February 23, 2000

The board of the Eurex-owned European Energy Exchange EEX has agreed to sell 52% of the soon-to-be-launched electricity market to a plethora of European energy sector companies. Separately, the all-electronic EEX—which is scheduled to launch in the second half of this year and will initially trade just a pair of electricity contracts—is in the midst of deciding which trading engine and clearing system it will use.

In return for their majority equity stake in the all-electronic EEX, the investor group—which includes energy trading firms like Atel, Bayernwerk and Electrabel—will collectively cough up $10.5 million. Eurex, the German/Swiss derivatives market which currently owns 100% of EEX, will be reduced to a minority investor after the EEX ownership restructuring is completed in mid-March.

The decision to sell a big chunk of EEX also comes at a time when the exchange is pondering its technology options. The exchange will “definitely” implement a customized version of Eurex’s derivatives trading platform, and will probably use Eurex’s clearing system, says an EEX spokesperson. However, he emphasizes that that the EEX has not come to a final conclusion on clearing.

The EEX, as a result of the restructuring, will increase its capital level from $10 million to $20.5 million. Moreover, the exchange could receive a further capital boost if Eurex decides to sell off pieces of its remaining 48% stake in EEX somewhere down the line. Eurex’s minority interest in EEX will be controlled by Eurex Zurich A.G, its Swiss arm.

Eurex Zurich, says the spokesperson, will be “open” to selling equity interest in EEX to other European exchanges-including potential energy market competitors like Norway-based NordPool and the Holland-based Amsterdam Power Exchange (APX).

However, while asserting that the EEX has talked with its potential rivals “about various issues,” the spokesperson declines to say whether NordPool or the APX have expressed interest in acquiring stakes in the exchange. The spokesperson also says that it is “too early to tell” whether EEX will build electronic interfaces to the trading engines of NordPool and the APX.

Initially, says the spokesperson, EEX will trade only two electricity futures contracts. The exchange wants to build liquidity in those contracts, he says, before deciding what other instruments it will cover.

Originally, the New York Mercantile Exchange was supposed to advise Eurex on which products to trade on EEX. In fact, prior to signing its deal with the energy sector companies, Eurex offered NYMEX the right to buy a chunk of the exchange. But NYMEX turned it down.

Sources at the NYMEX say the exchange declined to fork over any cash because it was originally promised a stake in EEX in return for its advice. “They’ve asked us to put up some money, which was not part of our original agreement,” says a NYMEX spokesperson. The EEX spokesperson counters that Eurex never promised to give NYMEX a piece of the exchange free-of-charge. Moreover, he indicates that if the NYMEX still wants in without having to pay, the exchange shouldn’t hold its breath.