Energy Markets Get Connected
Execution platforms for trading energy derivatives contracts have been building out links to post-trade services in response to demands by energy traders to be able to link to multiple clearing venues.
GFI EnergyMatch Europe, for example, provides a getaway to a number of exchanges and clearinghouses, providing customers with a range of both cleared and OTC products.
“The system has been in operation over a decade and has grown organically,” Luke Jemmett, head of commodity market development, Europe, at GFI Group, told Markets Media. “The increase in clearing capabilities isn’t necessarily a direct response to regulations, but rather it’s a business requirement.”
The need to connect to multiple exchanges and clearinghouses has come about as the European energy markets have become more fragmented. EnergyMatch Europe provides a hybrid voice/electronic trading platform enabling financial institutions, hedge funds, energy companies and other market participants to view, post or trade in OTC markets.
“By providing access to a deep pool of liquidity, EnergyMatch Europe enhances the sped and quality of trade execution,” said Jemmett.
EnergyMatch Europe is powered by Trayport, a subsidiary of interdealer broker GFI Group which provides electronic trading software for commodities such as electric power, gas, coal, and carbon emissions.
GFI Group has established a U.S. coal desk which brokers U.S. and European centrally-cleared coal swaps for domestic clients using a single screen. The desk enables U.S. clients to trade U.S. and European centrally-cleared coal swaps using GFI’s Trayport-powered hybrid trading technology.
Although GFI Group operates is many global OTC markets, nearly all its energy business ends up being cleared centrally, after having initially being crossed bilaterally.
In Europe, trading activity in the two most active coal contracts (API2 and API4) is split among numerous venues, none of which accounts for more than 35 percent of overall volume.
In Europe, ICE Clear Europe clears about 50 percent of European contracts. Clearport and ICE Clear Europe have built out capabilities to clear European and U.S. contracts, respectively. GFI has linkages to Clearport, ICE Clear Europe, and LCH.Clearnet, Jemmett said.