What were the events that triggered the default process?
- On Monday September 10, 2018, the markets in Nordic and German power experienced an extreme movement in the spread.
- One of Nasdaq Clearing´s members had a portfolio containing a large spread position between Nordic and German Power that was negatively impacted by the fluctuations.
- On Monday September 10, an Intraday Margin Call was issued to the relevant Clearing member.
- When the member no longer could meet the margin requirement due to the losses in the portfolio, our rules require that we then close out the portfolio as soon as possible to mitigate further risk of loss. As a result, on Tuesday, September 11, Nasdaq Clearing declared the member in default.
- When analyzing the data of the event, we concluded that the market movement leading to the extraordinary fluctuations in the defaulted portfolio´s spread was 17 times larger than the normal observed daily spread changes. This has also been confirmed by two external parties, and has been characterized as a true “Black Swan” event.
What actions has Nasdaq taken after the default?
- Within 48 hours after the default, the portfolio was closed out through an auction according to Nasdaq Clearing’s close-out procedures. However, the close out resulted in a loss for Nasdaq Clearing that exceeded the defaulting member’s collateral and default fund contribution.
- Therefore, on 14 September, Nasdaq temporarily contributed 20 mm EUR (200 mm SEK) to its Junior Capital fund, in addition to the EUR 7M that Nasdaq already had replenished in the Default Fund as Junior Capital.
- On 17 September, 8.40 am the member Default Fund reached more than 90 percent committed funds for recapitalization from Nasdaq Clearing´s members.
- Later the same day, 17 September, at 4 pm in the afternoon the member Default Fund was recapitalized by 100%, or 107 mm EUR.
- In order to reduce the risk profile in the market situation following the default, Nasdaq Clearing has decided to increase margin levels:
- Confidence levels have been increased in order to shift risk of a particular portfolio from the mutualized default fund to the owner of the portfolio.
- We have increased margins on spread positions.
- We have commissioned Oliver Wyman, a Global Management Consulting firm, to perform a review of our risk management practices.
What is the current status and next steps?
- Nasdaq Clearing is currently exploring all rights and available options to pursue recovery for members and clients to minimize any shortfall. We are in close dialogue with members and clients on this matter.
- The defaulting member has agreed to submit to a consensual arrangement with creditors to liquidate certain assets in order for Nasdaq to recover for the Default Fund Participants the losses arising from the default.
- Any funds recovered by Nasdaq will be apportioned in accordance with the Default Fund Rules, i.e. be applied towards the Default Fund Participants on a pro rata basis.
We will continue to update this page as soon as we have more information.
For more information, please contact:
Julia Haglind, President Nasdaq Clearing
For media inquiries, please contact:
David Augustsson, Corporate Communications
You may also refer to our market communication, available through the links below:
Nasdaq quarterly report for market surveillance, including a review of the market impact of the default event. (October 16, 21:00 CET)
Nasdaq Clearing responses to member questions on the recent default (September 27, 15:30)
Update on Commodities Member Default (September 21, 20:13)
Further information regarding Member Default - Q&A no 2 - 2018-09-19 (September 19, 11:07 CET)
Update on status of Commodities Member Default Fund (September 17, 15;59 CET)
Update on status of Commodities Member Default Fund (September 17, 08:37 CET)
Questions and Answers regarding Member Default (September 14, 21:00 CET)
Nasdaq Statement Regarding Member Default (September 14, 16:00 CET)
Changes to Nasdaq Clearing Default Funding (September 14, 13:00 CET)
Statement from Nasdaq Clearing (September 13, 16:00 CET)
Default Notice from Nasdaq Clearing (September 12, 22:00 CET)
For all Market Notices, and to subscribe, follow this link.