Bloomberg – The Pan-European Gas Cooperation plans to start exchange trading of U.K. natural gas futures amid changes to regulation that are driving competition between bourses for a share of the growing European market.
Pegas, a partnership between European Energy Exchange AG and Powernext SA, plans to introduce derivatives trading of U.K. gas on the National Balancing Point hub after starting spot contracts Oct. 15, according to Tobias Paulun, managing director at EEX. The bourses also plan to start spot and futures for Belgian gas at Zee Beach, he said.
Competition between exchanges is intensifying as gas markets in Europe are liberalized. Intercontinental Exchange Inc. (ICE)’s ICE Futures Europe, which acquired APX-Endex last year, offers exchange trading of U.K. and Dutch gas, the two biggest markets in Europe. CME Group Inc. last month bought energy trading platform Trayport Ltd. and said it will start European gas futures in its London-based bourse while Pegas began Belgian Zeebrugge Trading Point spot and futures trading July 9.
“The competition is likely driven by the regulatory changes that promote clearing and exchange services, as well as customer demand for new products,” Paulun said yesterday by e-mail. “Over time, it is likely that traders will move more gas contracts towards clearing, as seen in other markets such as emissions and financial coal.”
The share of exchange-executed trades in U.K. gas rose to 41 percent from January to July from 30 percent a year earlier, according to Trayport, which compiles data on broker bilateral, broker-cleared and exchange-executed transactions. Most of that was traded on ICE. Exchanges accounted for 7 percent in mainland European gas markets, up from 5 percent a year earlier, the data showed.
EMIR Rules
Trading of Dutch gas on the Title Transfer Facility hub rose 61 percent in the period, while U.K. gas volumes gained 27 percent, the Trayport data showed.
The European Union’s regulatory arm imposed a requirement in 2012 for all over-the-counter derivatives transactions to be guaranteed through a central clearing house under the European Market Infrastructure Regulation, or EMIR. Trade-registration futures are bilaterally-closed trades put up for clearing at the exchange and exempt from the EMIR clearing threshold, according to EEX.
Gas is “still dominated by physical players in mainland Europe, whereas the more mature NBP forward market has become a tradable product for financial players and hedge funds,” Paulun said. “As the mainland gas hubs such as the Dutch and German markets become more liquid, these are expected to become attractive to new participants, thereby making them attractive asset classes for exchanges and clearing houses alike.”
Energy Acquisitions
Exchange trading of U.K. gas and Belgian Zee Beach spot and futures contracts will start at a “later stage,” he said, without providing a date. All products will be offered through Trayport and transactions will be cleared by European Commodity Clearing AG, or ECC. The bourse’s current trade-registration U.K. gas futures will start being offered through broker screens Oct. 15. Those include monthly, quarterly and seasonal contracts.
“OTC trading as well as trading and clearing via an exchange can coexist and offer participants a full range of trade execution choice,” Paulun said. “Brokers offer much-needed customer support in certain trading activities, while exchanges and clearing houses solve credit and market access issues.”
While there have been “notable” acquisitions in the energy and commodities sector over the last few years, there’s still room for smaller regional exchange operators in some markets, Paulun said. ICE operates Europe’s biggest energy market and CME Group Inc. (CME) is the world’s biggest derivatives exchange. EEX sees opportunities for clearing gas products as hubs in south and eastern Europe gain liquidity, he said.
To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Dan Weeks
