EEX: Taking on the new global commodity exchange dimension

| The European | 12th March 2015
Peter Reitz, CEO, European Energy Exchange

Peter Reitz, CEO, European Energy Exchange

It is no secret that the European energy market still remains fragmented to a certain extent. Despite substantial integration measures, there are still different levels of market maturity existing across the entire region. Currently, there are more than 20 power exchanges in Europe, and this is certainly not the most efficient solution. Here, it’s important to look at this from a customer’s perspective. Why should market participants have to register themselves at 20 different exchanges and to various clearing houses in order to do business across Europe? The answer must surely lie with a truly integrated and unified, European solution.

Pan–European co-operations and partnerships are effective instruments in fostering consolidation and co-operation within the European market area and this is something that the European Energy Exchange (EEX) has placed at the heart of its corporate strategy. These partnerships and co-operations that EEX has strived to build over the years, have contributed greatly to the position that it finds itself in today. By involving partner stakeholders directly, their different interests and goals can be integrated into a common exchange group, which nevertheless, keeps focus on a clear and common direction, which is to nurture liquidity on those markets.

The exchange has come a long way since 2002, when it was formed as the result of a merger between the Frankfurt and Leipzig power exchanges. Having first started out with contracts for electric power, EEX soon added CO2 emissions allowances in 2005, followed by coal trading in 2006, natural gas in 2007 and trading in Guarantees of Origin (GoOs) in 2013. Once considered somewhat as a German, “local” power exchange, today, EEX is viewed as the leading trading platform for energy and related products in Europe and more recently, further afield.

The foundation of European Commodity Clearing (ECC) back in 2006 was a key milestone in EEX’s history. Today, ECC serves as the Central Counterparty (CCP), providing clearing and settlement services not only for EEX, but for six additional partner exchanges, being connected to 21 transmission system operators (TSOs) throughout Europe.

This move towards integrated clearing continues to provide notable benefits for market participants who are active on several markets, and these include reduced complexity, the netting of positions and cross margining effects.

On a trading level, the foundation of EPEX Spot in 2008, through a co-operation between EEX and Powernext, was the first step in integrating Power Spot trading for Germany, France, Austria and Switzerland. Today, EPEX Spot has become the “centre of gravity” in European Power Spot trading and a leading actor with regard to market integration – through various market coupling projects.

Continuing on the theme of market coupling and Europeanisation, EEX took a further step towards this goal in 2013, by expanding the co-operation with Powernext into the gas market with the launch of the Pan-European Gas Cooperation (PEGAS), covering the German, French, Dutch, Belgian and soon the UK gas markets as well. To this end, the beginning of 2015 brought with it a major development, with Powernext being incorporated into the EEX Group. Clearly, this was a significant step forward for the gas market and for Europeanisation in general – PEGAS will be further developed as the truly Pan-European natural gas platform, which will operate under one harmonised rulebook and one admission process. The expansion into new geographical regions, in direct response to customer feedback, has been another fundamental pillar of the EEX strategy. For example, following positive feedback from market participants on Italian power market clearing services, EEX took the decision to offer full exchange trading for Italy in April 2014. This move opened up a new market for customers, which has led to a steady development in volumes, positive cross-border effects on the French markets and the establishment of a new Milan office at the end of 2014, alongside plans for further products for Italy. EEX’s goal is to become active in all relevant European energy markets.

Importantly, EEX has also taken steps to diversify its business fields. Through the acquisition of the Singapore-based Cleartrade Exchange (CLTX) at the beginning of 2014, EEX expanded its core asset class offering of power, natural gas, emissions and coal with the addition of freight, iron ore and fertiliser products. With this first step into Asia, EEX opens up new markets and opportunities for European participants in order to provide a very broad product portfolio and clearing services under the rule book of a regulated market in Europe. This move has helped to bridge the gap between the European and Asian commodity markets and is a project that EEX is looking to develop further in the near future. This step into more traditional commodity focused asset classes marks a new dimension in EEX’s growth, and the start of a transition from a pure energy exchange towards a more global, multi-commodity exchange group. This approach to exchange trading promotes choice between trading platforms in the major geographic hubs for customers – be this for energy, energy related or other trading commodities and stimulates competition between market places. This is clearly something that the market as a whole can benefit from, and this includes EEX Group companies, customers and partners alike.

Clearly, the EEX Group is growing, and this growth is not just within our core European market. The incorporation of Powernext, EPEX Spot and Singapore-based CLTX has certainly strengthened EEX’s global position and has also helped to broaden the international footprint of our parent company, Eurex Group.

However, we still remain close to the market and to market participants through a network of offices throughout Europe and beyond – a flexible structure that has been an ever-present aspect of strategy over the years.

Therefore, while it’s true that the EEX Group is on its way towards becoming a global multi-commodity exchange, the importance of working closely in co-operation with customers and market stakeholders should never be underestimated.

Further information
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