April 8, 2019 / 1:21 PM / 3 months ago

Nasdaq to raise Nordic power traders' minimum equity to prevent defaults

OSLO, April 8 (Reuters) - Nasdaq will raise the amount of money Nordic power firms must hold in reserve in order to directly clear trades on the Nordic commodities exchange, Nasdaq said, after a trader's default last year rocked the exchange.

Nasdaq confirmed traders' comments that it will ask traders to hold a minimum equity of five million euros ($5.61 million), up from one million euros now, in order to remain members of the Nordic commodities exchange's clearing house.

Nasdaq declined to provide further details.

"The suggestion from Nasdaq clearing now is that you have to have five million euros as equity," Hermund Ulstein, chairman of the Nordic association of electricity traders (NAET), told Reuters.

Another trader, who heads the trading operation of a large Norwegian power firm and who declined to be named, said Nasdaq had informed clearing members of the change in equity requirements and its new size.

Ulstein and the second trader said the change was expected to be implemented soon. Neither gave a precise timeline.

Nasdaq declined to comment on the timeline.

DEFAULT

Last September, Norwegian trader Einar Aas could not cover his losses, forcing members of Nasdaq's Nordic commodities exchange to replenish 114 million euros of clearing house contingency funds that were lost in the default.

After that default, Nasdaq said that it would introduce changes to prevent the situation from happening again.

Ulstein said the proposed change would help secure the exchange's clearing system, but at the same time was concerned that members of the exchange would look for other ways to clear trades, or trade bilaterally - thus reducing market liquidity.

"It secures the clearing but you lose customers and in the end you don't have a market," he said.

The second trader agreed. "Five million (minimum equity) is already big. It will definitely raise costs for lots of small guys," he said.

"Assuming some small companies exit the Nasdaq market and trade bilateral, that would take liquidity off. It's not a good thing for the market ... But I think given the last year's event they had to react and do something," he added.

$1 = 0.8913 euros Editing by Gwladys Fouche; editing by David Evans

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