With the deregulation of the European energy markets, prices for energy have become increasingly volatile. This has led power companies to use financial instruments to offset price risks (hedging). While energy exchanges in the Netherlands and Scandinavia have already emerged, the evolution of the European Energy Exchange (EEX) is a fairly recent development.
EEX is a joint effort by German and Swiss market players and is expected to become operational in the fourth quarter of 2000. This electronic trading system will provide investors with the opportunity to trade energy (spot-market) and energy futures, the underlying asset being a standardized quantity of energy. With the relatively small contract volume of one megawatt, even small market participants will be in a position to invest in EEX.
There are a number of Swiss power companies interested in becoming members of EEX and establishing themselves both in the OTC market and as market makers. Under the Swiss Stock Exchange Act (SESTA), they may qualify as securities dealers and therefore be subject to authorization by the Federal Banking Commission (FBC). Since these power companies are by definition not primarily active in the financial sector, they must establish a legally independent entity for their securities trading business.
The FBC grants authorization to applicants meeting the conditions prescribed by the Act. Among other things, such as minimum capital, required professional knowledge and assurance of proper business conduct, applicants have to show that their organizational structure and internal rules will ensure compliance with a dealer's duties under SESTA. SESTA does not provide any exceptions for companies which engage exclusively in market making. However, as there are no investors' interests at stake, the internal organization of a market maker may be simpler and still meet the FBC's standards.
The FBC has already granted one authorization to a future Swiss market maker in energy derivatives, and more applications — in particular for fully-fledged EEX dealers and derivatives houses — are underway.