On 24 March 2022, the Exchange Council of the European Energy Exchange (EEX) held its first meeting of the year, chaired by Dr. Bernhard Walter, Head of Market Design and Regulatory Affairs at EnBW AG.
The Exchange Council intensively discussed the current market conditions against the background of the Ukrainian conflict. The Exchange Council members are stunned by the terrible events and expressed their hope that a peaceful solution can soon be reached. In light of the current events, energy markets are experiencing unprecedented price developments. In these turbulent times, it is the highest priority of the exchange and the clearing house to ensure the stability of trading and clearing for all listed energy and commodity contracts.
The exchange reported that trading and clearing operations continued to run smoothly also under the stressed market conditions in the last weeks. EEX has volatility interruption processes in place to be able to cope with very dynamic prices changes throughout a day. The Exchange Council emphasised the importance of keeping energy markets open even in turbulent periods. Especially during times of stress, it is essential to have access to an open, central and transparent market that enables participants to manage and transfer their risk through trading and central clearing. The Exchange Council discussed as well potential future scenarios with physical restriction of supply and emphasised that regulatory planning alone might not be sufficient; cooperation of all market stakeholders – being the regulator, EEX, the market participants and the infrastructure providers – will be essential to ensure efficient allocation of gas volumes and orderly price determination. The exchange management confirmed that such scenarios will be further detailed in close cooperation with the market and the authorities.
In light of the political discussion on how to deal with price peaks, the Exchange Council warns against an intervention in the free formation of prices on the market. Proposals to interfere with the price formation process, as currently made by some EU Member States, should be treated with highest caution. Shutting down exchanges, limiting certain trading strategies or capping wholesale market prices would not change the market’s valuation of the underlying commodity. If market price formation at exchanges were restricted, market participants would move away from transparent trading venues to unsecured and non-transparent ways of trading. A transparent price determination would not take place, price changes would just be delayed and potentially even amplified because of the increased uncertainty. Additionally, the physical and financial fulfilment would not be that secure as safeguarded by a central counterparty. The Exchange Council members underlined the relevance of price signals which mirror the supply and demand situation in the market and are fundamental for an efficient wholesale market. At the same time, it is important to find adequate measures on how end-customers can be protected from extreme prices levels, without distorting the wholesale market.
The Chief Risk Officer of European Commodity Clearing (ECC), Dr. Clemens Völkert, informed the Exchange Council on the clearing house operations during the crisis and improvements initiated since Autumn last year whilst ensuring stable processes and risk management in accordance with the regulatory requirements. As a consequence of the volatile market environment in the power and gas markets, the margins to be deposited with the clearing house have increased significantly, which pose a challenge for trading participants. ECC is aware of the difficult liquidity situation and has taken several steps to optimize collateral eligibly and margin requirements. First, ECC already offers a wide variety of eligible securities to cover margin requirements, including emission allowances. Through changes to the model implemented in February, ECC waived the current minimum holding period of 105 days before deposited EUAs become eligible margin credits. Second, ECC has intensely worked on margin adjustments for power and gas futures in the delivery month. The planned amendments underscore ECC’s safe and efficient CCP risk management approach. Additionally, EEX and ECC supports initiatives of the market participants looking at financing the liquidity required to make use of the stable and risk-minimizing clearing processes at ECC. The Exchange Council confirmed the ongoing challenges for the members to provide the required margins and thanked the initiatives undertaken to support the market participants.
Additionally, the two members Hervé Robert and Ingo Ramming will leave the Exchange Council. More information on the election of substitute new Exchange Council members will be published on the EEX website.
Finally, the Exchange Council re-appointed Steffen Köhler as Managing Director of the Exchange. His regular term will end on 19 June 2022. In accordance with the Exchange Supervisory Authority, Steffen Köhler was re-appointed for another term of five years starting on 20 June 2022.
The Exchange Council of EEX is an official body of the exchange under the German Exchange Act. This committee consists of a total of 24 members who are elected from among the trading participants in four voting groups in order to represent the various interests and businesses appropriately. The tasks of the Exchange Council include the formulation of the rules and regulations of the exchange and their amendments. The Exchange Council is also tasked with the supervision of the Management Board of the Exchange and the appointment of the Head of the Market Surveillance.
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