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
Comparing modelled and standardised capital may raise more questions than it answers
Companies face more liquidity risk as Basel III prompts banks to reject excess cash
Chair of Europe's new bank resolution board says derivatives are not "sacrosanct"
Exclusive coverage of congress for energy traders and risk managers
Sign up for Risk.net email alerts
Dodd-Frank rules must balance stability and market liquidity, says global head of risk
Legal and compliance head says agency has been “very receptive” of industry concerns
CRO of US-based utility says low commodity prices and new rules are big concerns
Research chief is sceptical about end of oil indexation in European gas
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.