UK electricity market sees first OTC Gregorian calendar deal
The first bilateral UK electricity trade under the Gregorian calendar has taken place, both counterparties to the deal confirmed to ICIS on Wednesday.
The transaction, a 25MW deal on July '13 Baseload, was completed on 18 April between France-headquartered utility GDF SUEZ trading as IPM Energy Trading, and financial services giant Morgan Stanley. The over-the-counter deal was voice-brokered by ICAP, both parties confirmed.
The UK power market is in the process of adopting the Gregorian calendar as opposed to the existing electricity forward agreement (EFA) system, which has long-defined delivery periods for contracts.
Parallel listing of both Gregorian and EFA products will run from July for six to nine months to allow participants some flexibility on when they migrate (see EDEM 11 February 2013).
Steve Harris, who is chairman of the Power Trading Committee under the UK's Futures and Options Association, said 15 November has been tabled as the date when some "key players" will initiate activity on the Gregorian contracts, "after which electronic broking [as opposed to voice] will become the norm".
The nature of the two counterparties' business is significant, because it demonstrates that financial participants as well as companies with a large physical generation portfolio - such as GDF SUEZ - are prepared to back the transition.
"In this case it's a simple case of risk management," Morgan Stanley UK power trader Dan Wormull said. "Our goal is to provide liquidity for the firm's clients and if they want to use the [Gregorian] calendar, then we have the capability to provide that."
The EFA system has been seen as a barrier to liquidity growth because all other energy markets across Europe trade in line with the Gregorian system.
The adoption of the Gregorian system will simplify cross-border spread trade, as well as cross-commodity deals such as spark spreads, which is assumed to over time-aid liquidity.
"On day one of the transition, UK power market liquidity is going to be the same as it was before," Harris said, "but over the longer term we think it will improve." Jamie Stewart
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