Europe is home to a diverse group of energy producers and consumers with extensive ties to global markets, according to the International Energy Association.
The large and dynamic marketplace is attractive to a wide range of energy trading firms that wish to speculate or hedge on prices for electricity, natural gas and related commodities. That’s been more so the case in recent years amid geopolitical events that have increased market volatility — and remains so today as the war in the Middle East continues.
Trading Technologies, a software-as-a-service technology platform provider to the capital markets industry, has been increasingly active in European energy markets, expanding its connectivity offerings and client footprint.
As TT prepares for the Energy Trading Leaders Summit this week in Amsterdam, Traders Magazine caught up with Nick Garrow, EVP, Chief Strategy Officer at TT, for an overview of the continent’s power and energy trading markets, and how TT competes in the space.
What are some themes in the market currently?
European power and energy markets are evolving quickly. It’s very different from the US. The Europeans can transport power and energy between themselves, and there are a lot of requirements for short-term forecasting and trading. They have 15-minute trading intervals, 24 hours a day, seven days a week. It’s a non-stop market that’s very algorithmic and data-driven. Market participants consume large quantities of data and there’s a very volatile and busy intraday spot market.
People are looking for new technology solutions. There are a lot of 10- and 15-year old legacy technologies still being used, and firms want to invest in technology for the future. We’re relatively new to the marketplace, but we’ve brought all of the knowledge, experience and technology that we’ve gained from over 30 years in the futures business, including algos, co-location, and low latency. We’ve deployed that into the marketplace and we’re building ourselves a nice niche.
Of course the big energy and power producing companies like BP, Shell, and RWE are in the market, and electric utility companies are there. But the market isn’t just electricity and power trading firms. It’s anybody who produces, ships, or stores power and also the banks that finance the infrastructure.
TT’s client base in the space is heavily geared toward commodity energy trading firms. Many of the big American energy and utility companies, like Exxon, trade futures on TT on ICE, CME and other markets. We also have big commodities trading houses that have been on TT for many years. So we have great distribution in the commodities space, and moving into the power market made a lot of sense for us.
You recently announced TT is providing connectivity to the EEX Gas Spot market. What’s the significance of that move?
After the futures markets and the intraday real-time energy markets, the third piece of liquidity for energy and power in Europe is a physically settled natural gas contract on the German exchange EEX, which is part of Deutsche Boerse Group, that trades on Trayport. We have been building and developing to Trayport to get access to this product, and this is the final piece of jigsaw in terms of connectivity for us.
What else is TT doing to expand its presence in European energy markets?
TT has spent the past several years building out our connectivity and trading capabilities across European energy and power markets. We started this journey back in 2014 when we signed a deal with EEX to be the exchange’s front end for trading power futures. Over the last three years, we’ve connected to other major power venues to significantly enhance our offering to our European power and energy clients. Now TT provides connectivity to the big power futures exchanges, including ICE, CME, EEX, and Nord Pool. We also provide access to the spot market, the intraday market for power.
We’ve also focused on working closely with our clients to support evolving trading and risk management workflows in the energy sector. We have rapidly expanded our client base, onboarding a significant number of well-recognized market participants as these markets continue to become more electronic and algorithmic in nature. Increasingly, they resemble global futures and equities markets in terms of workflow, execution and market structure.
Earlier this year, Trading Technologies announced a partnership with Enmacc GmbH, a European energy market venue, pertaining to OTC bilateral energy trading. What’s the significance?
While much of the business in energy and power clears on the CCP, with ICE, CME, or Eurex, there’s a tremendous amount of bilateral OTC trading. Enmacc built a platform that enables bilateral trading of energy and power – they’ve been in the space for 10-15 years. If you want to buy or sell, you can send an RFP or an intention of interest across the network, find a counterparty, and negotiate a bilateral trade which settles bilaterally, or if you wish to clear it centrally you can clear it on an exchange.
Enmacc has great distribution in bilateral OTC trading of energy and power, and they were a natural partner for us, because we don’t have OTC bilateral trading on the TT platform today.
Who are TT’s competitors in the energy and power trading market?
The main platform/technology providers in this space are focused on energy and power. You don’t tend to see them in traditional futures markets. Trayport is the largest one, they are the market leader and they’ve been in the market for 20-plus years.
After that there’s a range of smaller technology companies such as e*star. Germany is the hub of energy and power trading in Europe and many technology and trading companies are based there. But you don’t tend to come across the people that we see in the traditional futures world, the multi-asset, multi-function platform providers.
We think that’s a differentiator for us because many market participants want to be able to trade a range of different products through the same vendor. Firms like prop trading groups and hedge funds don’t trade just power, they also want to be able to hedge their futures positions and they want access to FX markets.
What’s the strength of the TT offering?
The energy and power market in Europe can be very volatile, so speed, latency and performance is most important.
Second most important is the range of markets that can be traded through a single screen.
Third is the APIs. A lot of traders want to plug their own data into the platform and into algos, and they’re looking for a really good, simple API to work with. That works in our favor
Finally it’s the whole Trading Technologies toolkit that we offer to futures traders, that we’ve made available in the power market. Many players in this market aren’t used to seeing the range of features and functionality, and speed that we offer.
There’s always more to do and build, but we’re picking up some really good business in the marketplace.
