The London Clearing House Limited (LCH) announced today that it has launched a clearing service for OTC power transactions through its LCH EnClear service. The London-based clearing house is working with the European Energy Derivatives Exchange N.V. (“Endex”) and the Amsterdam Power Exchange Spotmarket B.V., with two contracts – Dutch Baseload Electricity and Dutch Peakload Electricity – eligible for clearing immediately.
LCH says the provision of OTC clearing enables traders to reduce their reliance on bilateral credit lines, as LCH becomes the central counterparty to all trades, and so enables to increase their trading activity without worrying about counterparty credit limits. “Centralised clearing offers several benefits to OTC markets, including operational efficiencies, broadening the range of trading counterparties, credit risk reduction, and significant reduction of collateral required, explains LCH.
As well as offering clearing for trades executed on the day, LCH will extend its clearing service to cover OTC trades previously bilaterally executed between counterparties.
“LCH is delighted to participate in this further expansion of the cleared market in globally traded OTC energy products,” says Arun Aggarwal, LCH Managing Director, Business Management. “The application of clearing to European power contracts represents a significant step forward in the provision of value through our members to the market as a whole. The business case for clearing OTC markets through a central counterparty is powerful and well-proven. Clearing has a track record of transforming markets through improved liquidity, transparency, risk management and cost effectiveness”
Endex – the European Energy Derivatives Exchange – is the new name of the Amsterdam Power Exchange NV. In May 2001, the spot market activities were sold to the Dutch Transmission System Operator TenneT and renamed APX Spotmarket B.V. In conjunction with LCH, Endex will provide OTC clearing services for Dutch and Belgian physical power contracts. The current shareholders of Endex are large companies active or related to the Benelux energy market.