Montel) Participants in the Nordic market were baffled by the risk-taking that was allowed to spin out of control on Nasdaq this week, while some argued the exchange had survived an extreme stress test, they told Montel on Friday.
On Tuesday, Nasdaq Commodities put the entire portfolio of power trader Einar Aas under administration as it became clear he would default on a gigantic bet he had placed on the spread between Nordic and German power prices.
“We don’t have a problem with individuals becoming clearing members on Nasdaq if they have the resources to cover for themselves. But positions of this size seem dangerous and it’s unbelievable Nasdaq allowed for a lone trader to build up positions which make up such a major share of the total market,” Lina Petrell, risk manager at Shepherd Energy, told Montel in a written statement.
Aas held positions of more than 30 TWh in the forward market, or the equivalent of a quarter of the underlying consumption in Norway.
A trading position of this size could hardly be liquidated without significant losses, which indicates that the margin calls were hardly sufficient, Petrell said, calling for full transparency on all steps of the default process, including how the settlement was handled.
Default funding
A default fund at Nasdaq Clearing faced an immediate loss of EUR 114m following the suspension of the trader, equivalent to around 68% of the fund’s capital. It consequently has asked members to contribute to refilling the fund, and on Friday the clearing house on its own injected EUR 19m in temporary funding.
“The bankruptcy causes unforeseen costs for all players and it’s a concern to what extent this will negatively affect liquidity on Nasdaq,” said the chief market analyst at a Swedish utility.
Liquidity fears
“We’re talking about a total position of roughly 34 TWh in the Nordic/German market with close to 3,000 MW in the Q1-19 contract; so in both the short and long end of the curve he held up to half the open balance,” a trader said on the condition of anonymity.
The trader added: “Has Nasdaq really done adequate stress testing and thoroughly looked at risks of concentration [of market power] and liquidity risks?”
“A 30 TWh position shows he’s been behind a lot more of the liquidity than I had imagined,” said Fredrik Bodecker, CEO of Bodecker Partners.
There was also concern that the collapse of Aas’s positions would continue to affect wholesale market prices on Nasdaq.
“I don’t think we have any guarantees that this incident won’t continue to affect price movements until the contracts in question go to delivery,” said Tor Reier Lilleholt, head of analysis at Wattsight, an Oslo-based analysis firm.
Extreme stress test
Naet, the Nordic traders’ association, was concerned about the market confidence being shaken. “But without the clearing [function], it would have gotten really nasty,” said Hermud Ulstein, who heads the association. He described the developments as an “extreme stress test” which the market had passed.
“At the same time, it’s important to stress that all positions are intact, the market works and we could continue to trade both yesterday and today. That contributes to rebuilding trust.” "
Snåsamannen 21:39 "(Montel) The benchmark Cal 19 contract see-sawed on Friday, marking the widest high-low spread in a decade amid a volatile carbon market.
The front year was last seen down EUR 1.90 at EUR 50.50/MWh, after seeing an intraday movement of EUR 5.40 between the low at EUR 47.60/MWh and the high of EUR 53/MWh.
“I’ve never seen that, not even with Fukushima,” said a Germany-based trader, referring to the intraday movement amid the Japanese nuclear disaster in March 2011, which prompted German’s nuclear phase-out.
The last and only time the front-year contract saw larger intraday movements was in 2008, according to EEX data.
“Everything follows the carbon market at the moment,” said an Austria-based trader.
The Dec 18 EUA benchmark was last seen up EUR 0.48 at EUR 19.38/t after trading in a EUR 17.90-20.65/t range in the current session reflecting “panic” on the market. It hit a 10-year high of EUR 25.79/t on Monday.
In addition, the API 2 coal contract for 2019 saw an intraday movement of USD 3.50, with it last seen at USD 94.30/t, down USD 0.65 day on day.
“We still believe [power] prices will go up,” said the Austrian trader, adding, however, the “speculative” element of the carbon market made it hard to say what would happen next week.
Short-term downside
On the spot market, the exchange auction settled at EUR 51.79/MWh for Saturday baseload, down EUR 13.05 on the day, while the peakload contract fell EUR 19.26 to EUR 50.11/MWh.
Saturday’s residual load – the amount of demand not covered by renewable energy – should be 35 GW, 14 GW lower than Friday’s, with wind generation increasing by 4 GW on average and demand falling by 9 GW, according to data from Energy Quantified, a Montel company.
The contract for next week last traded up EUR 1.50 at EUR 59/MWh at one broker.
However, with French reactor availability set to improve and German solar production above normal prices might not deliver at such high levels, said a trader.
German solar infeed should be 1 GW above normal at 5.3 GW next week, according to EQ.
French nuclear availability should rise from 47.5 GW currently to 50.3 GW next Friday, according to data from TSO RTE.