The aftershocks of Einar Aas
Energy could be particularly badly affected by the €114m default of Nasdaq power trader Einar Aas
The €114m default of Nasdaq power trader Einar Aas will have consequences across markets - but energy could be particularly badly affected
Many things went wrong at Nasdaq Commodities in early September. Only in the weeks afterwards did all of them come to light.
The default of power spread trader Einar Aas was dealt with by a closed auction: this has come under criticism for crystallising a €114 million ($130 million) loss by allowing only four members to bid, potentially at a deep discount. Nasdaq’s intention seems to have been to keep a lid on the news in order to avoid moving the market – probably the same reason that it was so slow to inform other clearing houses of the default, leaving them to accuse Nasdaq of breaking a ‘gentlemen’s agreement’ to share news of clearing member defaults. And the spotlight has also fallen on Nasdaq’s margining model.
A relatively small market shift should not have burned through the whole of Aas’s initial margin payment and two-thirds of the exchange’s default fund, critics point out, though in Nasdaq’s defence the bottom line is that the default was, ultimately, handled in an orderly fashion.
A sudden wave of caution hitting central counterparties is likely to mean higher margin requirements and more onerous requirements for clearing membership
Certainly the Nasdaq default is more than just an energy market story. The Span model developed by CME in the 1980s, and licensed out to Nasdaq and many other exchanges for calculating margins on derivatives of many kinds, is now heading for a complete overhaul, and Nasdaq has come under fire from rival trade venues whose margin models have a more recent pedigree. Nasdaq is also re-examining two areas of its oversight procedures involved in the default: its treatment of non-bank clearing members, and its approach to calculating margin against concentration risk.
But that doesn’t mean it does not have particular salience for the energy and commodity markets. Commodity markets are often highly volatile, highly illiquid, fragmented, or all three. A sudden wave of caution hitting central counterparties is likely to mean higher margin requirements and more onerous requirements for clearing membership – and, as knock-on effects, the risk of even less liquidity, more volatility, and more fragmentation, as smaller and more marginal players are warned away from central clearing.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Our take
Quants are using language models to map what causes what
GPT-4 does a surprisingly good job of separating causation from correlation
China stock sell-off will test securities firms’ risk managers
Regulatory measures to support stock market could add to risks facing securities sector
Why some UK pensions might choose to run on
Buyouts are booming but trustees are thinking about alternatives, too
Choppy inflation may be the worst inflation
Investors can build strategies to suit fast-rising prices, or slow-rising prices. What trips them up is the inflation foxtrot: slow, slow, quick, quick, slow
A dynamic margin model takes shape
New paper shows how creditworthiness and concentrations can be reflected into margin requirements
Why ‘Derivatives’ became ‘Markets’
The derivatives markets have changed drastically over the past decade. So has Risk.net’s coverage
Uncertain rates outlook poses challenge for corporate FX hedgers
Hedging programmes may need a revamp as EM/G10 rates differentials narrow
Europe’s half-baked benchmark switch leaves some dissatisfied
Users frustrated by narrow scope of euro transition, but replacing Euribor was never a euro group objective
Most read
- Quants are using language models to map what causes what
- Reluctantly, CME moves to clear US Treasuries
- The bank quant who wants to stop gen AI hallucinating