FT : Trader blows €100m hole in Nasdaq’s Nordic power market

Trader blows €100m hole in Nasdaq’s Nordic power market
Loss raises questions over clearing house controls on eve of Lehman collapse anniversary

One of Norway’s richest men has blown a €100m hole in a stability fund that ensures the safety of derivatives trading in European electricity markets.

Coming in the same week as the 10th anniversary of Lehman Brothers’ collapse, the trading losses will focus attention on the robustness of standards promoted by policymakers globally after the financial crisis.

Einar Aas, a private trader who has been among Norway’s highest earners in recent years due to aggressive bets in European power markets, saw his positions collapse on Monday after extreme market moves in German and Nordic energy markets. He was identified by multiple sources in the market, including a person with direct knowledge of the matter.

Nasdaq, the principal trading exchange where futures contracts tied to physical energy markets in the Nordic region are transacted, said a clearing member had defaulted on Tuesday after they were unable to meet margin calls at its clearing house on lossmaking trades.

Authorities singled out clearing houses as key pillars of global market stability to withstand the next financial crisis. These entities stand between two parties in a trade to help prevent the fallout from defaults rippling through the market.

Nasdaq said that a member of the clearing house blew through several layers of safeguards designed to protect it from such losses. The member was clearing his own trades, rather than going through a broker. Nasdaq also said the member went beyond its usual margin requirements and also used up the exchange’s own default fund.

The size of the loss also ate up about two-thirds of a separate €166m mutual default fund members must contribute to, according to two people familiar with the matter.

The default compelled Nasdaq to close out the positions in a volatile market earlier this week, crystallising losses of more than €100m related to the trades, according to a person familiar with the matter. The losses will be met by both the exchange and members of its clearing house, Nasdaq said on Thursday.

Its members include some of the biggest banks and energy traders such as Morgan Stanley, UBS and Equinor, Norway’s state oil company. They will receive a letter from Nasdaq in the coming days requesting the payment of the funds within 48 hours.

The catalyst for the trading loss was a series of backfiring bets on the price difference between German and Nordic power markets, according to multiple sources in the industry. Mr Aas’s trades were positioned for the gap between the two to narrow, but instead it widened sharply to a level 17 times larger than normal.

That move was triggered, in part, by a jump in the price of carbon allowances in Europe that have been the best performing commodity so far this year and a source of bumper profits for hedge funds and investment banks. Rising carbon prices, which are trading at a decade high, have dragged up natural gas and electricity markets in continental Europe.

At the same time, a forecast of wetter than previously anticipated weather in the Nordic region, where hydropower is a major contributor to electricity supplies, pushed prices on the so-called Nordpool market far lower.

Mr Aas had a taxable income of Nkr 833m ($101m) and a fortune of about Nkr 2.1bn ($245m) in 2016, according to the Norwegian government’s public tax return data.

The media-shy energy trader from Grimstad in southern Norway worked at Agder Energi-owned Interkraft Trading before leaving to trade with Nkr 250,000 ($30,000) of his own money, according to Norwegian newspaper reports. The Financial Times was not able to reach him for comment.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • PVTL -26.3%, KR -8%, OXM -4.7%, HOLX -1.6% (provides update on the financial impact of recent actions; expects Q4 Cynosure revenue to be approx $15 mln lower than prior guidance but reaffirms overall sales guidance)

Other news:

  • PGNX -20.3% (reports top line data for Phase 3 study on a prostate cancer visualization agent; co-primary endpoint of sensitivity was not met)
  • ACOR -17.8% (FDA has extended the PDUFA goal date for its review of the INBRIJA NDA from October 5, 2018 to January 5, 2019)
  • SRTS -11.5% (commenced public offering of common stock)
  • HLNE -4.4% (commences underwritten public offering of 2,880,979 shares of Class A common stock by Hamilton Lane and certain selling stockholders; also filed for 15 mln share Class A common stock shelf offering by selling stockholders )
  • FOMX -4.3% (proposed follow-on underwritten public offering of $70 mln of its ordinary shares)
  • GBT -3.7% (Stat News' Adam Feuerstein out cautious ahead of expected FDA submission for voxelotor in SCD)
  • HL -2.4% (filed for approx 1.87 mln share common stock offering by selling shareholders)
  • XENE -1.8% (prices 4.5 mln shares of common stock at $14.00 per share)
  • FND -1% (announces secondary offering of 10 mln shares by selling stockholders)

Analyst comments:

  • FNSR -4% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • FEDU -3.3% (downgraded to Sell from Neutral at Citigroup)
  • CIEN -2.6% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • W -2.5% (downgraded to Neutral from Buy at BofA/Merrill)
  • HOLX -1.6% (downgraded to Neutral from Buy at BofA/Merrill)
  • TXRH -1.2% (downgraded to Neutral from Buy at BTIG Research)

>>> US Gapping up


Gapping up
In reaction to earnings/guidance:

  • PI +39% (also Audit Committee, assisted by independent counsel that the Committee retained to oversee a thorough and careful investigation, concluded that there was no credible evidence supporting the former employee's complaint), TLRD +8.6%, CMA +0.6% (reaffirms guidance)

Other news:

  • TLRY +8.6% (receives necessary regulatory permits in Canada and Germany to export medical cannabis flower for distribution to German patients)
  • CZR +4.8% (Vora Capital wants CZR to sell assets or the entire company, according to NY Post)
  • TUR +3.5% (Turkey raises interest rates 625 bps to 24%)
  • NOK +3.4% (to divest its IP Video business to Volaris Group)
  • QCOM +3.3% (enters into $16 bln accelerated share repurchase program)
  • BRFS +2.5% (after closing near lows on reports of food probe)
  • ZLAB +2.4% (Zai Lab will host call to discuss exclusive regional license and collaboration agreement with Novocure (NVCR) for Tumor Treating Fields tomorrow at 8:30 am ET)
  • INCY +2.2% (announces 'positive' results from its rPhase 2b study evaluating ruxolitinib cream in patients with atopic dermatitis who are candidates for topical therapy)
  • FLR +1.7% (Fluor Federal Petroleum Operations gains DOE Strategic Petroleum Reserve contract extension; will book the $2 bln contract extension value in Q3 2018)
  • AMD +1.6% (continued momentum)

Analyst comments:

  • OBSV +11.1% (initiated with a Overweight at JP Morgan)
  • DVA +5.8% (upgraded to Neutral from Underweight at JP Morgan)
  • DRNA +2.4% (initiated with a Buy at Citigroup)
  • MEOH +1.9% (upgraded to Outperform from Mkt Perform at Raymond James)
  • CTMX +1.6% (initiated with a Buy at H.C. Wainwright)
  • CARA +1.4% (initiated with a Buy at Jefferies)
  • TRI +1.1% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • STM +1% (defended at Craig Hallum)
  • INTC +0.8% (upgraded to Market Perform from Under Perform at Northland Capital)

>>> US Early premarket gappers


Early premarket gappers

Gapping up:

  • PI +28.3%, TLRY +9.5%, TLRD +7.4%, CZR +4.3%, QCOM +2.6%, BRFS +2.5%, ZLAB +2.4%, NOK +2.3%, GLPG +2.1%, AMD +1.7%, FLR +1.7%, XENE +1.4%, BGS +0.9%, LGCY +0.7%, CMA +0.6%

Gapping down:

  • PVTL -23.9%, PGNX -21.1%, SRTS -8.6%, OXM -4.7%, FOMX -4.3%, CORE -3.3%, HOLX -2.8%, HL -2.4%, TSLA -1.2%, FND -0.5%