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UK electricity market gears up for live testing of Gregorian products

01 Aug 2013 21:15:20 | edem

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UK power market participants have agreed on testing windows for the switch from the EFA to Gregorian calendar during August and September, with at least three major UK power market participants agreeing to take part.

Three windows have been scheduled in a test environment from 29 August - which will not result in live transactions - allowing firms to simulate multiple deals in all the new products, while a further five tests are planned which will result in live trades (see box).

The Power Trading Forum (PTF), which is overseeing the changeover, said in a note that the initial tests will allow companies to ensure their internal and external systems are set up correctly, while the live tests will ensure end-to-end processes are functioning correctly prior to the cut-over.

"We have enough buyers and sellers, and enough people to be able to put some volume through," one of the participants due to take part in the testing windows said.

The tests will take place in Trayport's test and live environments. "We'll throw some volume into it, and we want to be involved in the live test," another trader, who will also take part in the process, commented.

The testing plan note can be accessed online here.

Liquidity

The news follows industry agreement to change from trading EFA to Gregorian forward contracts on 1 November, to safeguard liquidity (see EDEM 20 June 2013).

A series of six two- to three-day "gap" products will also be listed OTC to cover periods where EFA and Gregorian seasons either overlap or fail to meet, which will allow traders to convert EFA positions held as far forward as Summer '17 to Gregorian following the liquidity switch.

The industry began to seriously debate the merits of a switch from the antiquated electricity forward agreement (EFA) calendar in 2011 (see EDEM 4 November 2011).

A lack of coordination between markets that trade according to the Gregorian calendar - including the British NBP natural gas hub and continental power markets - and the subsequent adverse impact on power market liquidity, has been the predominant driver as support for the switch has gathered pace. And the industry has moved quickly this year to bring about what is in trading terms a major shift.

The first bilateral deal under the Gregorian calendar took place as recently as April, between France-headquartered utility GDF SUEZ trading as IPM Energy Trading, and financial services giant Morgan Stanley (see EDEM 24 April 2013).

Steve Harris, chairman of the Power Trading Committee under the UK's Futures and Options Association, said that based on industry feedback during fortnightly conference calls, preparatory work was going well "and we are confident that the liquidity migration will occur on the target date".

He added: "We encourage all market participants to log into the broker test environments in Trayport and enter into some test Gregorian trades." Jamie Stewart

ICIS invites subscribers to comment on how the change in calendar should be handled, with full details in a subscriber note calling for comment. Please send all responses, comments and suggestions on this issue by Friday 16 August to Zoe Double, European Daily Electricity Markets editor, at zoe.double@icis.com or call +44 (0)207 911 1875.

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