German RWE Wants Watchdog to Cut Power Futures Cost

August 29 2002 – Germany’s RWE Trading said on Wednesday it would hold talks with financial watchdog BAFin next month about cutting the deposit companies must pay to trade power futures for third parties.

Traders complain the deposit is so high that it is stifling the development of the new power futures contract launched by the EEX power exchange in July.

“We aim to get BAFin to lower the expensive capital allocations they ask futures brokers to make to underpin derivatives deals they do on behalf of third parties,” Ralf Schaefer, spokesman for RWE Trading, said.

“The futures brokerage segment of the power market is only just starting out,” he told Reuters.

Brokers have to deposit 12 per cent of the value of a deal made on behalf of a third party, often an industrial customer, with BAFIN to show that they are able go through with the trade even if a counterparty defaults.

Credit risk has become an important issue in the German power trading market which has seen volumes collapse after the demise of US trader Enron last year and the closure of the European trading arms of other US utilities.

Schaefer said RWE, one of the largest traders on the EEX power exchange, wants BAFin to lower the deposit for the next three to five years to kickstart futures trading.

Schaefer denied a media report on Wednesday that RWE was considering giving up its one-year old futures brokerage license because the 12 per cent deposit was too high.

He said RWE especially did one futures trade at the start of the month to be allowed to renew its licence.

“We especially bought futures on behalf of an industrial customer in early August to qualify for an extension of the license, which otherwise would have expired,” he said.

He added most of RWE’s power, coal, oil and gas trade was done on behalf of the company itself and so did not require a BAFin licence.

BAFin’s head of legal department on Monday told Reuters some players on the EEX futures market in Leipzig did not have the licence needed to trade for third parties.

On Tuesday, the power futures trading division of the newly formed Vattenfall Europe utility confirmed its Nordic Powermanagement trading unit was properly licensed in line with BAFin requirements.

The EEX hopes to raise the number of parties active in the futures market which it launched on July 1 and which traded 35 TWh in August.

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