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Turkey’s electricity futures exchange may be delayed

25 Aug 2011 15:23:08 | edem

The launch of Turkey's financial electricity futures exchange may be postponed for a few months to allow companies to set up relevant accounts and train their staff to trade on the platform, the chairman of the Turkish Electricity Traders' Association (ETD) said.

ETD and TurkDEX, the country's derivatives exchange, have been working together to offer monthly Baseload and Peak contracts, which are financially settled and were expected to start trading from mid-September (see EDEM 9 August 2011).

Mustafa Karahan, chairman of ETD, said the two bodies may postpone the launch of the platform by up to two months in order to allow companies to handle relevant administration. He added that ETD will support the training of any counterparties interested in becoming active on the bourse.

If the platform becomes operational by late November, or the beginning of December, it will coincide with the expected launch of a Day-ahead market on PMUM, the existing electricity exchange.

PMUM will play a key role, since the final settlement price for the futures will be taken from the electricity exchange.

Counterparties have previously expressed misgivings over settlements made against current PMUM prices, which they said were not reflecting the market's demand and supply logic. They insisted that the formula for loading and deloading electricity issued to generators may have been misapplied by regional dispatch centres and therefore led to price distortions.

Karahan said problems had been ironed out, however. "Any changes to the underlying index have already been carried out as far as the Day-ahead market is concerned. That is not a problem in itself.

"The only thing that will change will be the attitude of participants who will start to trust the market," he added.

Karahan said TurkDEX will contact companies to inquire whether they wish to establish themselves as market makers.

"More than two or three companies may be willing to establish themselves as market maker," he said. "Market makers will be asked to provide a certain amount of collateral to cover the adequate liquidity and spread by TurkDEX."

He also explained that companies will not be able to trade directly on the platform, but will have to do so via the exchange's existing 99 members.

"They will have to open an account to enter all their transactions, but it will not be used directly, but through somebody else. The account will have to be opened with an intermediary [brokerage firms] and the intermediary will then open a subaccount under your name." He said the procedure may not appeal to larger companies, which may be concerned about the exclusivity or privacy of their trades.

But he added: "We asked them [TurkDEX] to change this procedure, but they cannot do so because the platform is regulated by the Capital Markets Board [Turkey's securities' regulator] and this is the regulation applied by SPK [the Capital Markets' Board]."

The bourse will offer three to four months ahead Baseload contracts to start with. If these are successful and liquidity picks up, they will be followed by Peak equivalents. Peaks will cover hours eight to 20. AS

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