ICE futures settlement prices change with zero volume and zero OI

Question

I found that all of the electricity futures prices (on ICE) at a particular hub changed on December 2, even though a) most had zero open interest and zero volume, and b) the quoted prices are EOD settlement prices. How can this be? Does that mean that, since there is no market, the prices are unreliable? Or does it mean that there is some kind of marking system in the background that prevents the prices from becoming stale? Would you be confident in using these prices and their volatilities for pricing options on those futures? Since we cannot attach files, the example in question is:

ERCOT West 345KV Real-Time Peak Fixed Price Future

from the drop down on this page. The product description does not indicate the calculation methodology in the event of zero volume / OI.

Thank you!

Answer 1

These contracts follow standard ICE procedures for calculating settlement prices, which can be found in section 2.4.6 of this document.

A high-level overview of the procedure is --

1. An 'anchor' expiry is determined. For the futures you described, this is the expiry with the highest volume in the settlement period (14:28 to 14:30 for power futures).

2. The anchor expiry settles at its trade-weighted average over the settlement period.

3. Other contracts settle to one of the following prices, in order of preference -- (a) their trade-weighted average over the settlement period, or if there are not enough trades (b) a price determined by applying spread prices to the anchor expiry, or if there is no relevant spread price (c) an average of quoted prices (bids/offers) for the relevant expiry, or if there are not enough quoted prices (d) "a price determined by the exchange taking into account bids and offers, spread values during the trading session or provided by market participants, activity in other contracts, groups of contracts, or in a related market, previous day's settlement prices, other prices recorded by the exchange, or any other factors considered relevant."

To answer your question -- even if there is no volume or open interest on a given day, it does not mean there is no market. There are still offers to buy and sell, as well as trading activity for other expiries and time spreads, and activity in related markets (plus associated spreads e.g. intermarket spreads, spark/dark etc) and these can be used to determine a settlement price.