Nasdaq Clearing fined $36 million in Sweden over 2018 trader default

11:38 am Wednesday, January 27th, 2021

By Nora Buli

OSLO (Reuters) – Nasdaq Clearing has been fined 300 million Swedish crowns ($36 million) by Sweden’s financial supervisory authority (FI) over the default of a power trader in 2018 that showed deficiencies in its operations, the FI said on Wednesday.

The default by private Norwegian trader Einar Aas left a 114 million euro ($139 million) hole in the clearing house’s resources, forcing other members of the market to cover the loss within two business days or face default themselves.

Nasdaq Clearing, a Swedish unit of Nasdaq Inc, also violated EU regulations by investing its own funds in derivative contracts for too long after the default, the regulator said.

“Together with other deficiencies that are presented in this decision, these breaches have created unacceptable risks in Nasdaq Clearing’s operations, which could have had a very serious impact on the financial system,” the FI’s decision said.

Nasdaq Clearing did set up a temporary derivatives portfolio to manage the exposure resulting from the default, as permitted under financial regulation, but it took far too long to close the positions, which were unwound in mid-2019, senior FI adviser Magnus Schmauch said.

“That is exactly the kind of risk a CCP is not supposed to expose itself to because prices can go up as much as they can go down,” Schmauch told Reuters.

Nasdaq said it had launched a comprehensive programme to strengthen its resilience and robustness immediately after the default and would analyse the FI’s decision before deciding on any next steps.

The company has three weeks to decide whether to appeal.

The trader’s default was triggered by big fluctuations in market spreads, when power prices in the Nordic region – which is dependent on hydroelectric power – fell due to heavy rain while German power prices spiked due to a rise in the cost of carbon, Nasdaq said at the time.

Einar Aas did not respond to an email seeking comment on the case on Wednesday.

In 2018, Aas said his position in the market had been “too big in relation to the market’s liquidity” and that he risked personal bankruptcy.

Aas later struck deals with his creditors, settling the claims against him.

($1 = 8.3057 Swedish crowns)

($1 = 0.8225 euros)

(Editing by Terje Solsvik, Mark Potter and Jane Merriman)