RiskTech Forum

Trading of Nordic power derivatives to remain low, says Nasdaq

Posted: 30 October 2012  |  Source: FINCAD

The trading activity surrounding Nordic power derivatives will not recover to the levels it enjoyed before the recent financial crisis unless the regional economy grows enough to substantially improve demand for power.

In September, the volume of these power derivatives cleared via Nasdaq OMX Commodities fell 8.4 percent to reach 162.5 terawatt-hours (TWH), according to Reuters. Additional data provided by Nasdaq reveals that the cleared power contracts traded both over the counter and through the exchange fell to 1,747 TWH in 2011. This figure compares to turnover of 2,108 TWH in 2010 and 2,500 TWH in 2008.

Nordic market participants trading these derivatives contracts have stated that there is a currently lack of liquidity, which triggers significant spreads between bid and offer prices, and that these gaps make financial entities reluctant to make the trades, the media outlet reports.

Geir Reigstad, head of the global commodities business at Nasdaq OMX, predicted in an interview that the liquidity situation will not improve soon, according to the news source.

Some European banks have been forcing their traders to cease all transactions with U.S.-based financial entities as a result of derivatives regulations that would compel foreign firms to register with U.S. regulators, Reuters reports. These developments could potentially push the turnover for power derivatives lower.