European Energy Exchange (EEX) is to offer clearing for over-the-counter (OTC) forward transactions.
The exchange says it will use the same clearing structure as in futures trading on the EEX futures market for OTC clearing. Acting as central counterparty EEX will guarantee the fulfillment of all transactions concluded on the exchange and bear the risk of default for the other participants. Eight international banks currently provide clearing services for EEX.
OTC clearing is scheduled to start in March this year. The service will continue to be offered by the new exchange created from the merger between EEX and LPX.
Hans Schweickardt, EEX executive board member, comments: "In the liberalised power market, hedging the risk of default by the counterparty is becoming increasingly important."
OTC Clearing at EEX will bring down the costs of putting up collateral compared with trading off the exchange, because long and short positions are netted on a daily basis, believes Schweickardt.