The European Energy Exchange and the international derivatives exchange Eurex have announced plans to co-operate to offer trading in carbon emissions through the Eurex system, which they both use.
Eurex participants can trade EEX carbon products via their existing infrastructure, creating a marketplace for carbon products that offers the trading, clearing and settlement standards of the financial markets.
The partners believe their co-operation will increase the market's liquidity and efficiency. By connecting their distribution network, the partners will address more than 600 trading member firms including financial market participants in the UK and the US, creating the largest international network for emissions trading.
To start with, the EUA (European Union Allowance) future already listed on the EEX will be available for trading on the common platform from December this year, while Certified Emission Reductions futures will follow at the beginning of 2008. EUA spot contracts and options on EUA futures will also be offered.
E.ON Sales & Trading, Fortis Bank Global Markets and RWE Trading have already joined as market-makers, placing buy and sell orders in the system daily to ensure liquidity. Additional market-makers are expected to join for the launch of the common platform in December.
The clearing houses of the two exchanges, European Commodity Clearing and Eurex Clearing, will co-operate in settling transactions to offer participants efficient and flexible clearing. Existing clearing relationships can be used, allowing participants to realise process synergies. Risk management and collateral pledging can also be optimised across various product groups.
'This co-operation in the emission rights segment is part of the implementation of our internationalisation strategy,' says Maik Neubauer, the EEX board member responsible for the project. 'Liquid emissions trading is a significant component of our product portfolio.'
Peter Reitz, the Eurex executive board member responsible for product and market development, says: 'We are combining our respective strengths and bringing the European energy industry and leading players on international financial markets together on one platform. Emissions trading is a global product with major growth potential.'
EEX, which operates a spot and derivatives market for energy products, has more than 175 trading member firms from 19 countries, boasting the largest number of participants and the highest turnover in continental Europe.
While coal is quoted only on the derivatives market, electricity, natural gas and carbon emission allowances are traded both short-term on the spot market as well as long-term on the derivatives market for up to six years into the future. Clearing of exchange and over-the-counter transactions is provided by European Commodity Clearing, an EEX subsidiary.
Eurex, a subsidiary of Deutsche Börse and SWX Swiss Exchange, offers a wide range of international benchmark products and operates the most liquid market in the world for derivatives on capital market products. Eurex, which is also the leading exchange for trading in European equity options with 400 single stock futures, has an integrated clearing house, Eurex Clearing.