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ICE, NGX Open Cleared Physical Markets to OTC Broker Selection

Global exchange IntercontinentalExchange Inc. (ICE) and Natural Gas Exchange Inc. (NGX) will provide deal entry capability to energy brokers for physically cleared over the counter (OTC) natural gas contracts, they said late last week. The companies also reported that three hubs will be added for physical clearing on Aug. 5.

Under this arrangement and effective immediately, energy market participants who are ICE and NGX customers may designate specific brokerage firms to enter physical transactions for clearing through NGX utilizing the ICEBlock system. As part of the ICE/NGX alliance announced last year (see NGI, March 3; April 2, 2007), physical clearing services are currently offered at three U.S. hubs: GTN Malin, PG&E Citygate and Henry Hub. Following the launch of the service at the original points, the industry's response was favorable with some traders saying that the ICE/NGX cleared deals offered efficiency and liquidity (see NGI, April 21; March 31).

Physical product clearing services will be added for Panhandle Eastern Pool, NGPL TxOk East and Northern Natural's Demarc on Aug. 5. ICE said volumes at these hubs have grown steadily each month since physical clearing services were initiated in March 2008 as a result of new participants and increased liquidity at the hubs.

"This arrangement provides approved brokers with direct access to NGX's physical clearing services on behalf of their clients," said NGX President Peter Krenkel. "Broker participation will allow NGX to grow open interest and will provide brokers with another tool to close physical deals between credit-constrained counterparties."

NGX's clearing and settlement model has given Canada exceptional liquidity in its physical gas markets, the company said. NGX said it has enabled more than $400 billion of physical gas transactions since its inception in 1994. In 2007 more than 8.8 Tcf was traded on NGX.

"The ICEBlock system was designed to allow direct broker input and has proven to be an effective tool," said ICE President Chuck Vice. "We introduced our innovative financial clearing solution for energy products in 2002, and NGX introduced physical clearing over a decade ago. In that time, customers have benefited from the removal of counterparty credit risk in bilateral transactions, and the resulting liquidity by expanding these markets."

Brokerage firms interested in physically cleared OTC natural gas contracts must execute an ICE broker agreement in order to qualify and be registered with ICE as an enabled broker. For more information, contact ICE's Jeff Rosenzweig at (646) 733-5005 or NGX's Matt Frye at (832) 978-9835.

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