Introduction
The Matching Algorithm applies to storage offers in which the total amount of capacity comes from multiple sources. Different sellers offer discrete amounts of capacity, which are then added as the total available capacity. Each of these discrete amounts of capacity are called sell bids, which are compiled before the Storage Offer Window opens. Once the offer starts, shippers can request to buy a certain amount of capacity for a certain price. Those requests are called buy bids. In the end, the algorithm matches the sell bids to the buy bids and allocates capacity giving priority to highest buy bids and the lowest sell bids.
General Rules
a. SSOs offer capacity from distinct sources as sell bids -- that is, different quantities and prices of capacity.
b. The sum of all of those sell bids amount to the total capacity offered in the auction.
c. During the auction, shippers place buy bids -- that is, a maximum and minimum quantity of capacity they wish to buy and a price they wish to pay. Comfort buy bids can be placed after the auction is published.
d. The bids are then matched prioritizing the highest buy bids and the lowest sell bids -- which is to say, shippers willing to pay more and sellers willing to sell for less are considered first.
e. When the auction closes, the bids are matched and the price is set by the lowest buy bid that receives capacity. Any sell bid that requests a higher price and any buy bid that requests a lower price are thereby discarded.
Scenarios
I. Fill Procedure: As is generally the case, the bids are matched giving priority to the highest buy bids and the lowest sell bids. The remaining capacity is then allocated to the rest. Both buy bids and sell bids are susceptible to a fill procedure.
- Fill Procedure in Buy Bids: After the highest buy bids receive their requested capacity, the leftover capacity is allocated to the remaining buyer provided his or her minimum capacity does exceed that amount.
a. In the case above, SB1, SB2 and SB3 are completely allocated.
b. A, B, C receive all the capacity they requested.
c. D receives the remaining capacity, since the minimum requested does not exceed the leftover quantity.
d. The price of the storage capacity offer is set by D (marginal price).
- Fill Procedure in Sell Bids: After the lowest sell bids allocate their capacity, the leftover demand is fulfilled by the remaining offer -- if the buyer's minimum request does not exceed the seller's offer.
a. In the case above, A, B and C receive the full amount of storage capacity for which they bid.
b. SB1 and SB2 sell all of the capacity, which they offered.
c. However, SB3 sells only the remaining amount of capacity demanded, since the overall demand was lower than the overall supply and SB3 charged more.
d. The storage offer closes at the price offered by C (marginal price).
II. Kill Procedure: As usual, both types of bids are matched prioritizing the highest buy bids and the lowest sell bids. However, in the kill procedure, either a buy bid or a sell bid are excluded from purchase or supply.
- Kill Procedure in Buy Bids: After capacity is allocated to the highest bidders, the leftover capacity is assigned to the remaining buy bid. However, if the leftover capacity is insufficient to supply for the shipper's minimum request, then the bid is excluded from allocation and another buy bid may take its place.
a. A, B, C receive all the capacity which they requested.
b. SB1 and SB2 sell all the capacity they offered.
c. However, after A, B and C receive the maximum amount of capacity for which they bid, there's not enough capacity to supply for D's minimum request. So, D is eliminated.
d. Consequently, SB3 only sells as much capacity as is necessary to supply for C, which sets the price.
e. Note, however, that, after D's elimination, if the remaining capacity could supply another shipper E's minimum demand, then E would receive capacity, EVEN IF it offered a lower price than D.
- Kill Procedure in Sell Bids: After the lowest sellers supply their capacity to shippers, the excess demand is covered by the remaining sell bid. However, if the price requested by such a bid is higher than the marginal price -- the price offered by the lowest buy bid that receives capacity -- then the sell bid is eliminated.
a. A and B receive all capacity for which they bid.
b. SB1 and SB2 sell all capacity they offered.
c. SB3 is eliminated, because they requested a price which exceeds the amount the lowest buy bid is willing to pay.
d. C only receives the amount of capacity, which can be supplied by SB2.
III. Pro-rata Procedure: As is normally the case, buy bids are arranged giving priority to the highest price offer and sell bids are arranged giving priority to the lowest price request. However, when the price offered by two distinct buyers or requested by two distinct sellers is the same, then capacity is allocated on a pro-rata basis according to the equation below:
- Pro-rata Procedure in Buy Bids: When two shippers or more demand capacity for the same price and there's not enough leftover capacity to supply for their maximum demand, they receive capacity on the basis of a pro-rata allocation.
Situation:
Result:
a. A and B receive all capacity they requested.
b. SB1, SB2 and SB3 sell all the capacity they offered.
c. C and D offered to buy capacity for the same price.
d. For the sake of fairness, C and D will each receive a pro-rata quantity of capacity based on the above calculation.
- Pro-rata Procedure in Sell Bids: When two or more sellers offer capacity for the same price and there's not sufficient demand for it, their capacity is sold on a pro-rata basis. Note, however, that some sellers may have allocative priority so that, even if the price they request for a certain amount of capacity is equal to the price requested by other sellers, their capacity is sold first.
Situation:
Result:
a. A, B and C receive the maximum capacity they wished to buy.
b. SB1 and SB2 sell all the capacity they offered.
c. SB3 and SB4, however, requested the same price for their capacity.
d. If neither seller has any allocative priority, the capacity they sell will be determined on a pro-rata basis.