Romania power market split over latest shake-up of OTC rules

Sophie Udubasceanu

01-Jul-2015

Liquidity on the Romanian over-the-counter (OTC) electricity market could be hampered by a regulatory proposal that emerged on Tuesday.

Energy regulator ANRE has proposed that the number of counterparties companies must be cleared to trade with before being allowed access to the country’s only OTC trading platform be doubled from four to eight.

The watchdog opened a public consultation on the issue on Tuesday which will close on 31 July. It remains unclear when the new regulations, if approved, will come into force however.

And there is little consensus across the market as to the potential impact on OTC liquidity with participants divided into two camps:

A more pessimistic camp, which says such regulations could push smaller companies out of the market and add a further trading barrier, consequently weakening liquidity

And a more optimistic camp, which says liquidity will benefit from the enforced increase in cleared counterparties.

Are you a pessimist…

The new regulation could create a further barrier preventing smaller companies from taking part on the OTC platform, traders said. This is because signing an European Federation of Energy Traders (EFET) agreement with a counterparty can be a costly and time-consuming exercise. Financial guarantees and a certain capital threshold are both required when securing a new trading partner.

One Romanian trader argued that if smaller companies could accrue more cleared trading partners they would have done so already.

Head of the Electricity Suppliers Association (AFEER) Ion Lungu told ICIS that the decision appears to be a step towards scrapping the OTC platform. “Liquidity will drop to zero instantly,” he added.

Traders also face further paperwork if active on the OTC market. This is because all companies that have less than eight counterparties on their eligibility list would then have to fulfil the new requirement before being allowed to trade.

A large majority of participants on the OTC platform have more than the proposed requisite.

But some members, such as subsidiaries of big companies set up specifically to trade, and smaller firms, have less than eight counterparties listed.

Companies that would be affected include Bulgaria’s Energo-Pro, Gazprom Marketing & Trading, a subsidiary of the regional energy company Alpiq called Alpiq Romindustries, a subsidiary of Germany’s RWE called Alpiq Romindustries, and CEZ Supply – part of Czech giant CEZ.

…or an optimist?

If companies make the necessary changes and successfully add counterparties to their cleared lists, the platform would become “more dynamic”. This would in turn bring in more trading opportunities and increase trading activity. “You need more counterparties to grow liquidity,” said one market source.

One regional trader reiterated a general market view on the return of bilateral contracts.

The government banned all trading of power outside of market operator OPCOM in 2012, forcing all trading activity onto the exchange and bringing liquidity to a standstill until OPCOM launched its own over-the-counter (OTC) platform in March 2014 (see EDEM 18 September 2012).

The source said that if companies were allowed to operate bilaterally with counterparties they see fit to trade with, no participant would face issues in trading. As a result liquidity in the market would rise.

“In the current situation, we have a system that gets more complicated and overregulated, which is even harder to maintain and patch up every two months,” he said. sophie.udubasceanu@icis.com

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