EnergyClear Corp., the first industry-sponsored over-the-counter (OTC) energy derivatives clearinghouse, has been approved for registration as a derivatives clearing organization (DCO) by the Commodity Futures Trading Commission. The registration as a DCO allows the Houston-based company to offer multilateral clearance and settlement of OTC energy trades, initially in the electricity and natural gas markets.
The EnergyClear Operations Co. LLC, owned by The Bank of New York, Prebon Yamane and Amerex, announced the creation of the clearinghouse last November (see NGI, Dec. 4, 2000). The Houston-based corporation is made up of energy market participants, offering them an active role in managing their collective counterparty risk, through comparison, netting and settlement of wholesale energy contracts for the OTC marketplace.
Lee Burton, director of EnergyClear Corp. and president of EnergyClear Operations, said the goal of the company was to reduce “counterparty credit constraints” and enhance “liquidity, fostering a more dynamic marketplace.”
The target market includes traders and risk managers for large power generation, marketing and trading entities in the wholesale power and gas markets. In the energy marketplace, electricity appears to have the potential to become one of the largest traded commodities in the United States, said EnergyClear. The clearinghouse will provide services that are independent of price discovery.
Now, OTC energy contracts are negotiated on a principal-to-principal basis, through electronic exchanges or through voice brokers. EnergyClear’s goal is to reduce the credit, legal, operational and liquidity risks now associated with transactions in these markets.
In the near future, EnergyClear is expected to not only offer electricity and natural gas, but also petroleum products, crude oil, petrochemicals and bandwidth.
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