OSLO (Reuters) - Nordic energy firms pledged on Friday to help replenish a contingency fund after a private Norwegian trader defaulted and exchange operator Nasdaq said it would provide additional capital to maintain trust in the market.
Finland’s Fortum will contribute some 20 million euros ($23 million), while Norway’s Statkraft [STATKF.UL] will pay 5 million euros, the two firms said, part of the 107 million euros that members must provide to remain in the market.
Nasdaq Clearing will separately deposit capital of 200 million Swedish crowns ($22 million), as an additional safeguard for an interim period of 90 days, the exchange operator said.
“We want to show our commitment to the market. To increase our own skin in the game. To reinforce the market’s confidence in this situation,” Nasdaq Clearing Chief Executive Officer Julia Haglind told Reuters.
“Nasdaq data analysis concluded that the market movement was 17 times larger than the normal observed daily spread changes, which was confirmed by two external parties, and could be characterized as a true ‘Black Swan’ event,” the exchange said in a statement.
Clearing houses like the one operated by Nasdaq are vital for the stability of markets, acting as an intermediary in stock, bond or derivatives transactions and ensuring completion if one side goes bust.
Einar Aas, a veteran derivatives trader who made large bets on the power market, left a 114 million euro hole in the fund that Nasdaq and commodities companies who are part of the Nasdaq clearing house are obliged to cover.
“It’s a big position and a big loss that clearly affected the default fund,” Fortum investor relations manager Maans Holmberg told Reuters.
“It’s important to look at processes. It is very important that Nasdaq carries this responsibility,” he added.
Aas failed to meet required payments — known as margin calls — to Nasdaq to insure against losses on Tuesday.
On Thursday, Nasdaq said the default had eaten up its own 7 million euro contingency fund and also two thirds or 107 million euros of the members’ shared contingency fund.
Nasdaq liquidated the trades, then offered Aas’ portfolio to several potential buyers on Wednesday. Fortum said it bid unsuccessfully.
The Nasdaq clearing house was not expecting additional defaults, its CEO said, while adding it would hire an external party to review its handling of the case.
It will also raise margin levels for its members, Nasdaq said.
Fortum and other members, which include Norwegian state-owned power giant Statkraft and oil and gas giant Equinor were told to pay their share into the contingency fund within two business days or risk being declared in default.
Finnish utility Fortum said its original participation in the contingency fund was approximately 30 million euros so it will book approximately 20 million euros in its third quarter results as a financing cost.
The trader’s bet backfired with unusually strong fluctuations in regional power market spreads, as heavy rain 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,” Aas said in a statement on Thursday, adding that he risks bankruptcy. He will automatically be barred from trading.
Aas, who keeps a low public profile, in 2016 had an estimated net worth of 2 billion Norwegian crowns ($244 million) according to business magazine Kapital.
(For a graphic on the spread that squeezed trader Einar Aas, click tmsnrt.rs/2p8x8sc)
Additional reporting by Ole Petter Skonnord and Nerijus Adomaitis; Editing by Elaine Hardcastle and Keith Weir