Traders on Nordpool, and who are part of the Nasdaq clearing house, this last week faced a c.$133 million hole in a contingency fund as a trader defaulted as the market moved against him. According to Reuters, “The derivative trader’s default was triggered by strong fluctuations in regional power market spreads, as heavy rain last week pushed down prices in the hydroelectric-dependant Nordic region, while a spike in the cost of carbon drove up German prices, Nasdaq said. “My position was too big in relation to the market’s liquidity,” trader Einar Aas said in a statement, adding that his portfolio had been sold off by Nasdaq late on Wednesday and that he risked personal bankruptcy. While Nasdaq said it had covered 7 million euros of the total losses, it told members of its commodity clearing operation to pay the remaining 107 million euros within two business days or risk being declared in default themselves.” While the hole in the fund was covered by participants, Nasdaq also deposited $22 million in additional funds on a temporary basis to help restore trust in the market. The incident is a timely reminder that stress testing portfolios and adequate risk management is essential… continue reading
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