London traders ride Enron storm

Robert Lea12 April 2012

TRADERS on London's energy and commodity markets continue to operate through the volatility caused by the collapse of Enron as exchanges and clearing houses have moved quickly to damp down concerns or oversee the unwinding of positions.

Alarm bells have been ringing over potential power shortages or the flooding of commodity markets. But traders believe the drawn-out nature of the demise of the US power giant has enabled an orderly unwinding of Enron Europe's contracts under the new electricity trading arrangements as well as on the International Petroleum and London Metal Exchanges.

A spokesman for the the UK Power Exchange, which acts as a market and clearing house for electricity traders, said that after Enron was suspended and officially put into default last week it has found new counterparties for all Enron's outstanding liabilities.

Trading members make margin payments on each trade to ensure against default and UKPX confirmed that Enron margin payments covered the unwinding of positions without UKPX having to dip into its own reserves.

Market players have been complaining of volatility in prices but none say the Enron damage will cause long-term damage to the market.

Traders are talking of wide spreads on prices as players take cautious positions but an initial shortfall in volumes is expected to recover over time. Administrators for Enron Europe last week made 1,100 Victoria-based traders redundant.

On the gas market, the International Petroleum Exchange said it had managed any instability caused by Enron's demise through contact with its members and the London Clearing House acting as the central counterparty. 'We are not seeing any concerns in respect of the IPE or any of its markets,' said a spokesman, adding that the exchange continues to monitor the situation closely.

Enron trades in the market through IPE members acting as brokers, so any liabilities stand with the brokers rather than with the London Clearing House.

The LCH, however, has acted effectively to underwrite the activity of Enron Metals on the London Metal Exchange, where Enron is a major player through its acquisition of MG for £300m two years ago.

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