NASDAQ OMX - Welcome to complicated world of energy derivatives and carbon trading!

October 23 2008 / by Garry Golden
Category: Energy   Year: 2010   Rating: 2

The world of financial trading around energy resources, power generation and carbon emissions is now a bit more complicated and, more important, globally integrated.

NASDAQ OMX has completed its acquisition of Nord Pool International. The combined companies will launch a new offering, ‘NASDAQ OMX Commodities,’ based on Nord Pool’s energy and carbon derivatives products to banks, brokers, hedge funds and other financial institutions, as well as power utilities, industry, manufacturing and oil companies.

“With NASDAQ OMX Commodities, our intent is to create a global leader in energy derivatives and carbon products,” said Bob Greifeld, Chief Executive Officer of NASDAQ OMX. “Combining Nord Pool’s footprint in the commodities market with NASDAQ OMX’s global distribution capabilities and customer base puts us in a unique position to create a financial center for energy related derivatives. As one company we can meet our customers’ demands for trading in multiple asset classes, allowing us to grow liquidity in both existing and new markets.”

Why is this important?

NASDAQ OMX creates a potentially powerful tool for innovative financial approaches to energy markets as we enter a period of high uncertainty around the price of energy, expanding production and regulatory shifts that could have a major impact on power generation and energy resource management.

Carbon Pricing Schemes
One of the most plausible near term disruptive shifts ahead in the energy sector involves the pricing of carbon. Now that formal world market for energy derivatives and carbon pricing schemes has taken another step forward.

Potential Downside
These types of trading markets are also very complicated and could certainly be ripe for abuse. Derivatives are complex financial tools designed to reduce risk and exposure because the often leverage bets on a future value of a stock or asset. This can be a valuable tool for companies and institutional investors, and also abused around its complexity.

Derivatives are controversial and some financial gurus (e.g. Warren Buffet) believe that the complicated packages of stock futures and swaps contracts can actually increase risk and long term bubbles (e.g. mortgage backed investment packages).

Press Release & Image Credit

Comment Thread (2 Responses)

  1. Very interesting post. Gary. I don’t know much about derivatives, but everything I have heard, especially lately leads me to be against them and wonder if there is some good way to regulate them. But I am for carbon capping, we need to start treating our cost to the environment as an actual cost.

    Posted by: Mielle Sullivan   October 23, 2008
    Vote for this comment - Recommend

  2. Derivatives = Gambling

    You can rationalize all you want how they could be useful for hedging and risk management, but, if last few months taught us anything, it’s all just gambling and bubbles.

    Posted by: johnfrink   October 27, 2008
    Vote for this comment - Recommend