globalCOAL DES ARA Index Methodology v.1k
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Executive Summary | Introduction | Scope of the ARA Index and Definitions | Monthly ARA Index Calculation | Weekly ARA Index Calculation | Governance | Amendments to the ARA Index | Industry Comments | Appendix: Frequently Asked Questions
1. Executive Summary
This document outlines the methodology for the calculation of the globalCOAL DES ARA Index ('DES ARA Index' or 'the Index') – a reference price for thermal coal delivered on an DES basis at the ports of Amsterdam, Rotterdam or Antwerp in Northern Europe.
The underlying data for the DES ARA Index is derived from trading activity on the globalCOAL online trading platform, in globalCOAL's Phys DES ARA contract. The calculation is based on a combination of:
- Bids and offers posted on the platform
- Transactions executed on the platform
In order to ensure the reliability and sturdiness of the index and prevent manipulation, a number of filters and qualifiers are applied to qualify the data for inclusion. Moreover, the formula is structured in a way that enables the transaction component to weigh more heavily in the calculation as transacted tonnage increases.
As the Index is based on transaction, bid and offer data, there is no minimum amount of data required for the determination of the DES ARA Index. If there are no qualifying transactions for any index period, the DES ARA Index will be calculated based on qualifying bids and offers; in the unlikely scenario that there are no transactions, bids or offers, the DES ARA Index will be unchanged from the last published Index.
Users of the DES ARA Index should be aware that the Index may become less reliable if there is little activity on globalCOAL's online coal trading platform and if the prices of transactions, bids and offers on that platform do not reflect those of equivalent activity occurring off that platform.
The following methodology details the scope of the globalCOAL DES ARA Index, and offers a fully transparent description of the calculation of each component in the final Index.
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globalCOAL introduced the DES ARA Index in March 2007 in conjunction with the launch of the Phys DES ARA contract.
The DES ARA Index methodology is based on a template devised by globalCOAL in collaboration with the industry. The globalCOAL DES ARA Index provides an independently established, transparent and reliable reference price for spot DES ARA thermal coal. The Index is derived only from objective data (transactions, bids and offers) and no subjective assessment is involved in its determination.
globalCOAL publishes the DES ARA Index weekly and monthly. The physical transactions, bids and offers from which the Index is derived are also published transparently and available in realtime to globalCOAL's Market Members.
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3. Scope of the DES ARA Index and Definitions
The DES ARA Index represents the Spot Price of the Index Month for Phys DES ARA under DES delivery terms at the ports of Amsterdam, Rotterdam or Antwerp in Northern Europe. These terms are defined as follows:
'Amsterdam, Rotterdam or Antwerp' ('ARA') refers to the coal handling facilities located at these three ports.
'Data Week' is defined in Section 5.1
'Index Month' refers to the period for which the Monthly DES ARA Index is calculated. The Index Month begins on the first business day following the last Friday of the previous calendar month, and terminates on the last Friday of the calendar month.
Example: If the last Friday in January is the 25th, the February Index Month begins on Monday 28th January.
'Listed Public Holidays' do not qualify for inclusion in the Index calculation. They are defined here as New Year's Day, Easter Friday, Easter Monday, Christmas Day and Boxing Day.
'Phys DES ARA' refers to the contract for the purchase and sale of physical coal falling within the parameters defined in the DES ARA RSS for globalCOAL's Standard Coal Trading Agreement (SCoTA).
'Relevant Exchanges' is defined in Section 6.
'Spot Price' is defined here as the price for coal being delivered in the prompt three months following the current calendar month.
'Subscribers' is defined in Section 6
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4. Monthly DES ARA Index Calculation
The globalCOAL Monthly DES ARA Index is calculated as the simple average of each Weekly DES ARA Index which falls in the Index Month.
The globalCOAL Monthly DES ARA Index is published on the last Friday of each calendar month after 17.00 London time. If this day falls on one of the Listed Public Holidays, the Monthly Index will be calculated on the first day preceding that Friday which is not a Listed Public Holiday, and the value will be rolled over for publication on last Friday of the month.
The Monthly DES ARA Index is calculated in US Dollars (US$) per metric tonne to two decimal places (rounding fractions of 0.005 and higher up, and rounding fractions below 0.005 down, to the nearest US cent).
globalCOAL is responsible for making each DES ARA Index value available and currently publishes these on its website at www.globalcoal.com and elsewhere.
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5. Weekly DES ARA Index Calculation
5.1 Overview of the Weekly DES ARA Index
The Weekly DES ARA Index has the following features:
- The Index is calculated using two categories of applicable data:
- Firm bids and offers in Phys DES ARA for any delivery period entirely contained within the prompt 3 months following the current calendar month, which are submitted to globalCOAL's online coal trading platform. The prices must be posted for a minimum of 15 minutes from Monday to Friday between 08.00 and 17.00 London time1 (excluding Listed Public Holidays);
- Transactions in Phys DES ARA for any delivery period entirely contained within the prompt 3 months following the current Index Month, which are executed via globalCOAL's online coal trading platform. The transactions must be carried out from Monday to Friday between 08.00 and 17.00 London time1
- Those bids, offers and transactions may be for coal from the full range of origins allowed within the contract (namely, Australia, Colombia, Poland, Russia, South Africa and USA), to be delivered to the full range of delivery points (any of the terminals at the ports of Amsterdam, Rotterdam and Antwerp), or may be for coal from a restricted range of origins and / or for delivery to a restricted range of delivery points. Users of the DES ARA Index should be aware that the Index price on any particular date may depend partially on the range of origins and delivery points that have been specified in the bids, offers and transactions on which the calculation of that Index price is based;
- There is no minimum quantity for transactions or for bids and offers, although the Phys DES ARA market on globalCOAL's online coal trading platform does not allow bids and offers of less than 25kt;
- Data collected on a Listed Public Holiday will be excluded;
- The Index is calculated and published every Friday after 17.00 London time, using applicable data collected during that day and the previous 4 calendar days ("Data Week");
- If a Friday falls on one of the public holidays listed above, the Weekly DES ARA Index will be calculated and published on the first day preceding that Friday that is not a public holiday, and the value will be rolled over for publication on the Friday;
- The Index is calculated in US$ per tonne to two decimal places (rounding fractions of 0.005 and higher up, and rounding fractions below 0.005 down, to the nearest US cent).
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1 This window ensures equal representation of Asia-Pacific and European activity on the platform.
5.2 The Two Components of the Weekly DES ARA Index
The Weekly DES ARA Index incorporates a bid-offer component, and a transaction component.
5.2.1 The Weekly Bid-Offer Component
- The Weekly Bid-Offer Component is calculated as the simple average of the Daily Bid-Offer Components calculated for each day of the relevant Data Week
- In a typical week without Listed Public Holidays, the Weekly Bid-Offer Component is the simple average of the week's 5 Daily Bid-Offer Components
22.214.171.124 The Daily Bid-Offer Component
- The Daily Bid-Offer Component is calculated as an average of the best qualifying, filtered bids and offers
- Firm bids and offers qualify for Index inclusion if they are for any delivery period entirely contained within the prompt 3 months following the current calendar month and are posted for at least 15 minutes on globalCOAL's platform between 08.00 and 17.00 London time (excluding Listed Public Holidays)
- If there are no qualifying bids and offers, the Daily Bid-Offer Component calculated on the previous business day will be used
126.96.36.199 Filtering Daily Bids and Offers
- The following series of filters are applied to the applicable bid and offer data to ensure reliability and prevent manipulation:
The number of bids and offers used in the Daily Bid-Offer Component calculation will be the lowest of:
|Filtered number of applicable bids = The lowest of...||Filtered number of applicable offers = The lowest of...|
|The number of applicable bids which have a price falling within 4%
of the price of the highest applicable bid 2
|The number of applicable offers which have a price falling within 4%
of the price of the lowest applicable offer 2
|20% of the number of applicable bids (minimum 1, then rounding fractions of 0.5 and higher up and fractions below 0.5 down)||20% of the number of applicable offers (minimum 1, then rounding fractions of 0.5 and higher up and fractions below 0.5 down)|
|The filtered number of offers so that the number of qualifying bids and offers will always be equal||The filtered number of bids so that the number of qualifying bids and offers will always be equal|
2 The 4% band was agreed in conjunction with the market as an appropriate range
The Daily Bid-Offer Component is then calculated by averaging the prices of the filtered number of the highest qualifying bids, and the prices of the filtered number of the lowest qualifying offers, and taking a simple average of the two numbers.
Example: Calculating the 21 January Daily Bid-Offer Component as part of January DES ARA Index
Applicable Bids and Offers Posted 21 January:
|BID (US$/t)||OFFER (US$/t)|
|Total Bids: 8||Total Offers: 4|
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The number of bids and offers qualifying for the Daily Bid-Offer Component is the lowest of:
|Max number of prices to be included||10||10|
|Number of prices falling within 4% of the best bid and best offer||7||4|
|20% of the number of bids and 20% of the number of offers (minimum 1)||2||1|
|An equal number of bids and offers||1||1|
Therefore the following bids and offers qualify for today's Daily Bid-Offer Component:
|BID (US$/t)||OFFER (US$/t)|
|Average = US$ 79.25|
188.8.131.52 Calculating the Weekly Bid-Offer Component
The Weekly Bid-Offer Component is the simple average of the Data Week's Daily Bid-Offer Components.
Example: Calculating the Weekly Bid-Offer Component as part of January DES ARA Index
Daily Bid-Offer Components this week and rolling daily average
|Weekly Bid-Offer Component = US$ 77.79|
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5.2.2 The Weekly Transaction Component
The Weekly Transaction Component is calculated on the last business day of each week, typically a Friday. It is the volume-weighted average price of all qualifying transactions executed during the Data Week.
Qualifying transactions fulfil the following criteria:
- Are executed on the globalCOAL online trading platform in Phys DES ARA;
- Are for any delivery period entirely contained within the prompt 3 months following the current Index Month;
- Are executed Monday to Friday between 08.00 and 17.00 London time.
Example: Calculating the Weekly Transaction Component as part of January DES ARA Index
Applicable Trades this week:
|Phys DES ARA||February||80.50||25kt|
|Phys DES ARA||March||79.25||75kt|
|Phys DES ARA||March||79.75||25kt|
|Phys DES ARA||April||79.00||50kt|
|Phys DES ARA||March||80.00||25kt|
|Volume-weighted average = US$ 79.50|
Clarifications on particular cases:
- A Calendar Transaction is never included in the calculation of the Weekly Transaction Component as it does not fall within "any delivery period entirely contained within the prompt 3 months following the current Index Month";
- A Quarterly Transaction is only included in the calculation of the Weekly Transaction Component when it is "entirely contained within the prompt 3 months following the current Index Month" – this will occur namely in December for Q1 transactions, in March for Q2 transactions, in June for Q3 transactions and in September for Q4 transactions;
- A Time Spread Transaction is never included in the calculation of the Weekly Transaction Component as the price for each individual leg of the spread trade is subjectively determined.
5.3 Calculating the Weekly DES ARA Index
The Weekly DES ARA Index is calculated as a volume-weighted average of the Weekly Bid-Offer Component and the Weekly Transaction Component:
- The Weekly Bid-Offer Component is weighted at a fixed volume of 150,000 tonnes; 2
- The Weekly Transaction Component is weighted according to the total number of tonnes of that week's applicable transactions.
(B * 150,000) + (T * X)
(150,000 + X)
Where: B is the Weekly Bid-Offer Component in US$ per tonne
Example: Calculation of the Weekly DES ARA Index:
(77.79 x 150,000) + (79.67 x 300,000) =
(150,000 + 300,000)
(11,668,500 + 23,901,000) =
The calculation therefore allows for the weighting of the Weekly Bid-Offer Component to proportionally decrease as the executed tonnage increases.
If there are no qualifying transactions in a particular Data Week, the DES ARA Index will be calculated based on qualifying bids and offers; in the unlikely event that there are no transactions, bids or offers, the DES ARA Index will be unchanged from the last published Index.
3 A weighting of 150,000 tonnes (equivalent to a cape size vessel) was selected in consultation with the market to ensure that small physical transactions could not unduly influence the Index.
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globalCOAL is authorised and regulated by the UK's Financial Conduct Authority (FCA). Under FCA rules, globalCOAL is required to have:
- Transparent and non-discretionary rules and procedures for fair and orderly trading;
- Objective criteria for the efficient execution of orders;
- Transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems;
- Transparent rules, based on objective criteria, governing access to its facility.
As shown in section 5 above, no discretion is exercised in the calculation of the DES ARA Index. The Index is formed of qualifying transactions, bids and offers, unaffected by any subjectivity or any element of discretion. However, bids and offers are monitored to ensure that they are not manipulative or misleading and do not contravene applicable law. Trades are monitored to check whether they are executed within an acceptable range and in accordance with globalCOAL's regulatory obligations, including those relating to market abuse. If the Compliance Oversight Officer of globalCOAL (or, in his absence, the Chief Executive Officer or Head of Asia) deems that a bid or offer is non-compliant or entered in error, or a trade is 'off-market', a mis-trade or otherwise in breach of globalCOAL's policies, that bid, offer or trade may be excluded from the Index calculation and, if required, the DES ARA Index may be re-published with a revised Index calculation. globalCOAL may refer the parties involved to the FCA. Unless circumstances do not permit it, the decision to exclude a transaction, bid or offer will be made following a discussion between the Compliance Oversight Officer, the Chief Executive Officer and the Head of Asia. globalCOAL's Compliance Committee will be informed of that decision and the reasons for it at its next meeting. Should this result in the need to re-calculate a previously published Index value, a notification will be sent to Market Members, any exchange on which derivatives are traded which reference the DES ARA Index ('Relevant Exchanges') and any subscribers to publications produced by globalCOAL which contain the DES ARA Index ('Subscribers').
The correct application of the methodology is checked before publication of the DES ARA Index. Market Members may report errors in relation to inputs into the Index (for example, a mis-trade) or challenge the Index output. Error reports and Index challenges will be referred to the Compliance Oversight Officer. Where appropriate, the Compliance Oversight Officer may send it on to the Compliance Committee for review.
The Index will not be amended at the behest of any party (including personnel at globalCOAL), except where this relates to a report of suspicious activity, manifest error, mis-trade, or other similar activity which has been reviewed and upheld by the Compliance Oversight Officer. All other requests for amendments or pressure to amend the Index from any party will have no influence in the determination process and may be reported to the relevant regulatory authorities if deemed appropriate by the Compliance Oversight Officer.
Should an error report or challenge be upheld through this process, globalCOAL will endeavour to amend the Index as soon as possible. Market Members will be informed by email and a notification will be included in the Coal Market Report.
For further information on the criteria used by the Compliance Oversight Officer to monitor transactions please contact firstname.lastname@example.org.
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7. Amendments to the DES ARA Index Methodology
Factors, including those beyond globalCOAL's control, may necessitate amendments to the methodology in the future and globalCOAL reserves the right to make such amendments in accordance with the procedures below. Users of the DES ARA Index should be aware that any amendments to the Index may affect those financial instruments that reference it.
globalCOAL's Compliance Committee shall review the Index Methodology at least annually and reserves the right to change it at any time. Market Members may inform globalCOAL's Compliance Oversight Officer at any time of their views on the DES ARA Index and may propose changes to it. Those views and proposed changes will be considered by the Compliance Committee in its review of the Index methodology.
Where globalCOAL proposes to make any change to the Index Methodology that the Compliance Committee considers to be material, it shall:
- Notify Market Members, Relevant Exchanges and Subscribers of its intention to change the index methodology, the change proposed, the rationale for the change and the date from which the change would apply;
- Invite Market Members, Relevant Exchanges and Subscribers to submit comments to globalCOAL on the proposed change within a consultation period lasting a minimum of three weeks;
- Make public a summary of any comments received from Market Members, Relevant Exchanges and Subscribers and a summary of globalCOAL's response except where a comment is likely to reveal the identity of a respondent who has requested confidentiality.
Prior to making a material change to the Index Methodology, globalCOAL will notify Market Members, Relevant Exchanges and Subscribers by email, and an updated methodology will be published on www.globalcoal.com.
globalCOAL will consider amending or ceasing the Index if it is no longer representative of the underlying market or an adequate volume of underlying inputs cannot be ensured. An amendment or cessation of the Index may impact the financial instruments that reference the Index. Prior to taking any such action, globalCOAL will consider the impact on forward positions and open interest, and consult the market as required.
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8. Industry Comments
globalCOAL was created by leading international coal consumers and producers to promote standardisation and transparency in the coal market. All stakeholders' comments, feedback and questions are highly valued. Please contact us at:
T +44 207 776 5904
F +44 207 776 5902
T +65 6311 4570
F +65 6223 2448
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9. APPENDIX: Frequently Asked Questions
Q. Are index-linked Phys DES ARA transactions (e.g. Phys API#2) included in the DES ARA Index calculation?
A. No, they are not. Only Phys DES ARA transactions executed at fixed price and bids and offers for such a contract are included in the calculation.
Q. Are Phys DES ARA transactions restricted in origin or delivery port (such as South African only, or Rotterdam only) included in the DES ARA Index calculation?
A. Yes they are. This optionality is embedded in SCoTA, therefore transactions, and bids and offers for such a contract, are included in the calculation.
Q. Are Phys DES ARA transactions executed on an EFP basis included in the DES ARA Index calculation?
A. Yes. The price at which the EFP transaction is executed is included in the index calculation, prior to it being broken down into its physical index-linked and Futures legs.
Q. What safeguards are there against strategies to move the index through off-market trades?>
A. As globalCOAL is authorised and regulated by the Financial Conduct Authority, any off-market trades will be reported to the regulator. Please see our compliance statement in section 6.
Q. Can transactions for coal delivered to other European ports such as Immingham count towards the DES ARA Index? Can deliveries of coal from other origins than ACPRSU be included?
A. No. Only standardised products (as defined in SCoTA's DES ARA specification) are considered in the DES ARA Index calculation.
Q. Is the index calculated on UK Bank Holidays?
A. Only five holidays are excluded from the DES ARA Index calculation: New Year's Day, Easter Friday, Easter Monday, Christmas Day, Boxing Day. Other UK Bank Holidays are considered to be normal business days for the purpose of DES ARA Index calculation.
Q. An Index Month may begin in the previous calendar month, e.g. if January 25th is the last Friday of January, the February Index Month will include January 28th, 29th, 30th and 31st. What delivery periods qualify for inclusion in the Index calculation for transactions executed on those days?
A. Despite being in a different calendar month, those dates are part of the February Index Month. Therefore, the qualifying transactions will be those with a delivery period falling "within the prompt 3 months following the current Index Month" – namely March, April and May. A February Phys DES ARA trade executed between January 28th and 31st would not count towards the February Index.
Q. Does the same apply to the bid/offer component calculation?
A. In order to qualify for the calculation, bids and offers must be for a delivery period falling "within the prompt 3 months following the current calendar month". In the case of bids and offers posted on January 28th, 29th, 30th and 31st, the qualifying delivery periods will be February, March and April. For bids and offers posted in February, the qualifying delivery periods will be March, April, May.
Q. Are there any restrictions on the level of the prices that can be posted on the globalCOAL screen?
A. Yes. globalCOAL generally imposes a 'price collar' on bids/offers which can be posted on the globalCOAL screen. globalCOAL uses the ICE Initial Margin Rate as a basis for setting these collars. The price limits are adjusted daily and may be adjusted intra-day in the event of unusual price movements.
Q. Are voice bids and offers included in the DES ARA Index calculation?
A. No. To be considered applicable data the bid or offer needs to be posted on the globalCOAL electronic trading platform as a firm price for a minimum of 15 minutes.
Q. Does the tonnage associated to a bid or offer affect its weighting in the Index calculation?
A. No. The Daily Bid-Offer Component is a simple average of the best bid(s) / best offer(s) qualifying for inclusion in the Index calculation. The prices are given equal weighting.
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