Updates on the Nasdaq Clearing Member Default
Since the default of a member in September 2018, Nasdaq has been working diligently and transparently to analyze the event together with our members and third parties and has taken several steps to further improve our CCP and the Nordic power market.
To further improve the risk management framework, Nasdaq Clearing has launched an Enhancement Program, with a number of actions that could be divided into three main areas:
- Membership framework: we continue to enhance our membership and credit assessment framework through additional requirements on capital, liquidity and operational capacity.
- Margin add-ons: we are enhancing our margin framework through more specific and targeted margin add-ons, lowering tail risk and managing concentrated portfolios identified as posing additional risk to the CCP and its members.
- Default Management Framework: we are enhancing the incentives for participants (our members and clients) to support the CCP in the close-out process. In addition we are expanding the number of close-out providers.
The feedback of Nasdaq’s trading and clearing members is continuously used to refine these actions as necessary and ensure that market liquidity and business goals are considered. All systems and risk models can be improved, and we always strive to develop our processes and procedures in an ever-changing world.
A more detailed description of the enhanced risk management framework can be found through the Resource Center below.
In addition, Nasdaq is working together with our members to further improve the effectiveness and liquidity of the Nordic power market.
We also keep moving closer the launch of a day-ahead auction solution for Nordic, German and French power, that we intend to launch during the first half of 2020, and which will bring benefits to our customers in combining spot and futures.
Lastly, through our consensual agreement with the defaulted member and the creditors, we expect to recover a sizable portion of the initial 107 mm EUR default fund loss, beyond the 20 mEUR already allocated back to default fund participants by Nasdaq.
What were the events that triggered the default process in September 2018?
On Monday September 10, 2018, the markets in Nordic and German power experienced an extreme movement in the spread. One of Nasdaq Clearing´s members had a portfolio containing a large spread position between Nordic and German Power that was negatively impacted by the fluctuations. When the member no longer could meet the margin requirement due to the losses in the portfolio, Nasdaq Clearing declared the member in default, on Tuesday, September 11.
What actions did Nasdaq take after the default?
Within 48 hours after the default, the portfolio was closed out through an auction according to Nasdaq Clearing’s close-out procedures. However, the close out resulted in a loss for Nasdaq Clearing that exceeded the defaulting member’s collateral and default fund contribution.
On 14 September, Nasdaq temporarily contributed 20 mm EUR (200 mm SEK) to its Junior Capital fund, in addition to the EUR 7M that Nasdaq already had replenished in the Default Fund as Junior Capital.
On 17 September, the member Default Fund was recapitalized by 100%, or 107 mm EUR.
A more detailed description of the enhancements to our risk management framework can be found below in the Resource Center
Q & A
At Nasdaq, our primary focus is the protection of our clients and the integrity of our markets. With respect to the recent events related to one of Nasdaq Clearing´s members that was declared in default, we want to remain transparent and provide the following overview.
- Q&A published September 27, 15:30 CET
- Q&A published September 19, 11:07 CET
- Q&A published September 14, 21:00 CET
You may also refer to our market communication, available through the links below:
Nasdaq Commodities: Strategic Plan for 2019 (January 24, 2019)
Update on Commodities Member Default (November 15, 18:11 CET)
Nasdaq Clearing responses to member questions on the recent default (September 27, 15:30)
Update on Commodities Member Default (September 21, 20:13)
Further information regarding Member Default - Q&A no 2 - 2018-09-19 (September 19, 11:07 CET)
Update on status of Commodities Member Default Fund (September 17, 15;59 CET)
Update on status of Commodities Member Default Fund (September 17, 08:37 CET)
Questions and Answers regarding Member Default (September 14, 21:00 CET)
Nasdaq Statement Regarding Member Default (September 14, 16:00 CET)
Changes to Nasdaq Clearing Default Funding (September 14, 13:00 CET)
Statement from Nasdaq Clearing (September 13, 16:00 CET)
Default Notice from Nasdaq Clearing (September 12, 22:00 CET)
For all Market Notices, and to subscribe, follow this link.