- A response to demand from operators in this market
- The electricity derivatives market has doubled its size every year since 2006
- This initiative forms part of BME's policy of diversification and innovation
MEFF Power, MEFF’s new service for the electricity market, will start up on 21 March to offer Central Counterparty (CCP) services for OTC energy derivatives, thereby enhancing liquidity and transparency in the electricity market and contributing to increased control over OTC operations. This measure has been requested by different entities in order to lower systemic risk and increase confidence.
The settlement and management of risks and margins for electricity futures will be carried out within MEFF’s current CCP, through the creation of an energy segment called MEFF Power.
This project falls under BME’s strategy to diversify and provide new services to the business and financial community, leveraging its proven and widely recognised experience in launching and developing markets, settlement systems and CCP services.
MEFF has been providing a broad range of risk management services to electricity sector companies since 2006, and has been the manager of virtual power plant auctions. As a result of its involvement in these areas, it became aware of significant demand from Spanish electricity market participants for CCP services for the OTC market, whose volume has doubled almost every year since 2006, now surpassing actual electricity consumption for the first time.
MEFF Power service was made possible by the recent approval of Decree 1282/2010 begin_of_the_skype_highlighting 1282/2010 end_of_the_skype_highlighting of 15 October, which regulates official secondary Futures and Options markets and other financial and derivative instruments, as well as the approval by the CNMV of the new MEFF regulation, which widened the range of products for which MEFF can offer CCP or trading services.
Futures and Swaps on electricity may be admitted for registry in the CCP system.
All electricity market operators, investment banks and financial intermediaries are eligible to become members of MEFF Power. There are currently 10 participants in the Spanish electricity market who have signed up as members of MEFF Power, and another 8 are in the process of joining before March 21. Current members of MEFF that wish to operate in this segment may do so without needing to secure any additional license.
The trading of contracts on electricity is mainly carried out through specialist brokers. ICAP Energy AS, Tullett Prebon and CIMD have agreed with MEFF to act as OTC brokers in MEFF Power. GFI is in the process of joining.
The contracts traded will be reported to MEFF, which will act as the counterparty for both the buyer and the seller, and guarantee that transactions are successfully completed, performing registration, clearing and settlement of the transactions. The settlement and risk and margin management of these products will be carried out using the internationally renowned systems of MEFF’s CCP.
MEFF’s new service is provided to a market with significant increasing volume and with room for considerable further growth, judging by peer markets, in which the CCPs for electricity clear a volume which is two to five times consumption levels.
