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Enabling investment and innovation

Market making

Market making in New Zealand electricity forward markets supports a robust forward price curve and improves access to risk management contracts.

Overview

Market making is an established tool to support price discovery in the forward market in New Zealand. The Authority introduced an obligation on the four large generator-retailers (gentailers) (Meridian, Contact, Mercury and Genesis) to provide market making services for New Zealand electricity baseload contracts traded on the ASX platform.

Market makers are required to regularly quote prices for a specific volume of contracts and within a set bid-ask spread, and update them to reflect the latest information on market conditions. These requirements on the largest gentailers ensure that:

  • market makers are unable to impose price barriers because of their obligation to offer to both buy and sell contracts at a set price differential or spread; if they sought artificially to inflate the price of contracts, traders would be able to sell contracts to the market makers at a similar price, resulting in a loss for the market maker; and
  • market makers are unable to impose non-price barriers because trades take place anonymously and are cleared centrally on the exchange.

In addition to four regulated market makers, we also procure a commercial market maker to provide an independent view of future electricity prices and to enhance the performance of market makers by bringing a more service-oriented approach.

Timeline

Past activity

Project background

The Authority has undertaken a review of market making arrangements to assess the effectiveness of our market making policy settings for baseload contracts and consider market making requirements for standardised super-peak contracts which has been traded voluntarily since 2025.

The aim is to ensure settings are fit for purpose, enabling independent retailers to better manage risk and offer competitive pricing and facilitate the entry of new intermittent generation into the electricity system.

Correspondence

When appropriate, we engage with electricity industry participants to address claims relevant to commercial market making and poor performance of market making services. We are committed to transparency and publish these letters here.

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