The European Energy Exchange and European Commodity Clearing are positioning themselves for growth in their core markets, but also for fresh opportunities much further afield Amid reports of poor liquidity in European power and gas markets, the success of the European Energy Exchange (EEX) – along with its clearing house, European Commodity Clearing (ECC) – is certainly striking. In 2013, the group reported a 30% increase in revenues to €62.2 million ($86.4 million), along with a 32% rise in pre-tax earnings to €17.3 million ($24 million). These record figures were driven by year-on-year growth in trading volumes for power and natural gas of 36% and 46%, respectively. The results were complemented by a flurry of activity at the Leipzig-based group, which runs spot and derivatives markets for European power, gas, emissions and coal. Not only is it positioning itself for growth in its core European markets, but it is also attempting to capitalise on opportunities much further afield. The past year has seen a variety of new additions to the exchange's offering in Europe, including the launch of Dutch and Belgian power futures in September last year and the roll-out of physical weekly French power futures during November. In June 2013, it established Europe's first exchange-traded contracts linked to guarantees of origin certificates, which provide buyers with evidence that a megawatt-hour of power has been supplied to the grid from an eligible renewable energy source. Perhaps the most significant development in the group's core market was the launch of the Pan-European Gas Cooperation in May 2013, a joint project with Paris-based exchange Powernext. The project saw EEX and Powernext bring their natural gas contracts onto a single trading platform, allowing their members to access all the spot and futures products offered by the two exchanges in one place, and to trade location spreads across France, Germany and the Netherlands. "This simply would not have been possible five years ago," says Peter Reitz, chief executive of EEX and ECC. With the European natural gas market evolving from a focus on smaller, national hubs to a more pan-European market, he says the opportunity presented itself for a multinational exchange offering. That's not to say the process was straightforward. "The key challenge was to harmonise the rules under which the different markets are traded... from simple things such as trading hours to how delivery works and physical settlement of positions." While no date has yet been confirmed, EEX and Powernext are hoping to extend the project later this year with the launch of spot and derivatives contracts referencing additional trading hubs in Belgium and the UK. Like other exchanges, EEX is offering new products and services to its clients in an effort to soften the sharper edges of regulatory reform. During the past year, it has expanded its trade registration services, which allow market participants to register and clear over-the-counter trades through the exchange and meet the demands of the European Market Infrastructure Regulation, which requires mandatory clearing and reporting for OTC derivatives. "It gives all the advantages of exchange trading and clearing, which include Emir compliance, as the clearing house can take over the reporting requirements," says Reitz. Elsewhere, the group has been looking to new and more exotic frontiers. In December, it bought 52% of Singapore-based Cleartrade Exchange, giving it global reach for the first time. The bourse offers contracts linked to freight, fuel oil, steel, iron ore and fertiliser. Cleartrade gives clients the ability to clear its contracts through London-based LCH.Clearnet, Oslo-based NOS Clearing and the Singapore Exchange. Thanks to the tie-up, they will now also have the option of clearing via ECC. That should create opportunities for cross-selling, says Reitz. "One motivation was geographical expansion," he says. "EEX doesn't have any clients in Asia... Now we're connecting Cleartrade's clients to ECC, they may also be interested in some of the other products EEX is offering." And at a time when market participants are sensitive about capital and margin demands, the ability to clear Cleartrade and EEX products under one roof will offer powerful benefits through cross-margining, he adds. "Clearing is a typical scale business. The advantage that a clearing house can offer to its clients grows with the more markets that it covers and the more positions clients have in a clearing house," says Reitz....
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