Nasdaq still pursuing recovery of assets from member that defaulted in Sep 2018
Nasdaq, Inc. (NASDAQ:NDAQ) has published its 10-Q report with the Securities and Exchange Commission (SEC), including an update on a default of a member of Nasdaq Commodities Clearing. Nasdaq is still seeking recovery of assets from that member, the document says.
In September 2018, a member of the Nasdaq Clearing commodities market defaulted due to inability to post sufficient collateral to cover increased margin requirements for the positions of the relevant member, which had experienced losses due to sharp adverse movements in the Nordic – German power market spread. Nasdaq Clearing followed default procedures and offset the future market risk on the defaulting member’s positions.
The default resulted in an initial loss of $133 million. In accordance with the liability waterfall, the first $8 million of the loss was allocated to Nasdaq Clearing’s junior capital and the remainder was allocated on a pro-rata basis to the commodities clearing members’ default funds. In September 2018, these funds were replenished.
In December 2018, Nasdaq launched a capital relief program. The capital relief program was a voluntary program open to each commodities default fund participant; each such participant who agreed to the capital relief program received a proportion of the funds made available under the capital relief program as reflected by their proportionate share of the aggregate of the clearing members’ default fund replenishments.
As of September 30, 2020, Nasdaq disbursed substantially all of the $23 million offered through the program.
“In addition to the capital relief program, we are pursuing recovery of assets from the defaulted member which will be allocated back to default fund participants”, Nasdaq says.
Further, Nasdaq says it has been cooperating fully with Swedish regulators in the associated regulatory audits. “While we are currently unable to predict the final outcome of this matter, it could include penalties, such as a fine”, Nasdaq says.
Let’s recall that, on September 10, 2018, the markets in Nordic and German power experienced an extreme movement in the spread. The defaulted portfolio contained a large spread position between Nordic and German Power that was negatively impacted by the fluctuation in the spread between the Nordic and German power markets.
An Intraday Margin Call (IDMC) was issued to the Relevant Clearing Member on September 10, 2018. The margin payment obligation triggered by the IDMC, however, was not met in full by the Relevant Clearing Member, which triggered initial default procedures.