A spike in futures trading on the ASX in the energy and power sector is creating an abundance of work for lawyers.
According to a recent ASX activity report, futures trading has hit a record high on the back of volatility across the global markets and a desire by traders to take out contracts which hedge against risks.
The power trading market in particular has seen a shift towards futures trading in the past six months because of the proposed carbon tax, according to Clayton Utz partner Graeme Dennis.
Along with the desire to insure against future power price increases following the introduction of a carbon tax, Dennis says there has been a tendency to favour the futures market because the exchanges are cleared through a clearing house. “It means there is less risk involved compared to an over the counter deal,” he added.
The federal government is set to announce its long awaited carbon tax pricing this Sunday, July 10, which is expected to further increase the demand for power contracts on the futures market. “I predict that trading will increase after the announcement on Sunday regarding the price on carbon. Now people know that there will be a price on carbon, people will go to the futures market to insure against that price increase,” said Dennis.
Because of the carbon tax Dennis is also seeing additional work coming through regarding the trading of carbon units, which until now have been unregulated. “People who deal in those will need to be licensed and abide by the new rules being introduced for the carbon market,” he said. For example, anti-money laundering rules and inside information clauses will come into force around carbon trading. “A significant amount of work around that is going to have to be worked through in the next few months,” Dennis added.
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