Electricity Business: NZX May Have One Clearing Party On The Hook
May 11th, 2010
Local bourse operator NZX’s scramble to have its derivatives trading platform ready in time for the June 1 launch of a revamped wholesale electricity futures market is believed to be bearing fruit, with one international clearing participant now considering involvement. At least two or three clearing participants are required for a derivatives market to be internationally credible, since they are the process by which trading can confidently occur in any such market. The clearing participant is an international financial institution of sufficient standing to be able to back trades in the market should a failure occur.
So far, NZX’s approaches have reportedly struck little enthusiasm from such global providers, with the main hurdle apparently the small size of even an active NZ-based derivatives market. NZX and the gen-tailer-owned EnergyHedge have given no updates recently on their talks to establish the new trading platform, which Energy Minister Gerry Brownlee hopes will produce liquidity which is sorely needed to create a more competitive wholesale electricity market. NZX has been working to a May 24 deadline, so a decision must be due soon. Across the Tasman, ASX continues to loiter by the altar, hoping EnergyHedge will decide the Aussies are the better bet to provide such facilities, as it has clearing participants in place and already offers electricity options across both Otahuhu and Benmore nodes, not currently available on EnergyHedge, and a range of trading mechanisms including exchange for physicals contracts (EFPs), block trades and pre-negotiated facilities.
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