EnergyClear and Vmac to develop clearing function
Houston-based, industry-owned energy derivatives clearing house EnergyClear Corporation has entered into a letter of intent with New York-based credit risk assurance provider Virtual Markets Assurance Corporation (Vmac) to develop a program linking Vmac's 'AAA'-rated credit assurance program to EnergyClear's clearing house functions.
At present, EnergyClear, which formally launched this month, can only provide clearing functions for standard OTC products. EnergyClear currently clears monthly forward contracts for 12 power and 22 natural gas points.
But Vmac said it can provide an alternative to the traditional clearing house structure operated by EnergyClear by becoming a guarantor of bilateral contracts. Its model has already received approval from one major energy derivatives participant. TradeSpark, Cantor Fitzgerald’s online energy trading platform, is using Vmac’s model during its testing phase, which started in August.
“The clearing product is important to the efficiency of the energy market since capital is very expensive in this sector,” said Wallace Turbeville, Vmac chief executive and a former Goldman Sachs energy trader. “Since clearing allows for multilateral netting of risks, it can reduce the demand for capital by between 80% and 90%," Turbeville added. In the energy market, many firms are raising capital at very high cost and reducing trading activity to lower perceived risk. Clearing is a far better way to address this issue.”
Vmac, which is part-owned by AAA-rated monoline insurer Financial Security Assurance (FSA), aggregates contract obligations that are guaranteed by FSA up to an agreed value, which is marked-to-market over time. While bonds are not issued, as the obligations are unfunded, the effect is similar. FSA also syndicates the risk into the reinsurance and credit derivatives markets.
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 Regulation
FRTB start dates must align globally, says European Commission
Lawmaker could trigger delay to market risk rules in Europe if US implementation drags on
Fed green lights more capital relief trades
Five US banks authorised to issue repeat credit-linked notes backed by financial guarantees
Basel III endgame: why moving fast might prove better for banks
Republicans are pushing for reproposal, but a rapid finalisation may prove less far-reaching
Isda pushes to ‘decouple’ Simm calibration from model changes
Emir 3.0 prompts effort to separate risk-weight revisions from methodology updates
Basel war on window-dressing may smooth liquidity, at a price
Changes to G-Sib charge could curb year-end repo volatility, but also cut balance sheet capacity
One year on, regulators still want a cure for bank runs
Broad support for higher outflow assumptions on uninsured deposits, but that won’t save insolvent banks
Watchlist and adverse media monitoring solutions 2024: market update and vendor landscape
This Chartis report updates Watchlist monitoring solutions 2022 and focuses on solutions for sanctions (name and transaction) screening and monitoring adverse media and its related elements
Basel Committee reviewing design of liquidity ratios
Focus on LCR and NSFR after Silicon Valley Bank and Credit Suisse, but assumptions may not change
Most read
- Breaking out of the cells: banks’ long goodbye to spreadsheets
- Too soon to say good riddance to banks’ public enemy number one
- Industry calls for major rethink of Basel III rules