Open interest

Report notes

1. The report is based on the number of outstanding or open exchange-traded instruments, specifically New Zealand electricity futures and options contracts traded on the ASX platform.

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. Open interest is the total number of outstanding contracts that are held by market participants at the end of each trading day. In other words, it represents the number of contracts that have not yet been exercised (in the case of options), offset (by holding a contract with a counterbalancing obligation), or expired. Open interest is a measure of ‘skin in the game’ and is therefore an important indicator of liquidity. Greater liquidity generally results in more efficient pricing. ASX reports the number of contracts of open interest in the days following a contract's expiration up until the contract is settled.
   Besides the number of contracts, we also express open interest in energy and dollar terms. Energy (GWh) is derived by multiplying the number of contracts by the contracted megawatts and the number of hours covered by the contract's duration, or the remaining duration in the case of contracts about to expire in the current period. Dollars are derived by summing up the product of the energy value and the settlement price. Energy (unadjusted GWh) is calculated slightly differently to Energy (GWh); the number of hours in the period of expiration is left unadjusted so that it does not account for the fact that the number of hours is diminishing as the period progresses. Analysts who are used to applying simple rules-of-thumb to convert contract counts to energy values may be familiar with the saw-tooth pattern that the unadjusted approach yields.
   In the case of options contracts, we naively convert them to an energy basis as if they were futures contracts. This will overstate the quantity of open interest. Options can be excluded from the report by adjusting the instrument parameter.

4. The series filter enables specific contract durations to be selected.

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. 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.

8. Beginning on 9 November 2015, contract sizes were changed from 1.0 MW to 0.1 MW for all New Zealand electricity futures and options contracts traded on the ASX platform. For the purposes of consistent reporting on EMI, all New Zealand contracts prior to 9 November 2015 were multiplied by ten and are now expressed as contract equivalents.