Market depth

Report notes

1. The report is based on the number of buy or sell quotes available for exchange-traded instruments, specifically New Zealand electricity futures and options contracts traded on the ASX platform. A higher measure of depth indicates there are more quotes for contracts available to trade in the market.

2. The Authority acquires ASX data on a subscription basis. Snapshot price and trade data is received following the close of trade each day. See https://www.asx.com.au/products/energy-derivatives/new-zealand-electricity.htm for a complete description of contract specification terms, including reference locations, units, commodity types, and contract durations. The Authority also receives ASX24 market data from the ASX trading platform on a weekly basis. This data allows us to observe the state of the market at any point in time. See https://www.asx.com.au/documents/products/asx-market-data-protocol-specification.pdf for a complete description of the ASX24 market data.

3. This report uses ASX24 market data, which allows the Authority to calculate the state of the order book for any instrument at any point in a trading session. Using the ASX24 market data, a snapshot of the state of all orders in the market on a minute-by-minute basis throughout the trading session can be formed. For example, a standard trading session runs from 10:00 to 16:00 Sydney time, which produces 360 snapshots.

4. Commodity types are baseload and peak. Baseload commodities refer to 0.1 MW of electrical energy per hour for every hour of the contract's duration. Peak commodities only exist for quarterly durations and refer to 0.1 MW of electrical energy per hour for all hours between 7:00am and 10:00pm on each business day within the contract's duration.

5. Duration refers to the time period over which futures and options contracts are defined. Currently used durations are monthly, quarterly, or calendar-year strips. Monthly contracts are introduced at the beginning of each quarter for the two quarters ahead. Quarterly contracts for all quarters in a year are introduced on the first trading day of the fourth quarter for the quarters of the year four years ahead. Monthly and quarterly contracts may be traded from the time they are introduced until they expire. Strips contain a strip of four quarterly contracts covering one calendar year. They are introduced at the beginning of the fourth quarter for the year four years ahead, and may be traded up until the end of the first quarter in their year of expiration.

6. Maturity or expiry dates apply for all individual contracts for each instrument, commodity type and duration. Users can select a specific contract expiry date that, when combined with a location, commodity type, and duration, defines a specific contract.

7. The grouping filter can be used to choose whether to split the depth in the market according to whether quotes were within a certain spread percentage of the most competitive quote on the other side of the order book, or to split the number of contracts available over a given number of quotes in the market, for example the number of contracts available for the best five quotes. It also allows users to select whether measurements should be aggregated over both sides of the order book or not. Selections labelled as ‘bids and offers’ show each side of the order book separately, whereas the ‘combined’ selection aggregates over both bids and offers. When the measurements are not aggregated, the depth of sell quotes are displayed as distinct from the depth of buy quotes. The ‘Spread limit’ split allows users to see how much volume was available within thresholds corresponding to current and historic market making thresholds. For example, users can observe how much volume was available on average throughout the market making session at a spread of less than 3%, corresponding to the current market making spread arrangements as of November 2020. Splitting across different numbers of quotes, i.e. the ‘Quote priority’ selection, allows users to see information such as how much volume was available on average at the most competitive price.

8. For each order book snapshot, the market depth within a given spread is found as the volume of quotes available within the defined spread limit of the most competitive quote on the other side of the order book. For example, volume from all quotes on the buy side that are within a 3% spread of the most competitive sell order are counted towards the volume within 3% spread. These values are then averaged over the selected instruments, sides of the order book, and time scale.

9. For each order book snapshot, the market depth for a given number of quotes, n, is calculated as the mean of the cumulative volume of orders available to trade across the n most competitive quotes available. For example, the depth on the buy side of the five most competitive quotes is the mean of the cumulative volume available for the selected time period in the five most competitive quotes, averaged over the snapshots selected in the Show parameter. These values are then averaged over the selected instruments, sides of the order book, and time scale.

10. The unit parameter can be used to select the metric of interest, either the average number of contracts available to trade or the average number of MWh available to trade over these contracts.

11. The show parameter can be used to filter the market depth measure to include measurements for the entire trading session, the market-making session, or the period outside the market-making session. The market-making session runs from 15:30 to 16:00 New Zealand time each trading day that market-making services are provided.