Lessons from two commodity defaults

Regulators and exchanges need to learn from the Greenhat/PJM and Norwegian Nasdaq defaults

The energy markets on both sides of the Atlantic have been recently roiled by two cases of default related to large size trading positions taken by relatively small firms. The two events took place in markets of different design and operating under different regulatory regimes, but they share many commonalities and offer useful lessons to commodity traders and risk managers.

In both cases, the defaults followed large losses incurred in electricity markets in transactions representing bets on