The Bank of New York, Prebon Yamane and Amerex have joined forces to create EnergyClear, a clearing house for the comparison, netting and settlement of wholesale energy contracts for the over-the-counter marketplace.
It is anticipated that EnergyClear will initially offer its services to the power and natural gas markets by the spring of 2001. In the future, EnergyClear anticipates servicing contracts for other OTC commodities such as crude oil, petroleum products, petrochemicals and bandwidth.
The Houston-based clearing house will provide services independent of price discovery, say the founders. OTC energy contracts are presently negotiated on a principal-to-principal basis, through electronic exchanges or via interdealer brokers over the telephone. Counterparties currently settle their trades under bilateral agreements, under which each party is exposed to the risk that its counterparty will fail to perform.
"EnergyClear will revolutionise the OTC energy markets by reducing the credit, legal, operational, and liquidity risks currently associated with transactions in these markets," promises Lee Burton, co-founder and recently appointed president of EnergyClear Operations Company.
EnergyClear's target market includes traders and risk managers of large power generation, marketing and trading entities in the wholesale power and gas market. Within the energy marketplace, electricity is seen as having the potential to become one of the largest traded commodities in the United States.
EnergyClear consists of two entities, EnergyClear Corporation (EC) and EnergyClear Operations Company (EOC). It is intended that EC will be owned by energy market participants, who will provide industry control, oversight and rule making. The Bank of New York, Prebon Yamane and Amerex will own and operate EOC.
Art Certosimo, senior vice president of the Bank of New York, says the dual structure will allow the energy industry to own and govern a clearing house without the prohibitive investment that would be required in building a system from scratch.
The initiative "demonstrates our commitment to expanding our capabilities to meet emerging needs," he adds.