Market design for cross-border co-optimized energy-reserve allocation (M12): This report describes the market design for the co-optimised cross-border capacity auction algorithm. This new market approach enables energy-balancing capacity cross-zonal allocation, while simultaneously optimizing both products to observe transmission network capacity constraints. Combined with deliverables 8.1 and 8.3, it summarizes the first planning and development phase of the demonstration, aiming to lay foundations to the detailed algorithm, market platform and complete IT solution development and deployment in the second year of the project. The report details the current state of the markets in the demonstration region, focusing on the day-ahead energy and reserve markets. The scope of the demonstration on the high-level directions of integration (namely co-optimisation) are outlined in the current regulations describing the planned common European Power Market Model. However, critical features, product definitions and design features are being researched as part of the ongoing work. Order types, especially the pivotal realization of linking energy and reserve orders, and network capacity constraint models have been defined, along with the main sequence of the market platform and general algorithm requirements. Also, the structure of the demonstration execution has been outlined at the last sections of this deliverable.