With corporate banks winding down their involvement in the commodity business due to flagging returns and a rise in regulatory controls, a vacuum has appeared.
Enter trading house Mercuria, a privately held company based in Switzerland, who have become increasingly active over a large spectrum of the global energy markets over recent years and is currently one of the five biggest independent energy traders and asset operators on the planet.
Mercuria Energy Group Ltd, founded in 2004 and partly owned by ChemChina , has now teamed up with Nasdaq Commodities, the financial giant that owns and runs the NASDAQ stock exchange, on power and gas market contracts. Mercuria will offer liquidity and client access mainly through its London office.
The Geneva based firm, which operates in over 50 countries, made a bold move in 2014 when it bought a sizeable portion of JPMorgan Chase & Co.’s commodity unit. Following that $850ml investment it will expand operations in the sector with the new agreement with Nasdaq Inc.
It’s expected the company will become increasingly active acting as middle man between major energy corporations in Europe and U.S. hedge funds as they provide valuable access to new Nasdaq contracts in the physical commodity markets.
“Mercuria have taken on this challenge, and it’s a fantastic opportunity to fill the void left by the big banks who we have seen take a step back from this area over the last few years,” James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance commented in an email to clients on Thursday. “They have built up a trustworthy reputation and will offer access to large contracts on the continent together with market liquidity on the strength of that reputation.” he added.
All this is a far cry from the ‘bread and butter’ business that trading houses have dominated in the past. Mercuria, along with other big names like Trafigura, are specialists in purchasing and selling goods for other businesses who require international trade experts to handle their stock, and the company would make a profit on this straightforward trading. Diversification has been necessary as margins have shrunk due to tighter competition and many groups have purchased assets, especially in the energy sector, such as oil platforms and other infrastructure. Although Mercuria have been similarly active acquiring assets, they have also looked to diversify as a market creator.
The company are expected to now supply clients with first refusal access to European gas and power contracts connected to Nasdaq, including short and long term options, Summers added that part of Mercuria’s overall strategy would be to create new markets for contracts within its sphere.
“What I like about this move by Mercuria and Nasdaq is that they are providing a harmonious bridge between two massive and vital components of world business. The physical and financial cogs in the global machine are now perfectly in tune” Summers said.