German exchange EEX believes its liquidity drive can be considered successful if around 25 participants initially close daily trades for the system and some zonal futures, sales director Tim Greenwood told Argus.
The exchange has long highlighted its ambition to increase liquidity, and has now introduced specific measures to address this along with an indication of what higher liquidity would entail.
EEX last week launched a package of measures to encourage activity on its Nordic offering, which covers system and zonal futures for the 12 Nordic zones. The package includes a year-long trade fee waiver scheme and clearing cost cover. The scheme is based on past successes in stimulating activity in similarly illiquid or mostly over-the-counter markets, such as Spain, Greenwood said, and will be complemented by a focus on local engagement with stakeholders.
The initiative follows dramatically lower trading across its Nordic book on the year, with liquidity down by 99pc on the year in January and by 92pc in February.
By delivering on its ambition to bring 25 participants onto the exchange, then rising to around 40, the exchange hopes it can demonstrate to the market it and liquidity are moving forward, so the conversation regionally can change from "what can we do" about liquidity to "how are we progressing", Greenwood said.
The Nordics are primarily dominated by the state-owned utility in each country, particularly in Sweden and Norway, Sweden's Vattenfall and Norway's Statkraft. EEX is confident these participants would welcome a market that is "seven or eight times" the size it is today and that, ultimately, "the big fish go where the small fish go."
EEX also hopes to demonstrate to the market its zonal futures are a tool in and of themselves for re-energising Nordic liquidity by allowing firms to trade while recognising the increasingly divergent fundamentals between zones. The Nordic system price, by papering over this divergence, has "a lot to do" with the regional liquidity decline, Greenwood said, adding the price "is not reflecting the underlying needs" of traders.
The system price is part of a broader regional issue, Greenwood said, acknowledging that while participants in most other markets consider fundamentals on a market-by-market basis, the system price leads people to consider the Nordics as a whole. That is despite the Nordics comprising "different countries, with different fundamentals" and that the "ideal situation would be to focus on the different markets".
EEX highlighted the system price issue by emphasising that its Danish zonal futures and their higher liquidity are representative of the problem, noting that Denmark's fundamentals and price alignment are more correlated with neighbouring Germany than the other Nordic countries.
The German exchange also reaffirmed that it welcomes the competition offered by the incumbent Nord Pool-owned Nasdaq exchange, noting that until EEX's entrance, the region had "the dominance of one exchange and [liquidity] has gone down", rebutting some fears that two exchanges could further split the already low liquidity, Greenwood said.
He added changes to Nasdaq clearing rules, as they come fully under the Nord Pool umbrella, provide a "bit of a wake-up [call]" to participants and a good opportunity to take advantage of EEX's "good coverage of clearing banks and cross margining", Greenwood said.
