizing guarantees in OMIE." This replaces the previous 2/2020 Instruction published on 16 March. The new version adds a new method of formalizing guarantees electronically using the XML format. With these instructions, OMIE intends to promote the use of electronic securities instead of physical ones. OMIE has established a one-year transitional period, after which time the electronic format will be the only accepted means of formalization.

Formalization in XML format will be the preferred method as it enables more efficient management of the security.

This instruction is available at the following link: Instruction 3/2020.

Extensive information on securities in XML format is also available at:

https://www.omie.es/en/formalizing-guarantees

Who must submit collateral?

The unit holder, if joining the market on their own behalf.

In case of representation, it will depend on whether it is:

  • Representation in their own name and on behalf of third parties:

- The representative agent must provide collateral

 

  • Representation in the name of and on behalf of third parties:

- The represented party must provide collateral

How can I estimate the collateral needed?

Agents have a simulator that provides them with an estimate of the payment collateral to provide to the market operator, depending on predicted transactions on the electricity market and the price estimate based on historical prices.

The payment collateral simulator can be found through the 'Market performance' menu in the section on 'Payment guarantees simulator

What's the minimum collateral required on the market?

There is no minimum collateral required. The agent may provide collateral they consider appropriate, or no collateral.

However, when verifying the market purchase bid at a positive price or the market sell bid at a negative price, collateral will be checked to ensure you have a sufficient amount. Otherwise, the offer will be rejected..

Is there a minimum for submitting or increasing collateral?

The market operator will reject collateral or increases to collateral less than €1,000.

How do I know if I have enough collateral?

The Market Operator's Information System provides updated information on collateral coverage for the next session as well as estimates for the following days.

More information is available in the documentation on the Market Operator's Information System.

What will my collateral balance be at any given time?

An agent's collateral balance to cover the value of new purchase offers on the daily and intraday market will, at any given time, be the sum of:

  1. The financial collateral provided
  2. Minus the value of debtor bids accepted in matching, while not final. Once matching is final, these bids will be substituted for payment obligations from point 3 for that session.
  3. Plus the net balance of collection rights and those received from third parties, minus payment obligations resulting from invoices on the previous horizon and invoices or drafts on the current horizon.
  4. Minus the net creditor balance for their own collection rights and those received from third parties, minus payment obligations resulting from invoices on the previous horizon from the time of issuance for a debit or credit note, as established in the rule on "Timetable and deadlines for agents' requests."
  5. Plus the net debit balance of invoices on the previous horizon, once payment is made.
  6. Minus the amount of collateral reserved for trading on the intraday continuous market, including reductions made should there not be enough surplus.
  7. Minus  the amount of the estimation of the outstanding payment of the commissions  generated by the negative interest applied by the bank to the cash deposits formalized by the agents.

As of midnight on the day of payment plus one day, the preceding horizon will no longer be considered in the collateral balance.

What will my Operational Limit be when trading on the intraday market?

The amount of collateral available to cover the value of the agent’s new debtor bids (purchases at a positive price or sales at a negative price) is constantly calculated by considering:

  • The volume of collateral requested by the agent for trading.
  • Minus the value of debtor bids in the order book, taxes included.
  • Minus payment obligations for debtor bids matched during the current round, taxes included.
  • Minus the reduction of available collateral when there is not enough surplus on the Market Operator's Information System.
  • Plus the increase in collateral for trading
  • Minus the reduction of collateral for trading.
How do my debtor bids (purchase at a positive price or sell at a negative price) affect my collateral balance?

Before a bidding offer at a positive price or a sell offer at a negative price is accepted for matching, it will be checked to see if the agent presenting the bid is acting on their own behalf, in which case the offer will be settled with them if it is matched, or if they are acting on behalf of a third party. In such a case, it will be checked to make sure they're acting in their own name, in which case the offer will be settled with the them, or, if they’re acting in someone else’s name, the offer will be settled with the party represented.

Secondly, it will be verified whether the agent to whom that offer is going to be settled, in the case of a match, has enough collateral balance to cover the value of that offer (the price of the bid times the volume offered).

Should an offer be accepted, the agent will be credited with a reduction in their balance of surplus collateral for the value of that offer, which is called withholding. Once the matching is final, the settlement and pre-invoicing is done, taxes included, and the withholding will be deleted and replaced with a payment obligation that will give rise to the offer, once it is matched.

How do my sale bids affect my collateral balance?

The acceptance of sale bids at a positive price will not require the existence of prior collateral. Accepted sale bids at a positive price do not change an agent's collateral balance.

Sales offers at a negative price influence the collateral balance in the same way as purchase offers at a positive price.

When can payments release collateral?

The release of collateral for payment made shall be carried out on the day of payment no later than the time set in the rule in "Timetable and deadlines for agents' requests."

What types of collateral does the market accept?

Agents may provide OMIE with the following types of payment collateral:

  • Cash deposits to the market operator's bank account as explained in the Market Operator's Information System in the "Settlements" section (the same for payments).
  • Bank guarantees
  • Line of credit
  • Surety Bonds

Additionally, their accredited collection rights, as long as they have not yet been collected, shall also serve to guarantee their purchases or those of a third party.

Is there a limit on cash collateral transactions?

The market operator may set a charge on agents when they exceed a certain number of collateral transactions in a set period of time. This charge may be included on their credit or debit note. The fee is 0.1% with a minimum of €25 for each collateral transaction (deposit or refund) that exceeds either the fourth transaction in a given calendar month or the sixth in the previous two months.

Can collection rights be used as collateral?

Accredited collection rights serve as collateral for purchases made, as well as for future purchases until the debit and credit note is issued.

If, once an agent's debit and credit note is issued, any of their pending payment obligations were not to be covered by the agent’s collateral, the pending collection amount will be withheld and used as cash collateral on collection day.

How can collection rights be used?

By default, all agent transfer their collection rights to themselves.

An agent can assign their collection rights to a third party by submitting a form to OMIE, as established in the Market Access Guide. Once accepted by OMIE, the assigning agent will indicate through the market's website the percentages of their earned collection rights they wish to assign to third parties. By default, agents assign 100% of their CR to themselves.

Percentages for sessions that have already been matched cannot be changed.

What requirements are there for entities that provide collateral?

Entities that collateral may be banks, credit unions, or insurers residing in Spain, or a Spanish branch of a non-resident entity with a minimum credit rating. Detailed information on guarantor requirements can be found in the market rules and in "Instruction 1/2015. On additional conditions for the acceptance of collateral issued by entities that do not meet credit rating criteria established in the market rules." The Market Operator's Information System makes an updated list of the most common entities available, along with their credit rating and a rating of their suitability as guarantors.

Are there standard forms to formalize collateral?

Our public website has a section containing extensive information on the formalization of guarantees, as well as the forms, available in several different formats (XML, PDF and paper):

https://www.omie.es/en/formalizing-guarantees

The guarantor entity must only fill out the indicated fields that enable the guarantee to be identified.

The security will be validated when received by OMIE.

The text of guarantee forms must not be altered. No modification of these texts will be accepted. The guarantee must be submitted in Spanish.

Does collateral need to be notarized?

This isn't necessary. OMIE reserves the right to request the guarantor entity to ratify the terms of collateral at any time in order to ensure that it is valid and in effect such as to allow enforcement.

What validity does collateral need to have?

The minimum validity for guarantees in physical format will be 10 months. The minimum validity for guarantees in electronic format will be 5 months.

An agent can formalize collateral with unlimited validity or with validity extending until a date they choose. In the latter case, in accordance with the collateral’s text, before the fifth business day in Madrid prior to the expiration of the collateral, the agent must substitute new collateral for current collateral in the presence of the Market Operator. Otherwise, enforcement will ensue.

Where must collateral be submitted?
  • Electronic guarantees in XML format must be submitted by an appropriate request through the Market Operator's Information System.
  • Electronic guarantee in PDF format must be submitted by email to liquidaciones@omie.es
  • Physical guarantees must be submitted at OMIE's offices:

         Att. Dirección de Liquidación y Facturación

         C/Alfonso XI, Nº 6, 28014 Madrid

We remind you that the formalization of paper guarantees will not be accepted after the 3/2020 Instruction of 12 November has been in effect for one year, except in exceptional situations determined by the market operator. The agent will have a period of six additional months to replace the current physical securities with those formalized electronically.

How are registrations or deposits for collateral reported?

In accordance with market rules, bank guarantees, surety bonds, lines of credit, or cash collateral deposits must be reported through the Market Operator's Information System.

OMIE will accept the registration application once the collateral has been received and validated, which will for all purposes be considered accepted.

How are modifications to collateral reported?

In accordance with market rules, any modifications to amounts or to the effective date of Bank guarantees, insurance guarantees or credit line authorizations must be reported through the Market Operator's Information System.

OMIE will accept the modification request once the collateral has been received and validated, which will for all purposes be considered accepted.

However, in the case of reductions, these can only be accepted if there is sufficient collateral remaining to meet the pending payment obligations

How are returns for collateral requested?

According to market rules, the returns of sureties, surety bonds, lines of credit, or cash collateral must be requested through the Market Operator's Information System.

Requests for the return of any type of collateral can only be accepted if the agent has sufficient collateral remaining to meet their pending payment obligations.

Requests for a reduction or refund of collateral, should it be accepted, will result in the immediate deduction of the requested amount from the agent's balance sheet. Processing the request will be carried out according to established acceptance deadlines.

Refunds of cash collateral will only be made to the account that agents have registered through the Market Operator's Information System.

How are collateral assignments reported on the intraday continuous market?

According to market rules, agents must make a request to the market operator through the Market Operator's Information System for the amount of collateral to be allocated to the Market Operator's Trading Platform, as well as any subsequent increase or decrease they wish to make to that value.

What are the acceptance deadlines for applications?

According to market rules, deadlines for the acceptance of agents' reports, notifications, and requests are established in the document titled, "Timetable and deadlines for agents' requests.", published on the Market Operator's Information System.

When will the application for a collateral assignment go into effect on the intraday continuous market?

Requests will be validated by the market operator and should it be accepted, it will be incorporated into calculations for the operating limit the next time the Market Operator's Trading Platform syncs with the Market Operator's Information System

How do I know if my collateral application has been processed?

When an application has been processed by OMIE, the agent will receive a task in the Market Operator's Information System indicating whether their application has been accepted or rejected.

Will a request for collateral assignment or increase be accepted on the intraday continuous market?

Any request for a collateral assignment or increase to operate on the Market Operator's Trading Platform, will be accepted as long as there is enough surplus collateral in the Market Operator's Information System.

In that case, the entry will be corrected in the Market Operator's Information System, and that collateral increase will be considered in calculations of the operational limit for the Market Operator’s Trading Platform the next time the Market Operator's Information System syncs with the Market Operator's Trading Platform.

Will a request for a collateral reduction be accepted on the intraday continuous market?

Any request for a collateral reduction to operate in the intraday continuous market will be validated by the Market Operator's Trading Platform during the next synchronization, and as long as the amount has not been assigned to purchase bids (or sales at a negative price) or to payment obligations, it will be accepted. That reduction will then be considered on the Market Operator's Trading Platform and the withheld collateral on the Market Operator's Information System will be released in that amount. If it is not possible to accept the reduction requested on the Market Operator's Trading Platform, the agent will be notified that their request has been rejected and won't be considered for other synchronizations

Will collateral be enforced if I don't pay?

In the event of defaulting on a payment, the market operator will enforce the non-complying agent's payment collateral for creditor agents' collection.

What happens if my collateral is about to expire and I don't renew it?

If, after the fifth business day in Madrid prior to the expiration or non-renewal of collateral, an Agent has not replaced that collateral with another per the Operating Rules of the Electrical Power Production Day-Ahead and Intraday Markets, the Market Operator will then enforce that guarantee up to the amount needed to meet the Agent's obligations.

The enforcement of a guarantee entails paying a penalty of 0.01% of the enforced amount, with a minimum of €300.

What are the schedules and deadlines for processing my applications?

The schedules for replying to requests made by agents set the time limits in which the Market Operator attempts to process those requests, acting with due diligence and in good faith, always strictly respecting the order for acceptance or rejection, attending to when the request was received and the information needed to process it. In outstanding circumstances, the market operator may not meet deadlines, such as, for instance, when a high number of unforeseen requests accumulate.

What is the maintenance cost of my collateral?

The Market Operator will pass on to the market agents the negative interest or other charges that the banking entity applies for the balances of the cash deposits formalized in said account as market collateral, as of February 14, 2020, in proportion to these.

The market operator will transfer to the agents the cost charged by the bank in proportion to its average credit balances during the settlement period.

Charges may be integrated in the credit or debit note and may be deducted from the agent's cash collateral. Also, for the purposes of rule 56.7.2 “BALANCE OF GUARANTEES”, the market operator may make a negative entry to consider the estimate of the outstanding payment for the negative interest generated by the cash collateral formalized by the agent.

The maximum rates applicable to cash deposits will be published on the market website, as well as the settlement period, the application conditions and any changes that may occur in them at least one month in advance.

Where can I find more information on market collateral?

More detailed information on the process for providing collateral can be found in the market rules section, which can be accessed via "Market Rules" → "OMIE Rules."