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Cascade process

Quarterly, season, and calendar contracts expire through the cascade process. This process breaks down contracts that are close to their expiration date into contracts with shorter delivery periods than the original contract, so that hedges can be made on those contracts with others that are in the registration period and therefore, settle the gas that covers the delivery period.

For gas, the last registration day is 2 business days before the start of the delivery period.

The cascade consists of the following:

  • After the last registration day of the contract, annual contracts close by converting into four quarterly contracts.
  • After the last registration day of the contract, season future contracts close by converting into two quarterly contracts.
  • After the last registration day of the contract, quarterly future contracts close by converting into three monthly future contracts.5

Liquefied Natural Gas contracts do not cascade.

The setup below shows two examples of the cascade breakdown of a futures contract.

Open Position of Annual Contract 

FT– Annual
FT Q1 FT Q2 FT Q3 FT Q4
FT Q1   
FT M1 FT M2 FT M3

Open Position of Seasonal Contract 

FT– Seasonal
FT SS FT SW
FT Q2   FT Q3 FT Q4 FT Q1
FT M1 FT M2 FT M3  

The shaded cells are contracts used to carry out the cascade to close the position.

      SS: Summer Season

      SW: Winter Season (Q1 corresponds with the first quarter of the following year)

The trades used to carry out the cascade do not generate fees. The Z trades are used at the daily settlement price.

Annual Contracts

The Annual futures contract is closed at the Annual final settlement price and the four Quarterly contracts are opened at the final settlement price of the Annual contract as well, which is equal to the Last Register Day.

Seasonal Contracts

The Seasonal futures contract is closed at the Seasonal final settlement price and two Quarterly contracts are opened at the final settlement price of the Seasonal contract as well, which is equal to the Last Register Day.

Quarterly Contracts

The Quarterly futures contract is closed at the Quarterly final settlement price and three Monthly contracts are opened at the final settlement price of the Quarterly contract as well, which is equal to the Last Register Day.

 

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