One year on, Poland's OTC electricity volumes rise with legal change
More than a year after its introduction, Polish energy law amendments forcing all state-owned generators to trade 15% of their production on Polish power exchange POLPX has added to OTC liquidity, and could encourage financial contract trading, market sources say.
The amendments met strong opposition when introduced (see EDEM 27 July 2010), but most sources now agree that this has added to the liquidity and could lead to the introduction of the financial market.
Polish OTC traded volumes from January to September reached 36.4TWh, 74% higher than volumes reported for the same period in 2010 (see chart).
Since the law was implemented on 9 August 2010, POLPX' volumes have increased by 205% year on year, to reach 1.72TWh in September. Most of these volumes are traded on the Day-ahead market, but sources say that the obligation has also led to a more liquid futures market and has created credible reference prices for long-term contracts. POLPX could now be liquid enough to also offer financial products, some have suggested.
Financial products possibility
An independent analyst was hopeful that liquidity will improve even more once the merger with Warsaw Stock Exchange's Poee internet platform is finalised (see EDEM 18 May 2011). Local media have speculated that the merger with the Poee platform will be finalised before the year end. "This obligation has definitely created more liquidity on the Polish power market, and will more than likely lead to the launch of a financial market later on," an analyst speculated.
POLPX aimed to offer financial derivatives from this year, but there have been no updates from the exchange since last year. POLPX is currently considered a commodities exchange, and to trade futures contracts it would need to acquire the status of financial exchange (see EDEM 10 June 2010). However, WSE's bid to acquire POLPX could mean that the WSE would start trading financial derivatives, as the latter is already registered as financial exchange. WSE could provide the clearing for financial deals on the power exchange.
WSE confirmed being in negotiations with PolPX stakeholders, but refused to comment on any details or further plans.
Positive effect of legal change
"This is all just an enormous misunderstanding," one insider told ICIS Heren before the amendment was rolled out. "The over-the-counter [OTC] market used to have huge numbers and great volumes, while the exchange had very small volumes."
Yet now most agree that this has increased liquidity in the OTC market. "Sometimes the Polish traders just will not do things unless pushed," a trader said.
Any such rules forced on traders in the open market are generally bad, but it has worked for the Polish power market, another agreed: "In the Polish situation it helped to start up the market, so I would say it is not too bad, but I would prefer that it [had] come by itself."
A third trader active on the Polish market noted that liquidity on POLPX could be better. "We still don't see the large producers actively trading the far curve," the trader said. "This sends out the wrong signals to the market, as people are [reluctant] to take big positions as they are scared to get burnt."
GDF SUEZ head of illiquid power markets Frank Brannvoll has also hit out at the larger Polish state-owned generators' reluctance to act as market makers for the local exchanges. "It's mainly us and Vattenfall putting prices on the screen," he said. "But where are the big Polish utilities?"
POLPX was unavailable for comment on Monday. SR
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