Nord Pool Clearing

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Nord Pool Clearing
Nord Pool Clearing is a licensed as a commodity clearing house. It was granted its license as clearing house under the regulatory authority of the “Kredittillsynet” in Norway, the Norwegian Financial Supervisory Authority. Nord Pool Clearing ASA is a 100% owned subsidiary to Nord Pool ASA, the world’s first international commodity exchange for electricity, green certificates and European Union Allowances (EUAs).[1]

The clearing house provides clearing of all the contracts traded on the Nordic Power Exchange through the electronic trading system PowerCLICK, and the standardized contracts reported for clearing from the bilateral over-the-counter market.

It enters into financial electricity contracts, EUA contracts and green certificates as a contractual counterparty. The clearing house assumes liability for covering the future financial settlement of all cleared contracts and hence reduces risk for the market participants.

Nord Pool Clearing offers a netting of positions which enables members to utilize their capital in the most efficient way. The net positions are the foundation for calculating the daily margin call and settlement. Market participants wishing to clear its contracts through Nord Pool Clearing must provide collateral covering the daily margin call, in addition to the initial margin to be placed when signing the clearing membership agreement.

The clearing house calculates a margin requirement (collateral call) on a daily basis in order to cover its counterparty risk vis-à-vis the members. Acceptable collateral to the clearing house are cash on a pledged bank account and/or an on-demand guarantee according to a standard template. The bank account must be opened in a bank approved by Nord Pool Clearing (settlement bank). In the case of a default by a member, losses are initially covered by the collateral posted by the actual member. Any losses exceeding the collateral have to be covered by a combination of Nord Pool Clearing’s equity and default insurance policy.

The clearing house uses the SPAN margin call calculation system to calculate the size of the daily margin call for each clearing member's portfolio. The daily settlement is automatic, and the members are connected to the settlement system through a variety of multinational settlement banks.

Nord Pool Clearing’s risk capital is EUR 155 million, consisting of the clearing house's equity of EUR 80 million, and an insurance arrangement with Radian Asset Assurance Inc. The agreement comprises a default insurance policy with a total insurance limit of USD 110 million, accumulated over a two year period.[2]

History

On Dec. 21, 2007, Stockholm-based exchange operator OMX said it had agreed to purchase the consulting and clearing units and international derivatives products of Nord Pool of Oslo for about 2.3 billion Norwegian kroner, or $412 million. The deal, which is expected to be completed by mid-2008, does not include Nord Pool Spot, which operates the Nordic physical market, or Nord Pool’s 17.4% share of Leipzig, Germany’s European Energy Exchange (EEX), a potential competitor of the new energy and commodity business unit that OMX plans to establish in Oslo.[3]

References

  1. Press Release. Nord Pool.
  2. Nord Pool Clearing In Brief. Nord Pool.
  3. "OMX Purchases Parts of Nord Pool, Aims to Build Leading Carbon Market". securitiesindustry.com.