Energy

Return to Article

eSpeed to Partner With Five Energy Firms to Form Online Energy Trading Site

Jennifer Barrett

Electronic trading provider eSpeed (ESPD) on Monday announced it had partnered with five major energy companies to form TradeSpark, an online energy trading site set to launch next week.

The online venture, which will be fully operational on Oct. 2, will serve as an electronic marketplace for professional traders of natural gas, electricity, coal, weather derivatives, even emission credits. Equity partners in the venture include Dominion Resources (D), TXU's (TXU) energy trading subsidiary, Williams'(WMB)energy marketing and trading subsidiary, as well as privately-held Coral Energy, Koch Energy Trading and the brokerage firm Cantor Fitzgerald.

Officials at eSpeed, which was spun off from Cantor Fitzgerald in 1999, said Dynegy(DYN) plans to join the partnership in the future and will begin trading on the site next week. Entergy (ETR) will also participate in the site immediately, and invest in TradeSpark through its joint venture with Koch which is expected to close later this year.

Monday's announcement comes about three months after eSpeed, Dynegy and Williams Energy Services closed a deal through which the three agreed to develop electronic marketplaces. As part of that agreement, Dynegy and Williams each purchased a $25 million equity stake in eSpeed.

"This is the culmination of that agreement," said Greg Smith, an analyst at Chase H&Q. "This has everything you could want: liquidity, technology, and the incentives to use the platform."

Smith has a strong buy rating on eSpeed's stock, with a long-term target price of $70. His firm helped underwrite eSpeed's initial public offering last December.

eSpeed president Fred Varacchi said his company has invested $2 million in the venture, but declined to elaborate on TradeSpark's financial structure. He added that the company is seeking out four additional equity partners for the electronic marketplace, but emphasized that TradeSpark would be open to non-partner participants as well.

"We don't want to put parameters on it, this is an inclusive model," said Varacchi. "We are a totally neutral marketplace."

eSpeed already provides the infrastructure for almost all worldwide trading of fixed income products, with more than $150 billion in transactions of financial instruments daily. The New York-based company offers electronic trading, credit analysis, and clearing services to more than 500 institutional customers worldwide.

Varacchi said eSpeed may set up a similar online energy trading site for the European marketplace. It also hopes to make more commodities available through its electronic marketplace in the future, including oil and petrochemicals, and bandwidth products.

eSpeed claims to operate the only electronic marketplaces used for trading in multiple securities and financial and nonfinancial instruments on a global basis, with more than 500 participating institutions. Futures contracts on commodities like heating oil, electricity and coal are now traded on the New York Mercantile Exchange. TradeSpark would allow for a variety of online transactions involving those commodities as well as other financial instruments.

The market largely shrugged off the announcement, with shares of eSpeed closing down 75 cents, or about 2.5%, at $27.38. Shares of Dominion were unchanged at $55. TXU ended up 19 cents at $36.13. Williams ended the day up 13 cents, at about $40.11.