Sibex has snatched away the energy derivatives from under the nose of the BSE

Energy derivatives will be launched by Sibex, after it concluded an agreement with the operator of the energy market OPCOM, which is wholly owned by Transelectrica.

Thus, Sibiu whisks away this business from under the nose of the Bucharest Stock Exchange, which had a partnership for derivatives with the OPCOM, since back in 2010, but has not yet materialized it.

The cooperation between the OPCOM and Sibiu is a new blow to the image of the BSE, which seemed extremely close to the operator of the energy exchange.

Even the president of the BSE, Lucian Anghel recently said in an interview, that he was in favor of the idea of the merger between the BSE and the OPCOM, an idea which, as "BURSA" announced exclusively in May, was beginning to gain traction.

It now remains to be seen whether Lucian Anghel still has anything to support.

Based on the contract signed by OPCOM and Sibex, the futures products will have as their underlying asset the ROPEX_DAM indexes of the spot energy market, calculated by the OPCOM.

"We are expecting the trading of the energy derivatives to begin in the fourth quarter, and the clearing will be done through an experienced Central Counterparty (CCP)", said Ovidiu Petru, the CEO of Sibex.

Starting in autumn, European regulations will require derivatives trades to be settled through licensed Central Counterparties, with a minimum capital of 7.5 million Euros.

The local exchanges have failed to materialize the project to create a local Central Counterparty, and the shareholders of Sibex have decided to resort to using a foreign counterparty.

The contract with the OPCOM requires Sibex to quickly deal with the issue of the CCP, in order to save itself and to avoid having the boost to its image resulting from that partnership petering out.

According to Ovidiu Petru, Sibex's great benefit is the fact that this stock exchange rules the derivatives market in Romania, and the trading platform of the Sibiu exchange is one used by the energy stock exchanges.

The clearing of energy derivatives can also be done through a clearing house specializing in energy products.

• Brokers are interested in this plan, but they want more details

"From what I've seen, not much information has been made public concerning this cooperation", Alin Brendea, Deputy CEO of brokerage firm "Prime Transaction", told us. "As we know, there have been previous talks between the OPCOM and the BSE for a cooperation between the OPCOM and the BSE in order to issue specific financial instruments, but which have yielded no results.

Any cooperation between institutions is beneficial, but in order to appreciate its effects, we will need more details. Theoretically, such a product could attract the attention of investors in the energy sector, especially producers.

We shouldn't forget that the trading of derivatives depends on the quick creation of a Central Counterparty".

By the time the newspaper had gone to print, the BSE had not sent us a comment on the partnership between Sibex and OPCOM.

On September 28th, 2010, the BSE (the Bucharest Stock Exchange), the CCB (the Bucharest Clearing House) and Opcom, the Operator of the Energy Electricity market have signed an agreement concerning the cooperation between the three entities for launching the market for electricity derivatives. At the time, the cooperation between the three partners was being encouraged by the Ministry of the Economy, Trade and Business Sector in Romania.

• The AFEER: "We need this product, especially at this time, when the spot market is extremely volatile"

The futures contracts which have as their underlying assets the indexes of the spot energy market (PZU) are a long awaited product by energy traders, which praise the partnership between the OPCOM and Sibex.

Ion Lungu, the president of the Association of Electricity Suppliers in Romania (AFEER), told us: "We have been asking for energy derivatives for a long time. We are happy that the project is beginning because we need this product, especially in this period when the spot market is extremely volatile".

In his opinion, derivatives are important for energy producers, and for consumers as well, because they ensure a certain predictability of energy prices. Futures contracts are concluded at clear prices between the operators, regardless of how the physical deal gets concluded for the traded period. Essentially, at the moment of the physical trade on the spot market, only a settlement on differences between the operators is done, the president of the AFEER told us. Ion Lungu has expressed his hope that the suppliers will also have attractive pricing for the derivatives.

According to a press release by the OPCOM and Sibex, launching the futures contracts helps players operating on the energy market to reduce and transfer their risks resulting from the evolution of the price of electricity on the spot market. This trading product also serves the interest of the participants on the financial markets to see an expansion of the portfolio of instruments in place for managing the financial risks of their investments.

The markets for derivatives offer the possibility to conclude deals between categories of participants with diverging interests in terms of the underlying asset, namely between the participants from the energy market (hedgers) and the participants on the financial markets, which creates the premise for increasing the liquidity of the financial market and setting some price signals which would contribute to increasing the stability and attractiveness of the electricity sector for investors.

The press release also states that the reference price set on the spot market managed by the OPCOM allows, the implementation of futures contracts for electricity through its features determined by the number of active participants that meet in the conclusion of the transactions, the traded quantities and volatility, the possibility to implement the futures in conditions of interest for all the market participants, the press release also states.

According to the reports of the OPCOM, in the first half months, the Day-Ahead spot market has a market share of about one third of the national consumption. The average price for the electricity traded on the Day-Ahead Unit in the first semester fell 40.4%, from 181.31 lei/MWh - the average price of January, to 108.01 lei/MWh - the average of June.

The steep price drop was caused by a drop in consumption of almost 7%. Demand for energy was affected by the mild winter, as well as by the surplus of wind and hydroelectric energy. Hidroelectrica had a good output of electricity in the first semester, and the producers of wind electricity have worked at full capacity, charging the lowest prices on the market.

The total value of the energy traded on the spot market is about 244 million Euros.