TFS and Bank One launch energy clearing service

TFS Energy and Banc One Capital Markets have formed a strategic partnership to provide a single clearing process for both over-the-counter (OTC) and exchange-traded energy products.

The companies said the partnership reflects the increasing convergence of the OTC and exchange markets in the energy sector. It is aimed to lessen counterparty credit exposure by offering companies the opportunity to clear OTC trades through exchange clearing mechanisms linked with the likes of the New York Mercantile Exchange (Nymex) and Intercontinental Exchange (Ice).

Alan Kurzer, president of TFS Energy, said the partnership with the investment banking arm of US financial institution Bank One is worldwide and covers all major energy products, including related products such as weather and emissions. He said the partnership began several weeks before a public announcement on June 5, but said the project is still in “start-up phase”, although some deals have already been struck.

The TFS-Banc One announcement comes a few days after the introduction of OTC clearing services on Nymex, Kurzer said. “We didn’t plan this to coincide with the Nymex move. We have watched the exchange and OTC markets merge and saw this as a logical place to move towards,” he said. The partnership has been in development for about six months and will be overseen by a newly hired managing director, John Hill, who is based in TFS’s Stamford, Connecticut office.

Nymex introduced clearing services for 25 of the most commonly traded OTC oil, natural gas and electricity contracts on May 31. Earlier this week broker Natsource said it had brokered the first OTC cleared natural gas transaction on Nymex, a swap contract between Deutsche Bank and an undisclosed counterparty.

The risk of counterparty credit default has come to the fore in the energy sector since the bankruptcy of Enron in December 2001. Several exchanges and clearing houses are competing to provide clearing services. In addition to Nymex, Atlanta-based Ice has an agreement with the London Clearing House to provide clearing services, and industry clearing houses Energy Clear and Virtual Markets Assurance Corporation (VMAC) are hoping to launch central clearing houses within the next few months.