On Thursday, 11th March 2021, the Exchange Council of the European Energy Exchange (EEX) held its first meeting of 2021, chaired by Dr Michael Redanz, Managing Director of EWE Trading GmbH. The main topics of the meeting were EEX’s plans to launch a new procurement platform for the acquisition of power and natural gas by German public authorities, the introduction of EEX products for the UK Emissions Trading Scheme, and the success of the recently launched Futures Style Margin Options.
During the meeting, the Exchange Council discussed the intention of EEX to introduce exchange-based procurement auctions to provide German public authorities with a simple and transparent tool to purchase electricity and natural gas on-exchange instead of going through a full public tender process. German public authorities, such as municipalities or municipal companies, are obliged to tender their procurement of electricity and gas if the contract value exceeds certain thresholds. While such tender processes are complex and bear the risk of being challenged by third parties, legislation allows for simplified tendering processes if electricity or gas is procured through auctions on an exchange-based platform. Based on EEX’s experience and track-record in building liquid markets, the exchange intends to launch such an auction platform for public authorities to standardize and simplify their energy procurement processes. The Exchange Council welcomed the initiative as it would bring transparent and well established processes for public energy procurement.
The Exchange Council also discussed the new UK Emissions Trading scheme, which replaces the former participation of the United Kingdom in the European Union Emissions Trading Scheme. With its strong expertise in operating and developing solutions for emissions markets, EEX plans to launch dedicated spot and derivatives products for the UK ETS in the course of the second quarter, subject to market readiness and regulatory approval. Those products will consist of allowances to emit one tonne of CO2 equivalent within a certain period. As such, the UK allowances will adopt the same design as those of the EU ETS, which will make it possible to connect the two markets (UK and EU) in the future, if politically decided.
In the course of the meeting, the Exchange Council also came back on the successful launch of the new Futures Style Margin Options introduced on 15th February for power and natural gas. In contrast to the already existing Equity Style Options offered by EEX, the payment of the agreed option premium for the Futures Style Margin Options is not made by a one-time payment at the purchase of the option, but via a daily variation margin in combination with a final premium payment on the exercise or expiry date. This makes this new options product, especially for complex options strategies with delta-hedges in the underlying, more liquidity-friendly and thus increases trading efficiency for portfolio and risk managers. The Futures Style Margin Options have been introduced already in December in the emissions markets and have gained traction lately. Indeed, all the option volumes in February came from the new Futures Style Options.
The Exchange Council of EEX is an official body of the exchange under the German Exchange Act. It consists of a total of 24 members who expertly represent the various relevant interest groups and business circles. In addition to the trading participants who are represented by 19 elected members from five different voting groups, four representatives from associations and one representative of energy science belong to the Exchange Council. The tasks of the Exchange Council include the formulation of the rules and regulations of the exchange and their amendments. The Exchange Council is also tasked with the supervision of the Management Board of the Exchange and the appointment of the Head of the Market Surveillance.
