NZX Reviewing Plans to Offer Power Derivatives, Eyes Specialist Products

NZX Ltd., operator of New Zealand’s stock exchange, is reviewing its plan to offer electricity derivatives after the country’s major generators formed a trading venture with its Australian rival.

NZX will assess the potential market for products aimed at smaller participants in the energy industry, the company said in a statement. EnergyHedge Ltd., a market operated by New Zealand’s major generators, today said it will close out its own products and work with Australia’s ASX Ltd. developing new ones.

NZX, which owns Marketplace Co., operator of New Zealand’s physical power market, held talks with EnergyHedge as part of a plan to boost revenue by offering commodity derivatives. In March, it said power and dairy derivatives may increase turnover by as much as NZ$3.5 million ($2 million) initially.

“NZX will consider its options, ensure that its robust platforms are available should they be needed, and will assess the potential for launching hedge products specifically designed for small, innovative energy market participants,” the company said in today’s statement.

NZX fell 5 cents, or 3.1 percent, to NZ$1.56 at 11:50 a.m. in Wellington. It is the second-worst performing stock in the benchmark NZX 50 index this year.

EnergyHedge is owned by New Zealand’s five largest generators, including publicly listed Contact Energy Ltd. and TrustPower Ltd., which trade futures on behalf of clients.

Liquidity ‘Hurdle’

The market had 92 trades last month worth NZ$3.3 million. ASX started offering New Zealand power futures in July, and had eight trades in the first quarter, NZX said today.

EnergyHedge Chairman John Woods said the industry was only ever going to be able to support one market.

Working with ASX will allow a quicker change from EnergyHedge’s generator-sponsored products to a broader futures market that customers can invest in, he said. It will also help meet the “long-term hurdle” of building liquidity.

“They just have a deeper set of clearing participants, and I suspect stronger interest from financial participants,” Woods said by phone from Wellington. “The support of those participants will help drive liquidity as well.”

No money changes hands with the ASX deal, which commits the generators to providing market-making services, he said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net.

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