The reduction of the number of contracts and notional position in the portfolio of a particular asset class/product without affecting the desired risk profile. Can be carried out bilaterally or multi-laterally. Dodd-Frank, European Market Infrastructure Regulation (EMIR) and other rules based on the G-20 2009 Pittsburgh Agreement require portfolio compression from certain counterparties, and recommend it for others. The compression effect is achieved through simultaneous novation, cancellation and/or amendment of multiple contracts, and can be facilitated through settlement of a cash-out sum.
* see Dodd-Frank; European Market Infrastructure Regulation (EMIR); G-20 2009 Pittsburgh Agreement
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
More on Risk Management
NYU quants use Bayesian techniques to sequence trades, considering trading costs and multiple assets
Greek political upheaval sets up a lose-lose confrontation for the eurozone
Sponsored survey analysis: Wolters Kluwer
Harvey Stein combines risk-neutral and real-world measures into risk methodology
Sign up for Risk.net email alerts
Research chief is sceptical about end of oil indexation in European gas
Mexico's energy reform may lead to closer ties with adjacent US states
Swap dealers playing a guessing game while complying with CFTC rules
Bill Perkins believes rising demand and reduced risk warehousing will create opportunities for natural gas traders: video
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.