ASX was granted a futures licence in October 2001 and commenced trading equity index contracts in January 2002. The decision to add commodity-based contracts is consistent with ASX's intention to develop a suite of futures products for various industry sectors, in response to market demand. "ASX's cutting edge trading technology for derivatives, its reputation for conducting markets of integrity, and record volumes in existing ASX derivatives markets mean customers are now approaching us seeking ASX expertise " said Michael Roche, Executive General Manager, Market Services.
Leading energy market participants are making both a financial and resourcing commitment to ASX's development of electricity futures. This will advance the deregulation process and add a new level of transparency and risk management ability to the industry. Contributors to the ASX contract development cover the national grid and include CS Energy, Duke Energy International, Energex, Energy Australia, Eraring Energy, Ergon Energy, InterGen, Loy Yang Power, Snowy Hydro, Southern Hydro and Stanwell Power. Trading is scheduled to begin in October.
Following the demise of Enron, a major global participant in the electricity markets, there has been an increase in interest and volume of exchange traded and regulated electricity futures contracts, particularly in Europe. This has been driven by the transparency and centralised counterparty clearing that is offered by exchanges such as ASX. Because of the averaging over time of spot prices, futures contracts typically have a lower level of risk than that of the spot or physical market.
In addition, an array of risk management measures, such as daily marking-to-market of open positions, is employed by ASX's clearing house to ensure all transactions are honoured. "Australian energy companies should benefit enormously by being able to minimise their exposure to counterparty risk through ASX's regulated futures clearing house," said Chris Hamilton, Executive General Manager, Clearing and Settlement.
ASX is keen to facilitate the creation of contracts driven by market demand and has no doubt that with the broad industry support gained, the ASX futures contract will be successful. Contract specifications match user requirements, ASX's trading system (OM CLICK) can easily accommodate current and future industry needs, ASX's clearing offers state of the art electronic processing and margining is tailored to industry specifications.
Flexible contract specifications include the ability for customers to trade one-megawatt quarterly and annual contracts for peak or off-peak hours. ASX electricity futures will be used to suit many different types of risk management and trading requirements. "Several organisations have also expressed interest in making formal, exchange-obligated markets which will significantly increase the liquidity pool," Michael Roche said. "ASX currently has 22 professional market makers and is acknowledged as the leader in this form of derivatives market liquidity supply."
In addition to the commitment of 11 energy companies, several specialist energy broking organisations and financial institutions have expressed interest in providing brokerage services for trading in the ASX futures contract. Existing ASX Futures brokers such as Man Financial, Salomon Smith Barney, Macquarie Bank, L Quay Futures Brokers and ABN Amro have confirmed their readiness to execute and clear ASX Electricity Futures contracts. ASX anticipates that as the industry continues its deregulation and moves towards full supplier contestability, the contract will prove an attractive hedge mechanism and transparent price indicator for many organisations with large demands for electric power.
