The Commodity Derivatives Market was established on November 19th, 2008.

What are future CDM contracts on the POLPX exchange?
A future contract for electrical power supply (power derivative) is a contract in which the seller (issuer of the contract) is committing to deliver electrical power on a specific date (term) in the future, at a specified price ad the buyer (buyer of the contract) commits to purchase electrical power on a specified date and at a specified price.

Future contracts allow setting the price of electrical power over a longer time horizon (up to three years ahead on the POLPX market, which creates significant price incentives for investors planning to build new generation capacity. They allow power dealers and large consumers to forecast the prices and optimize their costs of buying/selling electrical power.

Key advantages of CDM futures on the TGE market

• They provide significant information on future prices of electrical power
• Standardized products, matching the expectations of the energy market participants
• Guarantee of transaction clearing, thanks to the security system
• Accumulation of demand and supply in the form of a transparent table of orders
• Access to the market's most attractive offers without the need for long-term negotiations
• No market participation fee
• Minimum fee on conclusion of a transaction
• No fee for clearing of transactions in the initial period of the CDM futures market operation
• Market transparency, thanks to the supervision of KNF (Finance Supervision Commission)
• Easy conclusion of transactions, thanks to the modern and flexible order placement application - CONDICO Trade, licensed by NASDAX OMX.

Organization of the CDM futures trading
Initially, the CDM market traded BASE-type contracts with 24h execution. On January 19th, 2009, POLPX has introduced PEAK5 contracts with supply between 7:00 and 22:00 (15 hours per day), on working days.

Currently, the CDM Market is trading four types of instruments (classified in relation to their term of execution):

• Weekly (BASE_W) and (PEAK5_W)
• Monthly (BASE_M) and (PEAK5_M)
• Quarterly (BASE_Q) and (PEAK5_Q)
• Yearly (BASE_Y) and (PEAK5_Y)

Three nearest series of contracts are being traded for a particular execution date. This means that for instance if a monthly BASE_M-01-09 contract is being executed (01 means the number of the month - in this case it is January, 09 means the year, in this case 2000), there will be three subsequent monthly contracts in the trading period: BASE_M-02-09, BASE_M-03-09 and BASE_M-04-09. PEAK5 contracts are traded in a similar way.

Trading of the contracts is carried out in the continuous trading mode only, in the form of a table of orders, using the IT system of POLPX. Trading sessions take place from Monday to Friday 8:00 to 14:00. The trading takes place in compliance with the rules specified in the Exchange Regulations and adequate terms of trading for a particular type of term contract.


Execution of the contract (physical delivery)
On the day dated one day before the delivery date (after closure of the trading session) the contract is being reduced by the amount of energy subject to delivery on particular hours of the delivery date.
Execution of a future contract means physical delivery of the energy, in compliance with the scheduled period of delivery, depending on the type of contract, in a breakdown adequate to the daily energy batches, corresponding to the following product:
"number of hours during the day (depending on the type of contract) x number of contracts"
As a result, in the execution period, future contracts are converted o physical contracts (so-called reduced contracts) with a volume decreasing daily by the daily volume of energy delivery.

Who is eligible to participate in the futures CDM market of POLPX?
Only those members, who are qualified to participate in trading on the Day Ahead Market (DAM) and allowed to trade on the Commodity Derivatives Market following special application extending their scope of participation in the power exchange market shall be eligible to participate in the Commodity Derivatives Market managed by POLPX. The requirement to participate in the Day Ahead Market trading is related to the specific profile of the Commodity Derivatives Market - similarly to the Day Ahead Market, the Commodity Derivatives Market is a physical market and the notification of electrical power volumes to the Transmission System Operator (TSO) for physical realization of the contracts is done via the DAM.  In order to qualify to the trading on the Commodity Derivatives Market, a member shall also contribute a payment to the Guarantee Fund.

Risk factors for buyers or sellers of futures contracts
Any investment decision shall be made based on adequate knowledge of the mechanisms regulating the trading of futures and awareness of risks that are specific to the particular type of instrument. Participants of this market shall be aware of the existence of risk factors connected to the operations performed on the futures market. The key risk factors include:

• Market risk
• Liquidity risk
• Specific risk
• Legal risk

Market risk - it is related to the change in rating of future contracts.  The rating of a future contract mainly depends on the values of all cost factors impacting the price of electrical power in the future and on the expected ratio between demand and supply of electrical power in the delivery period. A member of the power exchange, concluding a transaction on the Futures PDM market is exposed to a higher risk of changing rates than on the base instrument market , due to the fact that the value of contributed collateral is a part of the contract value and therefore the losses or profits caused by change in contract rating related to the value of the engaged capital (i.e. value of the collateral) may reach significant levels, which are not being achieved on the base instrument market. Potential losses incurred on the Futures PDM market may exceed the initial value of the investment, understood as the amount of contributed collateral.

Liquidity risk - it is related to the fact that on the Futures PDM market, especially in its initial period, it may be difficult to conclude a large transaction or, conclusion of such a transaction may have a negative impact on the level of market ratings. The Investor may also have problems with closing a previously open position at the expected price level due to the lack of collateral orders.

Specific risk - it results from changes in the price of electrical power traded on the Day Ahead Market (DAM) managed by the Power Exchange, which may be subject of significant variation and thus impact the rating of the contract.

Legal risk - it is related to the fact that the power sector is subject to legislative and executive regulations, which may impact the rating of the contract.