September 26, 2018 / 5:54 PM / 3 months ago

EXCLUSIVE-Danske Commodities cuts its position on Nasdaq's Nordic power exchange after trader's default

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By Lefteris Karagiannopoulos

OSLO, Sept 26 (Reuters) - Danske Commodities, one of Denmark’s largest commodity traders, has reduced its trading position on Nasdaq’s Nordic power exchange after one trader’s default left a 114 million euro ($134 million) hole in Nasdaq’s clearing house buffers.

Separately, Norway’s Eidsiva Energi and Denmark’s EWII said they were talking internally about leaving Nasdaq’s Nordic clearing house operation.

Danske Commodities, which agreed in July to a takeover by Norwegian oil firm Equinor pending regulatory approval, said Norwegian trader Einar Aas’ default on Sept. 10 had hit market liquidity.

Aas, a veteran derivatives trader, made large bets on the power market. His default triggered the use of cash guarantees that all market participants must have to trade on the exchange.

In addition, traded electricity volumes have fallen by two-thirds since a 2002 peak, making the market less liquid and thus less attractive and riskier for traders. (Graphic: reut.rs/2xBrdRp)

“We have sized our position down by 30 to 40 percent,” Tor Mosegaard, Danske Commodities head of power markets, told Reuters without giving a value for its total position. “Depending on how liquidity on the market evolves, we may downsize it further.”

“The biggest liquidity provider (Aas) defaulted and that created a lot of illiquid products,” he added. “We can’t leave a big position in the market ... We need to close it, we need to size down our mandate on Nasdaq.”

Danske Commodities trades on Nasdaq’s Nordic commodities exchange to hedge against German power prices, which it trades on Nasdaq’s rival exchange, EEX.

“We use EEX in all our German products. If liquidity picks up in its Nordic products we will follow and quit Nasdaq. We will not be the first movers but we will follow,” said Mosegaard.

Nasdaq declined to comment on Danske Commodities’ decision. (Editing by Elaine Hardcastle and Kirsten Donovan)

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