EEX Offers Clearing For Over-the-Counter Forward Transactions - Efficient Hedging Against Risk Of Default By Counterparty - Lower Costs Through Netting

EEX European Energy Exchange will be the first power exchange in continental Europe to offer clearing for over-the-counter forward transactions (OTC Clearing). EEX will assume the counterparty risk as the central counterparty. In this capacity, it nets risks from open positions to minimize the collateral that has to be furnished by the participants. The exchange reported that OTC Clearing is scheduled to start in March this year and will encompass forward products traded over the counter that are identical to the products on the EEX futures market. This service will continue to be offered by the new exchange created from the merger between EEX and LPX.

In so-called OTC Clearing, EEX will use the same clearing structure as in futures trading on the EEX futures market. EEX as Central Counterparty guarantees the fulfillment of all transactions concluded on the exchange and thus bears the risk of default for the other participants. The respective clearing bank of the trading participants puts up the necessary collateral at the clearinghouse. Eight international banks currently provide clearing services for EEX.

The exchange's new facility means that trading participants in the EEX futures market will also have the benefits of a secure and reliable clearing structure for OTC forward transactions in trading for their own accounts and for customer accounts. "In the liberalized power market, hedging the risk of default by the counterparty is becoming increasingly important," said Hans E. Schweickardt, EEX Executive Board member, as the reason for introducing OTC Clearing.

Moreover, 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.