Nasdaq OMX has been chosen by the Futures & Options Association (FOA) to set up a UK spot and cash-settled derivatives power exchange.
The exchange operator's Nasdaq OMX Commodities unit and Nord Pool Spot are tasked with delivering market and clearing services for the wholesale power exchange, which is slated to be up and running by the second quarter of 2009.
The system will comprise a cash-settled power derivatives market, allowing complete netting across contracts with the same delivery periods, with correlated contracts and positions in different commodities.
The consortium will open a London office and run a 24/7 prompt market with immediate clearing and notification. It will also run an auction market, providing all services from bid-entry to reporting.
Erik Saether, CEO of Nord Pool Spot, said, "Together with Nasdaq OMX we will offer a complete solution, including trading, clearing and notification services for the Prompt and Auction markets to be delivered immediately. We will also provide trading, clearing (including OTC), notification, settlement and delivery of all 1/2-hour physical contracts with a uniform interface."
Existing members at Nord Pool, which runs power exchanges in Scandinavia, and Nasdaq OMX will not have to pay any dual fees for the UK market.
London-based trade association FOA first sent out a Request For a Proposal (RFP) in June 2007 looking for a provider of central clearing service for the trading of prompt power.
At the time its chief executive Anthony Belchambers said: "The need to increase liquidity and participation in the UK power market is self-evident. In recent years market activity has drifted and the market needs more structure to help build turnover, facilitate risk management activity and smooth out volatility."
Nasdaq OMX has now finally won the deal, ahead of at least 10 other bidders, believed to include IntercontinentalExchange and EEX.
Says Belchambers: "The process of review was significantly more protracted than originally anticipated due to the complex nature and high quality of all the responses to the RFP, not to mention some intervening changes in partnerships. However, the depth of experience and resources and the quality of the offering by Nasdaq OMX Commodities was sufficient to secure the unanimous support of the Market Participant Project Board."
Nasdaq OMX set up its energy and carbon trading unit last month after completing the acquisition of Nord Pool's clearing, international derivatives and consulting subsidiaries.
The new Nasdaq OMX Commodities division is based on Nord Pool's energy and carbon derivatives products. Under the deal, the exchange license will still be held by Nord Pool but it will clear through Nasdaq OMX Commodities.