A recent report by Forrester Research on the impending demise of independent trading exchanges doesn’t impress Altra Energy Technologies CEO Paul Bourke, who told NGI there are a few items the researchers overlooked in their race to endorse exchanges sponsored by the New York Mercantile Exchange and by companies trading in the market.

“I am very comfortable that there will be consolidation within the marketplace,” Bourke responded. “[However,] I could argue from my exposure to, and my experience in other practical markets, that the notion of consortium-owned businesses [has] ultimately failed,” said Bourke. “There is something wrong with the idea of six competitors jointly owning an electronic exchange. The system has not worked in the past; maybe it will in the future,” Bourke said.

The Forrester report titled “Net Energy Hits Hypergrowth” concluded that independent sites such as Altra and HoustonStreet.com will be market “losers” over the next few years (see Daily GPI, April 16). It predicted those exchanges would sell out to other consortium-supported exchanges, such as IntercontinentalExchange (ICE) or TradeSpark and would continue only as back-office software vendors. “These early net leaders [Altra] must build up their value by providing modular software tools that can be plugged into the offerings of larger software vendors,” said the report.

“I look at the two sides of the bookends,” said Bourke. “I look at the Forrester report and it kind of makes me scratch my head, and certainly makes me concerned, but the good news is I just read the initial draft of the next AMR [Research] report that looks at the world through a different set of eyes and it names Altra the number one exchange still.” AMR’s 2001 report is expected to be released within the next two weeks.

“If you looked at our growth ramps on the quarter to quarter basis, I would call them steady,” Bourke told NGI. “I think the best thing that ever happened to electronic trading in the energy space was EnronOnline because it kind of moved electronic trading in general into the corner office. So EnronOnline did more for the notion of electronic trading in its first three-to-six months than we had done in the proceeding four years.”

The Forrester report predicts there eventually will be one exchange hub, three merchant platforms, and about 30 other customized solution sites constituting the online energy market. As a result, the report forecasts that enymex will emerge as the sole liquidity hub, a central exchange aggregating high-volume transactions for a limited number of standard products, while ICE, TradeSpark and EnronOnline will split merchant trading platforms for buying and selling energy to match assets to customer loads. “These merchant platforms will make up almost two-thirds of the industry’s total online trade,” the report stated.

“The big winner in the liquidity hub will be enymex,” said the report. “That is because they have the central clearing and settlement that they can bring to the market. They can bring the integrity that is needed for a market that is exchanging price risk. In the merchant platforms, there is no question that Enron is going to remain a key player, but the two consortia — TradeSpark and ICE — have the opportunity with their marketmakers that are behind them to carve out their own place in the market. Then there won’t be very much room for anyone else.”

Bourke also disagreed with the report’s “winner” prediction. “NYMEX doesn’t have a great record of launching innovative platforms,” said Bourke. They certainly have some people working on it at this time.” He also said that NYMEX has a pretty broad OTC product offering, but that he did not know anybody who had gotten close to the organization that said it was an “innovative, fast-moving organization.” NYMEX launched the Channel 4 electronic trading exchange several years ago but folded the idea soon after it was launched due to a lack of market interest.

To acquire a copy of the full Forrester report, visit the company’s web site at www.forrester.com.

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