Increasing financial risk in the energy trading business has prompted Natural Gas Exchange (NGX) to move to a fully collateralized gas commodity clearinghouse on July 1. The move is designed to ensure the integrity and security of exchange and clearing operations. NGX will require all parties to post collateral in the form of cash margin or a letter of credit.

“The strength of NGX as a central counterparty and the clearinghouse is based upon both the combined strength of its contracting parties and clearing assurances from the exchange,” said NGX President Peter Krenkel. “As a result of recent events in the energy markets, participants are looking to reduce their exposures in these markets. This change will provide further security for our customers, and we believe it will enhance liquidity levels.”

Krenkel said March was the best month ever for NGX, which handled 380 Bcf of gas trades or about 12.3 Bcf/d. “We’re the largest single electronic marketplace in Canada,” he said. “EnronOnline was a player and has tried to re launch the business as UBS [Warburg Energy]. Altra was a player for a while but has packed up and left. Intercontinental Exchange (ICE) provides matching services to compete with brokers and is looking to provide clearing through an arrangement with London Clearinghouse, but we’ve clearly got fragmented competition at this stage. Our business has grown substantially. When Enron went under, a lot of their business migrated over to us.”

Krenkel said he expects this change to a collateralized exchange will further boost NGX trading. Market participants have indicated they intend to do more business on the system once collateralization is accomplished. The benefits of a fully collateralized clearing operation provide for secure trading and default-free clearing, automated real-time position netting, increased liquidity, and centralized collateral. Margin requirements include settlement, daily variation margin (mark to market) and initial margin (value at risk).

Calgary-based NGX provides electronic trading and clearing services to natural gas buyers and sellers for both physical and financial transactions. NGX has grown to serve over 150 customers. Its most liquid markets are in physical gas trading in Alberta and at Dawn, ON.

NGX is owned 100% by OM, a leader in providing products and services in the field of transaction technology. The company operates exchanges in London and Stockholm and is listed on the Stockholm Exchange.

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