Ofgem has suspended new policy development on improving liquidity in traded power markets.
The regulator says that market monitoring since measures to improve liquidity were removed has revealed little or no loss of either ‘churn’ (the number of times power is traded) or trading volumes. As expected, however, bid-offer spread has widened.
In 2019 the regulator suspended the so-called ‘market making obligation’ (MMO), which required some large power companies to offer prices during morning and afternoon ‘windows’, a measure intended to make it easier for new parties to buy and sell power, and promote competition.
Market participants had been split on whether the MMO worked, some saying that although it was easier to get a price in those periods, there was less liquidity at other times. They also said that other issues, such as the need to post collateral, continued to make trading difficult for small or new players. Ofgem suspended the Obligation – to complaints from market participants over the lack of notice – because industry changes meant that only a couple of companies still retained the obligations.
Further reading
Secure and Promote ‘market making obligation’ suspended from 18 November
Ofgem promises clarity on ‘market making’ future before cash-out price change
Should the ‘market making’ obligation be suspended?
Ofgem asks: Does mandatory market making work?
OPINION: Please come back bankers, all is forgiven – we need wholesale market liquidity