This notice concerns a breach of margin requirements related to the clearing of contracts for Einar Aas, a member of Nasdaq Clearing AB, which is a central counterparty for the clearing of derivative contracts. The company is under the supervision of the Swedish financial supervisory authority (Finansinspektionen).
A central counterparty sets margin requirements for its members’ derivative positions. The margin requirements are primarily intended to capture financial counterparty risk related to a member’s entire cleared portfolio. The applicable rules derive from the EU legislation regulating the European market infrastructure (EMIR). Finanstilsynet is a member of the supervisory college for Nasdaq Clearing AB, which is headed by Finansinspektionen. Finanstilsynet is in close touch with Finansinspektionen in its follow up of this matter.
As mentioned, the margin requirements set by central counterparties are designed to curb financial central counterparty risk associated with derivatives trading (the ‘financial market’). Position limits governing trades in commodity derivatives at trading venues are set under separate EU legislation (MiFID II). This is a new framework, aimed at reducing the risk of serious disruption to the underlying commodity markets (the ‘physical market’). Finanstilsynet sets position limits for power derivatives traded on Nasdaq Oslo ASA. The prevailing position limits had not been exceeded at the time Nasdaq Clearing AB declared Einar Aas to be in default.
At issue is a breach of Nasdaq Clearing AB’s margin rules. In light of the nature of the breach, and potentially detrimental implications for the functioning of the markets, Finanstilsynet will also follow up the matter vis-à-vis the Norwegian trading venue, where the derivative trade in question was executed, i.e. Nasdaq Oslo ASA. Finanstilsynet does not consider it appropriate to make further comments on the matter until the necessary investigations have been completed.