Bilaterally traded OTC swaps and futures may be registered in the Clearing House. Despite the fact that MEFFPower admits both swaps and futures for registration, the reality of the OTC market is that only swaps are traded to date.
Both these instruments are agreements between two parties to buy or sell a specific amount of electricity on a future date at a fixed price.
The difference between futures and swaps is the frequency of the variation margin.
- In swap contracts the variation margin is not settled daily although they have a periodical settlement.
- In futures contracts the variation margin is settled daily.
The Clearing House provides a mechanism guaranteeing the successful outcome of the trades to both counterparties. The market specifies standard contract features to facilitate the trading.