Risk Price Parameters

Risk Management
(Valid from: 19/03/25)
Risk Price Parameters

The Risk Price Parameters listed below are calculated using models based on daily Day Ahead
market prices over the last 12 months. They may be revised by Nord Pool at any time.

Classic Trading Model:

Risk Price Parameters are used when calculating daily collateral requirements. Please refer to
the Classic Trading Model documentation on our Clearing page for more information

SmartCap Trading Model:

Risk Price Parameters are used in certain instances to estimate open order exposures. Please
refer to the SmartCap Trading Model documentation on our Clearing page for more information.

Negative Risk Prices are only applicable under SmartCap Trading Model.

Negative Risk Price

Delivery Country Currency Risk Price (Only applicable under
SmartCap Trading)
AT EUR 261 -5
BE EUR 197 -5
CZ EUR 252 -5
DE EUR 252 -5
DK1 EUR 238 -5
DK2 EUR 244 -5
EE EUR 231 -5
ES EUR 177 -5
FI EUR 201 -5
FR EUR 177 -5
IT EUR 177 -5
LT EUR 225 -5
LV EUR 224 -5
NE EUR 245 -5
NO1 EUR 214 -5
NO2 EUR 228 -5
NO3 EUR 140 -5
NO4 EUR 116 -5
NO5 EUR 158 -5
PL EUR 186 -5
SE1 EUR 105 -5
SE2 EUR 104 -5
SE3 EUR 188 -5
SE4 EUR 216 -5
SK EUR 186 -5
SL EUR 261 -5
UK GBP 207 -5

2
Classic Trading Model
Nord Pool Risk Management

February 2025
Introduction

The Classic Trading Model is a model which uses the Collateral Calculation Methodology to
produce a collateral requirement for each Clearing Member (except for Clearing Members subject
to the SmartCap Trading Model) that simply and accurately reflects the risk in a member’s trading
behaviour. The model estimates a Collateral Requirement that needs to be met by the member at
all times, based on historical trading patterns and in line with Nord Pool’s Clearing Rules.

Initial Collateral

Initial Collateral is the requirement that needs to be met before any trading activity starts. Nord
Pool estimates the Initial Collateral for all Classic Trading Model Clearing Members based on the
maximum expected net MWh position for a delivery day. This estimate is inserted into the Daily
Margin Calculation - giving the Clearing Member an Initial Collateral Call which must be met
before trading starts. All members must post collateral as security that they can pay for the
contracts they have entered into. Minimum Collateral for all Nord Pool members is €30 000.

Collateral Requirement for a given date;

Collateral Requirement = ∑ ({Max1−n ( Daily Net position (MWh) × Risk Parameter ) × Day Factor}
{
+ Max1−n (Daily Settlement Position × Multiplier ) }) × Credit Risk Adjustment
Where the;

- “Daily Net Position” is the sum of the volume flow for a given Risk date R (which
includes Intraday Continuous (IDC) trades with a delivery date of R-1, Intraday Auction
(IDA) trades with a delivery date of R and Day Ahead (DA) trades with a delivery date of
R+1) within a specific bidding zone, between Nord Pool and the Clearing Member.
- “Risk Parameter”, or the Risk Price Parameter is a parameter set on either a net long or
a net short position per delivery bidding zone, estimated as a conservative spot price
based on modelling and analysis of historical prices.
- “Day Factor” is a parameter set to account for Nord Pool’s exposure towards the
Clearing Member over extended non-banking days, which can be increased at the
discretion of Nord Pool.

- “Daily Settlement Position” is defined as the net sum of all payments payable to and
from the Clearing Member for a settlement day, as defined in the settlement schedule.

- “Multiplier” is a parameter that can be used by the discretion of Nord Pool to increase
the collateral call due to extraordinary market events.

- “Max1-n” defines the lookback period, which is currently set to 30 days for the daily net
position, and to 7 days for the daily settlement position

- “Credit Risk Adjustment”: The factor is a Multiplier reflecting the credit risk associated
with the clearing members trading behaviour. Please refer to the Collateral section of the
website for further details on the methodology and the relevant Multipliers.
2
Since 27/11/23 both the Daily Net Position and the Daily Settlement Position are always net
positive values, or set to zero, for the purposes of calculating Collateral.

Note that the Collateral Requirement will never fall below the minimum requirement
of €30 000.

Example

3
SmartCap Trading
Model
Nord Pool Risk Management
June 2025
Introduction

In March 2025, Nord Pool launched the SmartCap Trading Model, a new collateral and trading framework
designed to enhance collateral management efficiency and flexibility for members. This model also aims to
offer increased protection and strengthen risk management for members.

SmartCap Trading Model

The SmartCap Trading Model is a self-determined collateral and trading model giving members full control
over the amount of collateral they post to Nord Pool. This collateral is used to set a Trading Limit for the
member, restricting trading exposure to the amount of the Trading Limit. Minimum collateral requirements,
as stipulated on Nord Pool’s website, continue to apply to members. Clearing Members subject to the
SmartCap Trading Model are not subject to the Collateral Calculation Methodology as described under the
Classic Trading Model.

Trading Limit Utilisation

SmartCap operates on the basis of an Initial Trading Limit set by the amount of collateral posted by a
member. A member’s utilisation of the Trading Limit comprises 3 separate components:

1) Open Orders
2) Executed Trades Awaiting Invoicing
3) Unpaid Debit Invoices (Payments owed to Nord Pool)

Executed
Trades Unpaid Debit
Open Orders
Awaiting Invoices
Invoicing

As Open Orders remain potential exposures until executed, their Limit utilisation is calculated as follows:

Day Ahead and Intraday Auctions:

In order to have realistic exposure calculations, Risk Prices (Positive Risk Prices and Negative Risk Prices)
are used as a realistic, albeit conservative, market price when calculating exposures of certain Open Orders
in Day Ahead and Intraday Auction trading. Current Risk Prices can be found here.

▪ Curve Orders Types:

o As Curve Orders can have a high maximum price, SmartCap will use the Positive Risk Price
applicable to the order area to “cut” the curve bid so that the last price point of any buy
Curve Order will be at the Positive Risk Price instead of the maximum price.
o Curve Orders can also have a low minimum price. In this case SmartCap will use the relevant
Negative Risk Price applicable to the order area to “cut” the curve bid so that the last price
point of any sell Curve Order will be at the Negative Risk Price instead of the minimum price.

2
 ▪ Curve cutting is done in such a way that if there is no exact price point defined in
the originally submitted curve exactly at Risk Price, SmartCap will interpolate the
original bid and determine the interpolated volume at the Risk Price.
o For Curve Orders, SmartCap will aggregate curves before calculating their exposure if certain
conditions apply:
▪ Curve Orders have to belong to the same netting group, they have to be placed for
the same area (excluding German areas where TTG, TBW, 50Hz and AMP can be
netted together as they will have same price) and have to be for the same auction
instance.
o Aggregation of curves means that the total net volume of all curves is calculated for each
distinct price point, within all price points of curves subject to aggregation.
If curves have different currencies but still can be subject to aggregation,
conversion of price points to EUR is done before aggregation of the curves.
• Block Order Types:
o Block Order exposure is calculated for each netting group, per auction, by using either
▪ Risk Prices, if the block price is higher than the relevant Positive Risk Price in the
case of buy orders (or lower than the relevant Negative Risk Price in the case of sell
orders), or
▪ The member defined block price, if the block price is lower than the relevant positive
Risk Price in the case of buy orders (or higher than the relevant Negative Risk Price
in the case of sell orders).
o The exposure of individual blocks are calculated as Total volume of the block * price.
o If the block exposure is negative (net sell at positive price), it will be treated as zero exposure
o All block orders are treated with 100% MAR from the exposure perspective.
o If the block price is not in EUR, it will be converted to EUR using the last available rate, as
is done for curve orders.
o All block exposures are summed together and then later summed together with any curve
orders subject to the same netting group and auction.
o In case of Exclusive Group Orders, each block order within the Exclusive Group will have
their exposure calculated and the total exposure of the Exposure Group will be the maximum
exposure of a block order within the group. This is because in case of Executive Group orders,
only one of the blocks within the group will realize as a trade if any.
o For Spread Blocks, special handling is done as in that case there are two Block orders that
both need to be realized or neither of them is realized. A Spread Block has both buy and sell
Blocks and they will be netted together to get the total exposure of a Spread Block.

Intraday Continuous Trading:

• Where a buy order has an upper price limit, the upper price limit will be used to calculate exposure.
• Where a sell order has a lower price limit below 0, the lower price limit will be used to calculate
exposure otherwise exposure will be 0.

Regardless of order type or direction (buy/sell), Open Orders cannot reduce limit utilisation. Any sell orders
will only contribute to reducing Limit utilisation after the trade has been executed (assuming positive prices).

3
Because both Executed Trades Awaiting Invoicing and Unpaid Debit Invoices are realised exposures,
their monetary value contribute directly to the utilisation of the Trading Limit.

A Debit Invoice will no longer contribute towards limit utilisation only when Nord Pool has received
confirmation from our bank that the invoice payment has been received.

It is important to note that Credit Invoices (payments owed to members) DO NOT contribute to
Limit utilisation, i.e. at no point will a Credit Invoice contribute to reducing Limit utilisation.

Trading Limit Utilisation Visibility, Alerts and Blocking

Each member has the ability to view their Trading Limit and utilisation in Nord Pool’s CASS UI, via the trading
platform and the associated API feeds. In addition to this, a member will receive an update on Limit utilisation
after each order submission, as well as email notifications as certain Trading Limit utilisation thresholds are
reached. These alerts serve to make a member aware that they are approaching full utilisation of Trading
Limit and may need to adjust their trading and/or Trading Limit.

For members under the SmartCap Trading Model, where a Trading Limit is reached, the member will not
be permitted to submit any additional orders which would increase exposure further. A member
will also receive an alert to notify them of same. At this point a member is required to reduce exposure,
await invoice payments, or increase their Trading Limit before they can submit any additional orders which
would utilise Trading Limits.

Estimating and Forecasting Trading Limits required and Limit Utilisation

There are some factors which a member should consider when estimating what Trading Limit they require
to trade as needed on Nord Pool without interruption. These include:

1) If submitting Block or Curve Orders, what are the current Risk Prices;
2) How long orders may remain Open until matched and become Executed Trades;
3) How long until an Executed Trade gets Invoiced, i.e. Nord Pool’s settlement and invoicing cycle (see
here);
a. Nord Pool’s invoicing cycle runs at approx. 14:30 CET each Norwegian banking day. As the
treatment of sell trades change as trades move from Executed to Invoiced, the
invoicing/settlement run may increase limit utilisation.
b. Specific attention should be given to the differing settlement cycles for Day-Ahead,
Intraday Auction and Intraday Continuous trading.
i. Day Ahead (DA) trades get invoiced on Delivery Day – 1 (i.e. Day of Auction). DA
debits (payments due to Nord Pool) are due on Delivery Day, credits (payments due
to Members) are paid on Delivery Day + 1.
ii. Intraday Auction (IDA) trades get invoiced on Delivery Day. IDA debits are due
on Delivery Day + 1, credits are paid on Delivery Day + 2.
iii. Intraday Continuous (IDC) trades get invoiced on Delivery Day + 1. IDC debits
are due on Delivery Day +2 and credits are paid on Delivery Day +3.
4) Weekend and Norwegian non-banking days (when invoicing cycles and payments do not take place,
notably including the Easter and Christmas periods).

4
Questions?

Questions on the SmartCap Trading Model can be addressed to NPRiskManagement@nordpoolgroup.com

5
Credit Risk
Adjustment
Risk Management
24/01/23
1. Background

Nord Pool introduced an enhancement to its Margin Model, the Credit Risk Adjustment (CRA) in August
2023. The CRA is intended to better reflect the credit risk that Nord Pool takes on in transacting with each
member. It does so by measuring each member on specific metrics to assess the level of credit risk
between Nord Pool and each member and applying a multiplier to each member’s collateral call to reflect
this risk.

Nord Pool will continue to ensure collateral posted remains sufficient for efficient and secure operations.

The scores, weighting, groups and associated multipliers will be periodically reviewed by Nord Pool and are
subject to change.

2. CRA Scoring

Nord Pool will perform an assessment of the CRA metrics for each member. Each member will be assigned
a total CRA score of 0-100. Members will be reassessed on a quarterly basis and informed when a review
has taken place.

The metrics measured and the weightings of these metrics in the calculation are described below.

2.1. Ownership Measure

Members which are publicly owned companies will receive a lower risk rating on the ownership metric.
Such companies must be owned at least 67% in total by state entities (including national governments,
local/municipal governments) of an OECD country. Nord Pool may request documentation of public
ownership from existing members.

New members may inform Nord Pool of their public ownership when onboarding and provide relevant
documentation.

Members which are not publicly owned companies (e.g. private limited companies) will be assigned to the
‘Other’ category.

Ownership Score assigned

TSOs and NEMOs 0

Publicly owned 25

Other 50

2
2.2. Invoices Measure

At the time of the quarterly assessment, Nord Pool will assess the total number of days where each
member had unpaid invoices in the previous 365 days. Members with less than 12 months of trading on
Nord Pool will be assigned an invoice score of 25.

Days Unpaid Score assigned

0-1 0

2-9 5

10-14 10

15-19 15

20-25 20

25+ 25

2.3. Deficits Measure

At the time of the quarterly assessment, Nord Pool will assess the total number of days each member had
a collateral deficit in the previous 365 days. Members with less than 12 months of trading on Nord Pool will
be assigned a deficit score of 25.

Days in Collateral Deficit Score assigned

0 0

1-4 5

5-9 10

10-14 15

15-19 20

20+ 25

The number of days in collateral deficit includes every day that members are shown as in collateral deficit
in the Clearing and Settlement System (CASS), excluding the interim periods prior to Christmas and
Easter when increased collateral calls are visible in CASS but prior to the absolute deadline for the
collateral call.

3
3. Credit Risk Adjustment Groups

Based on the assessment of the metrics outlined above, each member will be assigned to a CRA Group 1-
5; a lower CRA multiplier will be applied to the collateral call of members in lower risk groups and a higher
CRA multiplier will be applied to members in higher risk groups.

• Credit Risk Adjustment Group 1 (score 0-20)

1 Multiplier 0,6

• Credit Risk Adjustment Group 2 (score 21-40)

2 Multiplier 0,7

• Credit Risk Adjustment Group 3 (score 41-60)

3 Multiplier 0,8

• Credit Risk Adjustment Group 4 (score 61-80)

4 Multiplier 0,9

• Credit Risk Adjustment Group 5 (score 81-100)

5 Multiplier 1,0

4. Example Calculation

4.1. CRA Scoring

Metric Result Score

Ownership Other 50

Invoices Measure 1-9 days 5

Deficits Measure 5-9 days 10

Total 65

4.2. CRA Grouping

With a total score of 65, this Member is placed in CRA Group 4. As a result, a multiplier of 0,9 is applied to
the total collateral call:

4
 Old Collateral Call New Collateral Call with CRA

Settlement Margin * Multiplier (EUR Settlement Margin * Multiplier (EUR 300 000 * 1)
300 000 * 1)

Trading Margin * Day Factor (EUR Trading Margin * Day Factor (EUR 100 000 *1)
100 000 *1)

Total Collateral Call (EUR 400 000) Total * CRA Multiplier (EUR 400 000 * 0,9) = New Collateral Call
with CRA is EUR 360 000

5. FAQs

Where can I see which CRA multiplier applies to our company?

Members can view their CRA multiplier on the Clearing and Settlement System (CASS) user interface
under Collateral Call tab .

What CRA multiplier will apply to new members?

Newly onboarded members will initially be assigned a CRA based on the Ownership measure only. Once a
member has 12 months of trading, Invoice and Deficit measures will also be taken into account.

How can we lower our CRA score?

Members can lower their CRA score by ensuring that sufficient funds are always available to pay invoices
on time and by providing sufficient collateral to avoid collateral deficits. In this regard, members may wish
to provide sufficient ‘headroom’ in the available collateral to ensure that collateral deficits do not occur,
accounting for variation in their trading pattern, market prices and increases in the Day Factor during
holiday periods, which increase collateral calls.

How can I request more details on the Credit Risk Adjustment applied to our company?

Please email NPRiskManagement@nordpoolgroup.com with any questions you may have on the
Credit Risk Adjustment.

What do I need to do now?

No additional actions are required from members as a result of this change.

5
 Energy Economics 80 (2019) 635–655

Contents lists available at ScienceDirect

Energy Economics

journal homepage: www.elsevier.com/locate/eneeco

Price risk and hedging strategies in Nord Pool electricity market evidence
with sector indexes
Ben Amor Souhir a, Boubaker Heni a,b,⁎, Belkacem Lotfi a
a
Institute of High Commercial Studies of Sousse (IHEC), LaREMFiQ, 4054 Sousse, Tunisia
b
Rabat Business School, BEAR LAB (UIR), Technopolis Rabat-Shore, 11100 Rabat-Salé, Morocco

a r t i c l e i n f o a b s t r a c t

Article history: Electricity markets become more competitive due to their liberalization; therefore, electricity prices are consid-
Received 25 June 2018 erably more volatile compared to other commodity prices. As the electricity is an integral part of production and
Received in revised form 29 January 2019 economic growth processes, the electricity price may influence the stock market through affecting the real output
Accepted 6 February 2019
and consequently the sum of cash flows. Hence, investors are facing electricity price risks, and need to protect
Available online 10 February 2019
their benefits. This paper investigates the impacts of electricity market variations on the Nordic stock market
Keywords:
returns using hourly observations of electricity spot prices pairwise in aggregate market index and some sector
Electricity market indexes. Our sample is divided into three sub-periods according to the electricity volatility structure. A general-
Sector indexes ized long memory model is adopted to estimate the conditional mean of the studied time series, and the FIGARCH
Long run dependence process is used to model the conditional variance. Thereafter, a VaR, c-DCC-FIGARCH, CVaR and ΔCVaR models
Risk management are applied to assess electricity market exposure. Moreover, in order to evaluate the optimal portfolio, we calcu-
Conditional VaR-optimal hedge ratio lated the optimal portfolio weights, the optimal hedge ratios and the hedge effectiveness index of the electricity
market commodity in several sectors stock portfolios. Our results show evidence of long run dependence
between electricity market returns and sectoral stock market returns, and they indicate that the tail dependence
is significant and varies across sectors and over periods. Finally, the optimal weights and hedge ratios for
electricity/stock portfolio holdings are sensitive to the considered sectors. Therefore, electricity market commod-
ities can be adopted to diversify and hedge against stock market risks.
© 2019 Elsevier B.V. All rights reserved.

1. Introduction electricity markets has led to the creation of an organised market

where electricity is traded like other commodities.
Electricity is important and complementary to other production The countries that have liberalized their power market have similar
factors, and it is considered as an integral part of production as well as goals. They seek to create competition in the electricity market to reach
of economic growth process. Indeed, the economic growth requires an economic efficiency, lower consumer prices of electricity and higher
increase in investment to amplify the production capacity in order to quality services.
satisfy the real time demand; as a result, the electricity consumption In this deregulated market, electricity, like other commodities, is
will rise. Therefore, economic growth is a key factor of electricity sold and bought by market participants. The price and quantity trades
demand and any fluctuation in electricity supply may affect the macro- are fixed by the market operator referring to the supply and demand
economic factors, such as gross domestic product (GPD) growth. In this bids, submitted by the Load Serving Entities (LSE) and generators. How-
vein, as a crucial industry input nowadays, electricity is a fundamental ever, in contrast to commodities markets, the impossibility of storing
part of the modern economy. electricity to deliver in later periods in addition to the physical and
Due to deregulation movement, that reforms the electricity industry technical restrictions imposed on the transportation of electrical energy,
worldwide, electricity markets have become more integrated and com- accompanying with the necessity of assuring a constant equilibrium be-
petitive. Indeed, the electricity industry is converging toward a compet- tween demand and production, making the market more complicated
itive framework, since traditional monopolistic electricity market is and hence it should be operated differently.
replaced by deregulated market environment. This liberalization of Moreover, in electricity markets, retailers are uncertain about the
quantity of electricity consumed by their customers at any hour of the
day until they turn it on. While the uncertainty of demand is a mutual
⁎ Corresponding author. feature of all commodity markets, retailers usually rely on stored quan-
E-mail address: heniboubaker@gmail.com (B. Heni). tities to manage demand uncertainty. However, in electricity markets,

https://doi.org/10.1016/j.eneco.2019.02.001
0140-9883/© 2019 Elsevier B.V. All rights reserved.
636 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

retailers are exposed to both quantity and price risk on hourly basis, due describe the data generating process of the electricity market return
to the physical singularity that characterise the electricity. series. This model proves its effectiveness in fitting the different feature
On the supply side, the non-storability of electricity makes this especially related to the seasonal long memory behavior in the data. In
market very specific. Accordingly, electricity must be produced the addition, in order to capture the dynamic of time varying conditional
moment it is consumed. Therefore, intertemporal arbitrage is impossi- correlation between the electricity returns and each sector index
ble, and the electricity price is fixed based on the supply and demand returns, we apply a bivariate corrected dynamic conditional correlation
conditions at each given hour. FIGARCH model c-DCC-FIGARCH that allows examining the dynamic
These difficulties, added to the impact of meteorological conditions, conditional correlations (short-run links) among the variables consider-
significantly affect the electricity market organizations, and introduce ing the effects of long-run interactions and volatility persistence. More-
special features to electricity prices, in particular to the spot price, over, this study is conducted by implementing a Conditional Value at
such as high volatility, price spikes and mean-reversion.1 The main Risk (CVaR) approach. It represents the Value at risk (VaR) of some
reason for these particular features is attributed to the non-storability stock market returns conditional on electricity market returns. The
of electricity, peak demand at certain periods, generator outages and study also focuses on exposure CVaR or ΔCVaR measurement, which
fuel uncertainty for renewable energy generators. represents the variation of CVaR under distress state and the CVaR in
Consequently, electricity prices are considerably more volatile than its benchmark state. This measurement allows gauging the size of
other commodities prices.2 Confronting with this extreme price volatil- potential tail spillover effects from electricity market to each sectoral
ity, market participants are exposed to trading risks, and thus need to stock market. Finally, we evaluate the optimal portfolio, referring to
protect their benefits. The main objective of market participants is to three criteria: the optimal portfolio weight; the optimal hedge ratio,
incur the lowest expected costs for the expected electricity load, given and the hedge effectiveness index.
a specific risk target. Therefore, in order to deal with price risk, market In sum, our study introduces the dual generalized k − factor GARMA
participants can apply risk management techniques to control risk − FIGARCH model and the (c − DCC − FIGARCH) model in the field of
while maximizing their profits. In this vein, the design of more accurate analysing the electricity time series and stock indexes and adoption of
risk measurement models has become the central issue for more effec- the VaR, the CVaR and the ΔCVaR in the field of analysing tail depen-
tive risk management in the electricity market (Deng and Oren, 2006). dence between the electricity market returns and each sectoral stock
However, an efficient strategy of risk management must be sup- returns. It is worth noting that our study is the first to describe the rela-
ported with a robust methodology for forecasting the prices. More accu- tionship between the electricity market returns and each sectoral stock
rate forecasting reduces the risk related to the high price volatility, and returns. This investigation is crucial since electricity is a key factor of
consequently, provides better risk management (Bastian et al., 1999). production and economic growth. In addition, we propose an empirical
On the other hand, forecast errors have significant implications for framework to build an optimal portfolio in order to hedge against the
profits. As a result, forecasting prices in such markets become an essen- variation of electricity markets. However, as we know, there are no
tial issue for the risk management. researches that propose a portfolio optimization based on intraday
Risk management is the process of accomplishing a desired profit/ hedging for electricity market using stock indexes, despite that the fre-
return, considering the risks, by means of a strategy. In the financial quency of spot hourly price spikes reinforces the necessity of intraday
field, there are two strategies to control risk. One is through risk financ- hedging strategies (Homayoun Boroumand et al., 2015). More precisely,
ing by adopting hedging strategies to compensate losses that may occur since the electricity is a non-storable commodity, any variation of the
and the other one is whereby risk reduction by applying diversification demand in the matter of minutes or hours can generate an enormous
to decrease exposure to risks. Diversification is to engage in different effect on the prices, and consequently, this variation can affect immedi-
markets in order to limit the exposure to the risk of any specific market. ately the sector that relies on electricity in their activities. Therefore, this
To the extent that electricity serves as an essential input for indus- variation can be observed in the very short term, and for this reason, our
tries as well as the economic activity, the price of electricity may affect investigation is limited to a period of five months from which we adopt
the aggregate stock prices through affecting the real output which, in hourly observations (Fig. 1).
turn, influence earnings, and therefore, the sum of discounted future The rest of this paper proceeds as follows: Section 2 provides a
cash flows. By the relations that exist between electricity and stock brief review of the literature. Section 3 presents the econometric
markets, investors may make appropriate portfolio based on electricity methodology; which includes the generalized long memory (k − factor
commodity and some sectoral indexes from the stock market in order to GARMA) model for conditional mean modelling, illustrates the multivar-
reduce the risk related to the electricity market. iate conditional volatility and dynamic conditional correlations model-
In this vein, we are addressing the problem of establishing a frame- ling (c − DCC − FIGARCH) and presents the VaR, the CVaR and the
work for risk management and hedging strategies in the Nordic market ΔCVaR measures. Section 4 deals with the empirical framework and de-
and how to make an optimal portfolio based on electricity and sector scribes the Portfolio Designs and Hedging Strategies. Section 5 provides
indexes from the point of view of risk control. policy recommendations before drawing conclusions of the general
In order to tackle these research questions, our study aims to inves- scope.
tigate empirically the temporal dependence between the electricity
market and the stock market. Two questions motivate this research: 2. Literature review
(i) how does electricity market valuation affect the sector indexes on
the Nordic stock market? (ii) Which alternatives should be considered In a competitive electricity market, risk management is an essential
as safe havens by investors during the period of high fluctuations in part of a generation company and can intensely influence the profitabil-
the electricity market? ity of companies. Several hedging instruments have been developed to
To answer the research questions, the generalized long memory allow economic agents to manage their risks (Hull, 2005; Geman,
process (k-factor GARMA-FIGARCH) is adopted in this study in order to 2008; Xu et al., 2006; Oum et al., 2006). To exemplify, Oum and Oren
(2010) attained the optimal hedging strategy with derivatives of elec-
tricity, through maximizing the expected utility of the hedged profit.
1
We refer to Bunn and Karakatsani (2003) and Huisman et al. (2007), among others, for Vehviläinen and Keppo (2003) studied the optimal hedging strategy
an overview on (hourly specific) day-ahead price characteristics. related to the price risk by a mixture of electricity derivatives.
2
Statistical data of US department of Energy indicates that in the US, the average annual
volatility of electricity prices is 359.8%, while for Natural Gas and Petroleum, Financial,
For the investors who aim to hedge against the price volatility and at
Metals, Agriculture, and Meat it is just 48.5%, 37.8%, 21.8%, 49.1% and 42.6% respectively the same time to maximize their profits, they can adopt a hedging strat-
(Energy Information Administration, 2002). egy based on financial instruments such as forward, options and futures
 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 637

Fig. 1. Graphical abstract of the adopted methodology.

contracts. In this vein, several forward contracts that can offer hedging contract and spot markets in real time markets (Liu and Wu, 2007;
to the risk associated to spot prices for market participants are sug- and Mathuria and Bhakar, 2014; Gölgöz and Atmaca, 2012; Pindoriya
gested (Zhang et al., 2000; and Yu, 2002). Willems and Morbee et al., 2010).
(2008) proposed an equilibrium model for the power market using There are also other portfolio optimization techniques based on
some traded financial products, more precisely: forwards and options the Value at Risk (VaR). The VaR represent the monetary value that
contracts. the portfolio will lose over a given period with a specified probability.
Carrion et al. (2007) developed a stochastic programming procedure This measure has been frequently applied in electricity markets
for risk-constrained retailers in order to select the forward contracts (Dahlgren et al., 2003; and Denton et al., 2003). However, it presents
that the retailer should sign and specify the selling price of electricity the same limits compared to the CVaR measure since VaR is not sub-
that maximizes its expected profit considering the risk exposure. additive and not convex. For this reason, the CVaR model seems more
Recently, Viswanath (2015) provided a set of risk management strate- advantageous in portfolio optimization in a liberalized electricity
gies adopted by investors in electricity markets by means of financial market (Wang et al., 2005; Sun et al., 2005; and Lorca and Prina, 2014).
derivatives. In the literature, two other portfolio optimization tech- To sum up, these existing pieces of literature aim at hedging against
niques have received a lot of attention: mean-variance models, and the risk of electricity price volatility in order to minimize the price risk
CVaR models. These two techniques differ in their definition of risk. and maximize profits. On the other hand, electricity can affect the sum
More precisely, the Mean-Variance models penalize risk in the objective of cash flows insofar as it serves as an essential input for industrial
function, whereas the CVaR model measures the risk based on the prob- and economic activity. For this reason, stock market participants need
ability of realizing a minimum profit. to hedge against adverse price variations. In fact, this problem has
The Mean-Variance optimization models have been applied success- been frequently treated in the oil market, where the researchers have
fully for electricity markets. The problem is to minimize the risk, which studied the impact of variations (or shocks) of oil prices on stock
is defined as the variance of the portfolio returns, for a specified return markets indexes and/or sector indexes, in order to build a strategy for
(Bystrom, 2003; Yin and Zhou, 2004; and Yu, 2002). hedging against the oil market turmoil. Both oil and electricity com-
Roques et al. (2008) adopted Monte Carlo simulations of coal, modities serve as important inputs in production, so they may have
nuclear plant and gas investment returns as inputs of a Mean–Variance similar impacts on the stock markets, too. However, there are no
Portfolio optimization in order to select optimal portfolios-based load researches that deal with this problem in the electricity market.
generation for electricity generators in deregulated electricity markets. Indeed, economic theory shows that any increase in oil price lead to
The Markowitz mean-variance technique has been frequently increasing costs and restraining profits, which in turn cause a decrease
adopted in portfolio optimization (Markowitz, 1959; Bodie et al., in shareholders' value. Therefore, any oil price increase leads to a
1999; and Skantze and Ilic, 2001). Moreover, the Mean Variance decrease in the stock prices. (Backus and Crucini, 2000; and Arouri
Criterion (MVC) models have been used to allocate electricity between and Nguyen, 2010).
638 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

Previous empirical studies have analysed the relationship between dynamic conditional correlation between oil market and stock market,
crude oil price and financial market returns (Malik and Hammoudeh, we adopt a bivariate c − DCC − FIGARCH model that allows us to simul-
2007; Singh et al., 2010; Ono, 2011). More recently, Khalfaoui et al. taneously examine short-run and long-run links between electricity and
(2015) showed the existence of significant relationship between oil stock markets, and to analyse the volatility spillover effect between
price and stock markets in G-7 countries. Hamma et al. (2014) found these two markets. Thirdly, none of the existing studies offers a condi-
unidirectional relationship between oil market and Tunisia stock tional tail dependence analysis, for this purpose we adopt CVaR
market. approach to examine the dependence structures between electricity
These empirical results have motivated researchers to examine the returns changes and stock market indexes. We also adopt a delta CVaR
relationship between oil price shocks and stock markets. To exemplify, measure that represent the change from the CVaR under distress state
Papapetrou (2001); Hong et al. (2002) and Park and Ratti (2008) and the CVaR in a benchmark state.
found a negative relationship between the oil and stock market shocks. Our study is the first one that proposes a hedging strategy for stock
In contrast, Sadorsky (2001); Yurtsever and Zahor (2007); Gogineni market investors against the electricity market risk, by building an
(2008) and Lin et al. (2010) found that oil price has a positive impact optimal portfolio using electricity commodity and stock indexes refer-
on stock prices. ring to the existing relationships between the electricity market and
Other researchers have studied the dynamic relationship between stock market. In this framework, electricity commodity can serve as
stock prices and oil prices through a sector-by-sector perspective (Faff diversifier and hedging asset to stock market risks. This investigation
and Brailsford (1999); El-Sharif et al. (2005); Jouini (2013); Sadorsky can be of interest to policymakers as unfavourable electricity market
(2001); Boyer and Filion (2007); Nandha and Faff (2008); Nandha variations may have severe effects on the stock market performance
and Brooks (2009)) they showed that oil prices have positive influence through reducing corporate cash flows.
on energy related industries. On the other hand, while several researches adopt daily, weekly or
Several statistical techniques have been applied to analyse the rela- monthly hedging strategies, we applied an intra-day hedging portfolio
tionship between oil price and stock price. Singh et al. (2010) applied approach, using hourly data, insofar as electricity markets are hourly
the multivariate VAR − GARCH approach. Similarly, Sadorsky (2012) ap- markets (Boroumand et al., 2015), and any price variations affect imme-
plied MGARCH. Bollerslev et al. (1998) proposed a Constant Conditional diately the cash flows of related sectors, since the electricity is not a
Correlation (CCC) model where the conditional correlations are storable commodity.
assumed constant. This model reduces the number of parameters and In conclusion, our study makes several contributions to the litera-
thus considerably simplify the estimations. To exemplify, Cifarelli and ture: first, this study examines the volatility transmission and tail
Paladino (2010) adopted a multivariate CCC − GARCH. Engle (2002) dependence between electricity and aggregate market index as well
proposes a generalisation of CCC model, to describe the time-varying as sector indexes over periods. Secondly, this paper provides an
correlations, identified as the Dynamic Conditional Correlation (DCC) analysing of the optimal weights, hedge ratios and hedging effective-
model. ness for an electricity-stock portfolio.
Choi and Hammoudeh (2010) and Chang et al. (2010) applied
a symmetric DCC − GARCH model. Filis et al. (2011) employed the 3. Methodology
DCC − GARCH − GJR to analyse the time-varying correlation between
stock market and oil prices. Boubaker and Raza (2017) developed a We assess the relationships between electricity market and stock
bivariate ARMA − GARCH − DCC Student-t model. Trabelsi (2017) market indexes using a bivariate analysis. The econometric specification
applied the DCC − MGARCH model and CVaR measure. The limits of adopted in our research has two components. For the univariate model-
the DCC model are constrained by the equal dynamics for the correla- ling, we adopt the generalized long memory models. Thereafter, this
tions of all the assets (Billio et al., 2006). Recently, Aielli (2013) suggests univariate analysis is used to estimate the unconditional VaR related
a more tractable dynamic conditional correlation model, known as a to each sector indexes. Then, the bivariate c − DCC − FIGARCH model
corrected DCC model or c − DCC model, which involves the three-step is adopted to study the volatility spillover between the electricity
approach that is feasible with large systems and provides unbiased returns and each sector index returns. After this, the estimated residuals
estimations (Kris Boudt and Laurent, 2013). are used to compute the Conditional VaR(CVaR) and the ΔCVaR in order
Giving the existing relationship between oil price and aggregate to gauge the size of potential tail spillover effects from electricity market
and sectoral stock indexes, several authors suggest that oil commodity to each sectoral stock index. More precisely, we follow three steps pro-
can be adopted to diversify stocks portfolios. In this vein, Arouri and cedure to estimate the CVaR3:
Nguyen (2010); Arouri et al. (2011); Hamma et al. (2014); Khalfaoui Step 1. The univariate generalized long memory models are fitted for
et al. (2015) and Boubaker and Raza (2017) proposed a hedging strat- the electricity spot price and for each sector index in order to estimate
egy for oil stock portfolio against the risk of stock market prices individual time series of VaRs.
variations. Step 2. In order to capture the dynamics of time-varying conditional
In sum, the results indicated the volatility transmission from oil mar- correlation between the electricity spot price and each sector index, we
ket to stock sector market is a key factor for risk management and for estimate a bivariate FIGARCH model with corrected − DCC specification
portfolio designs. However, none of the former techniques approaches (termed the c − DCC − FIGARCH model) that enables to examine the
this problematic in liberalized electricity markets. Indeed, it is difficult dynamic conditional correlations (short-run links) among the consid-
to find in the literature scientific documents that deal with this problem, ered variables under the effects of long-run interactions and volatility
which is a very important subject in risk management in the electricity persistence. Hence, we estimate the bivariate c − DCC − FIGARCH for
markets that is characterized by high price volatility. To our best knowl- each pair.
edge, our research contains the first study that deals with this problem- Step 3. Once we have estimated the bivariate density for each pair in
atic. First, we investigated the volatility interaction between electricity step 2, in step 3 we proceed to obtain the CVaR measure for electricity
returns and sector index returns, insofar as some sectors may be more returns and each sector index returns at time t.
exposed to electricity market volatility than other sectors, this depends This methodology provides results related to the links between elec-
on whether electricity is considered as an input or as an output of the tricity returns and each sector index returns, notably as regards to their
industry. In addition, we studied the volatility transmission between volatility spillover effects.
electricity returns and the aggregate stock market index to check the
robustness of our sector-level findings. Secondly, in contrast to the
aforementioned researches that adopt the DCC − GARCH to study the 3
See Girardi and Ergün (2013) for more details.
 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 639

Because this study suggest using the electricity commodity as diver- time scales. Hence, wavelet analysis is likely to reveal seasonality, dis-
sifier and hedge investment to sector index risks in Nordic markets, continuities, and volatility aggregation (Gençay et al. 2001aa, 2001b,
the implications for optimal design and hedging strategies are based 2001c). For these reasons, wavelet transforms are applied for energy
on the optimal portfolio weights (ω); the optimal hedge ratio (β) and market data in order to capture nonlinear patterns and hidden patterns
the hedge effectiveness index (HE). that exist between variables. In this paper we focus on the discrete
wavelet packet transform (DWPT), which deals with the existence of
3.1. The generalized long memory model seasonalities and allows to decorrelate the spectrum of the process
(see Boubaker and Sghaier (2015) and Guegan and Lu (2009), for
The Generalized Autoregressive Moving Average (GARMA) model or more details).
k-frequency GARMA process, was developed by Woodward et al. (1998). Note that for a GARMA model with a single frequency, when ν = 1
It is considered as a generalized category of long memory models, which (i. e, λ = 0), the model is reduced to a ARFIMA model. Granger and
relaxes some characteristics of the ARFIMA model, by enabling for quasi- Joyeux (1980) and Hosking (1981) introduce this model as a para-
periodic or periodic movement in the time series. The multiple metric tool to capture the dynamics of long rang dependence. It is a
frequency GARMA model is defined as follows: parsimonious method of modelling the long-term behavior of time
series. Compared to existing models of long-term persistence, the
k 
Y di family of ARFIMA models provide greater flexibility in estimating
ΦðLÞ I−2ν i L þ L2 ðyt −μ Þ ¼ ΘðLÞεt ð1Þ
both short and long-term behavior of time series. In the spectral
i¼1
domain, ARFIMAprocesses have a peak for very low frequencies, near
to zero frequency. ARFIMA(p, d, q) process is presented as follows:
Where Φ(L) and Θ(L) are the polynomials of delay operator L such
that all the roots of Φ(z) and Θ(z) lie outside the unit circle. The
ΦðLÞð1−LÞd ðyt −μ Þ ¼ ΘðLÞεt ; ð4Þ
parameters νi, |νi| b 1, i = 1, 2, … k, provides information about periodic
movement in the conditional mean, εt is a white noise perturbation where, εt is a white noise process, with zero mean and variance σ2,
sequence with variance σε2, k is a finite integer, di are long memory Φ(L) and Θ(L) are two polynomials of orders p and q, where ΘðLÞ ¼
parameters of the conditional mean showing how autocorrelations are Xp X
q
slowly dampened, μ is the mean of the process, and λi = cos−1(νi), 1þ φi Li and ΘðLÞ ¼ 1 þ θi Li, (L is the lag operator), (1 − L)d is
i = 1, 2, … k, represent the Gegenbauer frequencies (G-frequencies). i¼1 i¼1

The GARMA model with k-frequency is stationary when |νi| b 1, and a fractional differencing operator.
di b 1/2 or when|νi| = 1, and di b 1/4, and the model exhibits a long On the other hand, for a GARMA model with a single frequency,
memory when di N 0. when ν = 1 and d = 1/2, the process is an ARIMA model. Finally,
The main characteristic of this process is given by introducing the when d = 0, we get a stationary ARMA model, given as follows:
Gegenbauer polynomial;
ΦðLÞðyt −μ Þ ¼ ΘðLÞεt : ð5Þ
k 
Y di
P ðLÞ ¼ I−2ν i L−L2 ð2Þ 3.2. The multivariate conditional volatility and dynamic conditional
i¼0
correlations modelling

This polynomial is considered as a generalized long memory filter

The k − factor GARMA model supposes that the conditional variance
that estimates the cyclical long memory behavior at k + 1 different fre-
is constant over time. Nevertheless, in the empirical studies, it is well
quencies. Considering λi as the driving frequencies of a seasonal pattern
recognized that many time series often exhibit volatility clustering,
of length S, λi = (2πi/S), and k + 1 = [S/2]+ 1, where [.] stands for the
where time series exhibit both high and low periods of volatility. To
integer part.
reproduce these patterns, we extended the generalized long memory
To highlight the contribution of P(L) at frequencies λ = 0 and λ = π,
process, described above, by inserting a fractional filter in the equation
Eq. (2) can be written as:
of conditional variance. For this reason, we suggest the Fractional
Integrated Generalized Autoregressive Conditional Heteroscedasticity
Y
kþ1 di
P ðLÞ ¼ ðI−LÞd0 ðI þ LÞdk IðEÞ I−2ν i L−L2 ð3Þ (FIGARCH) model, which allows us to estimate the long memory behav-
i¼1 ior in the conditional variance. (Boubaker and Boutahar, 2011; and
Boubaker and Sghaier, 2015).
where I(E) = 1 if S is even, and zero otherwise, and k + 1 = [S/2] + Baillie et al. (1996a, 1996b) and Bollerslev and Mikkelsen (1996)
1 − I(E). introduced the FIGARCH model, in order to estimate the finite persis-
Cheung (1993) determines the spectral density function and proves tence related to conditional variance. For this model, the autocorrelation
that for d N 0 the spectral density function has a pole at λ = cos−1(ν), function is characterized by a slow decay with hyperbolic rate. In
which varies in the interval [0, π]. It is interesting to note that when the spectral domain, this model shows a peak correspondent to
|ν| b 1, the spectral density function is bounded at the origin for very low frequencies (so close to the zero frequency). Thus, we estimate
GARMA processes, and thus does not suffer from many problems asso- k − factor GARMA process with FIGARCH type innovations in order to
ciated with ARFIMA models. take into consideration the presence of long memory behavior in the
Concerning the estimation of the k − factor GARMA model, we adopt conditional variance. This model is written as follow:
an estimation procedure based on the wavelets following the methodol-
ogy proposed by Whitcher (2004) and Boubaker and Sghaier (2015). In- yt = μt + εt = μt + σtzt; εt = σt zt
deed, the complex behavior characterizes the spot price stimulated  
researchers to develop and test some methods for statistical analysis εt =It−1  N 0; σ 2t ð6Þ
in order to realize a parsimonious model with greater accuracy.
Recently, wavelet analysis has been proposed as a very practical tool where μt is the conditional mean of yt, modelling using Eq. (1), σ2t is the
adopted to deal with complex phenomena. The ability of wavelets to conditional variance, It−1 being the information up to time t − 1, zt is an
capture variability over both time and scale can offer more insight i. i. d random variable with zero mean and unitary variance.
concerning the nature of data on electricity markets. These regimes
can be effectively applied to decompose the time series into different ht ¼ σ 2t ¼ ω þ ½1−ð1−ΒðLÞ−1 ΨðLÞð1−LÞδ ε2t : ð7Þ
640 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

X
r X
s portfolios loss. We rely on VaR because it is an efficient measure of
where ΨðLÞ ¼ 1− ψi Li and ΒðLÞ ¼ 1− βi Li are suitable polyno- downside portfolio risk.
i¼1 i¼1
Given the return Rti of an individual market i at time t with a confi-
mials in the lag operator L with the roots assumed to lie outside
dence level of q; VaRti, q is implicitly defined as qth quantile of the return
the unit circle, 0 b δ b 1 is the fractional differencing (long memory)
distribution as follows:
parameter. The FIGARCH(r, δ, s) model nests the GARCH(r, s)and the inte-
grated GARCH (IGARCH) models in the sense that when δ = 0, FIGARCH  
model reduces to GARCH model while for δ = 1 it becomes a IGARCH P Rit ≤ VaRi;q
t ¼q ð11Þ
model.
In order to capture the dynamic of time-varying conditional correla- where VaRti, q is typically a negative number.
tion between electricity returns and each sectoral market index, we However, the main drawback of this method is the failure to recog-
estimate a bivariate FIGARCHmodel with corrected-Dynamic Condi- nize potential losses that may exist above the value of VaR. To overcome
tional Correlation specification termed the c − DCC − FIGARCH model this limitation, the Conditional Value-at-Risk CVaR method was also
that allows examining the dynamic conditional correlations (short-run considered. This risk measure was introduced by Artzner et al. (1999)
links) among the considered variables under the effects of long-run has been shown to share basic coherence properties (which is not the
interactions and volatility persistence. case of VaR(α)).
Aielli (2008) proposes a corrected Dynamic Conditional Correlation Indeed, CVaR is based on the weighted average of losses with a
(c − DCC) modelling in order to correct both the lack of consistency higher probability compared to VaR. Hence, we strengthen the robust-
and the potential bias in the estimated parameters of DCC − GARCH ness of our results with the CVaR modelling.
model of Engel (2002). In our study the conditional variance- CVaR, is strongly related to the previous risk measure (VaR). More
covariance matrix, H t ¼ Eðεt ε t 0 j Ψt−1 Þ with εt ¼ ðε1t ; …; εkt Þ0 ¼ Ht 1=2 precisely, VaR at level α ∈ [0, 1] denoted VaR(α) of a given portfolio
ηt where ηt~N(0, Ik), is modelled as. loss distribution represents the lowest value (or amount) that the loss
does not exceed with a given probability α (generallyα ∈ [0.95,1]). On
8
> Ht ¼ Dt Rt Dt the other hand, the Conditional Value at Risk at level α denoted CVaR
>
>
>
> qffiffiffiffiffiffiffiffiffiffi qffiffiffiffiffiffiffiffiffiffi (α) represents the conditional expected portfolio losses beyond the
>
>
>
> D ¼ diag h ; …; hk; t VaR(α) level. CVaR shows better mathematical properties compared to
>
>
t 1; t
< VaR because it takes into consideration the thick tails in the portfolio
   
−1=2 −1=2 −1=2 −1=2 ð8Þ
> Rt ¼ diag q11; t ; …; qkk; t Q t diag q11; t ; …; qkk; t
> loss distribution.
>
>
>
> Q ¼ ð1−θ −θ ÞQ þ θ η η0  þ θ Q Intuitively, VaR is the maximum possible loss at a certain level of
>
>
>
>
t 1 2 1 t−1 t−1 2 t−1
confidence and the CVaR approach offers broad flexibility for describing
>
: 
ηt ¼ diag fQ t g1=2 ηt risk contagion between markets or between stocks in the same market.
According to Girardi and Ergün (2013), CVaRq, s/i t is computed as the
where Xt is a (k × 1) vector of the system series; εt the vector of error q-quantile of the conditional distribution, which is defined as;
terms estimated from the conditional mean equations (Eq. (1)); Ht  
s=i s=i
the conditional variance-covariance matrix of system variables; Dt the P Rst ≤ CVaRq;t =Rit ≤ VaRq;t ¼ q ð12Þ
(k × k) diagonal matrix of time-varying standard deviations computed
from a univariate FIGARCH model; and Rt the (k × k) symmetric matrix
This change allows for more severe losses (farther in the tail). Along
of dynamic conditional correlations. Qt = (qijt) is a symmetric positive
these lines, we follow Adrian and Brunnermeier (2016) and define
define matrix which is assumed to vary according to a FIGARCH process
ΔCoVaR as:
with Q being a (k × k) unconditional variance matrix of standardised
residuals ηi, t. The parameters θ1 and θ2 are scalar parameters that cap- s=i;q s=i;q
i
s=b ;q
ΔCVaRt ¼ CVaRt −CVaRt ð13Þ
ture the effects of shocks on dynamic correlations. θ1 and θ2 are positive
and satisfy the following condition θ1 + θ2 b 1. The correlation estimator
We can see that CVaR is an element of calculating ΔCVaR. For this
between variable i and variable j in the matrix Rt is defined as:
equation, bi denotes the benchmark state, which represents the one
qij; t standard deviation event around the mean: μti − σti ≤ Rti ≤ μti + σti,
ρij; t ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ð9Þ where μti and σti denote the conditional mean and standard deviation
qii; t qjj; t
of the system, respectively.
In our study, CVaR is determined using the following steps:
Note that c − DCC model is similar to standard DCC model, except
Step 1. The univariate generalized long memory models (Eqs. (1)
the correlation processQt, which was formulated, in the case of DCC
and (7)) are fitted for electricity return and for each sectoral index to
model, as:
approximate isolated time series of VaRs electricity returns and sectoral
market indexes VaRs are given by:
Q t ¼ ð1−θ1 −θ2 ÞQ þ θ1 ηt−1 η0t−1 þ θ2 Q t−1 ð10Þ

VaRsq;t ¼ Φ−1 ðqÞσ st ð14Þ

It is worth noting that we use the univariate FIGARCHrepresentation
(Eq. (7)) to model the conditional volatility of each variable and then
compute their time-varying standard deviations. Step 2. With the aim to estimate the dynamic conditional correlation
existing between the electricity returns and each sectoral index, we
3.3. Value at risk and conditional value at risk models adopt a bivariate FIGARCH process with corrected − DCC specification
called c − DCC − FIGARCH model (Eq. (8)) that allows the identification
The Value at Risk (VaR) is an aggregated measure of the total risk of a of the dynamic conditional correlations (short-run links) between mea-
portfolio of contracts and assets. It summarizes the expected maximum sured variables under the effects of volatility persistence and long-run
loss (worst loss) of a portfolio over a target horizon within a given con- interactions. Hence, we estimate the bivariate c − DCC − FIGARCH for
fidence interval (generally 95%). Thus, VaR is measured in monetary each pair.
units. As the maximum loss of a portfolio, VaR(95%) is a negative Step 3. After estimating the bivariate density of each pair in
number. Therefore, maximizing VaR is equivalent to minimizing the step 2, in step 3 we proceed to find CVaRq, s/elec
t measure for electricity
 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 641

returns (elec) and each sectoral index "s" at time period t. CVaRqs/elec markets. At Nord Pool market, spot price is the result of an auction at
is defined by: uniform prices on both sides for hourly intervals. It is determined
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi based on several offers presented on the market (Weron et al., 2004;
¼ Φ−1 ðqÞσ st 1−ρ2s=elec;t þ Φ−1 ðqÞρs=elec;t σ st
s=elec Junttila et al. (2018)).
CVaRq;t ð15Þ
Briefly, Nord Pool electricity spot markets is an eminent European
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi power exchange market. In such markets, participants trade power con-
s=elec
CVaRq;t ¼ VaRsq;t 1−ρ2s=elec;t þ VaRsq;t ρs=elec;t ð16Þ tracts for physical delivery for the next day. As for any power market,
the prices are fixed each day, for each of the 24 h of the next day.
where ρs/elec, t is the correlation coefficient between electricity
returns and sectoral index.
Furthermore, in our study, we adopt ΔCVaRq,s/elec t which we label 4.2. Data description and preliminary statistics
“exposure ΔCVaR”, to evaluate stock exposure to electricity market
turmoil. With the aim of examining the relationship between electricity
By definition, ΔCVaR is the difference between its CVaR when elec- returns and some sectoral indexes in the Nordic market, we consider
tricity market is, or is not, in distress (median state); the hourly series of electricity spot price (Euros/MWh) extracted from
official website of Nord Pool Power Market. Concerning the Nordic
ΔCVaRs=elec
q ¼ CVaRs=elec
q −CVaR50%
s=elec
ð17Þ stock market, we consider the aggregate sector Index termed “Nordic
Market Index” to illustrate the overall performance of the Nordic
Compared to other measures, this model has the advantage of eval- Market. Furthermore, we consider 11 other sector indexes in this
uating exposure degree of each sector to electricity market shocks. This market from various sectors of the economy (Banks, Basic Materials,
seems interesting for portfolio managers and policy makers. Since Φ−1 Construction and Materials, Consumer Goods, Financials, Industrials,
(50%) = 0, we can reduce ΔCVaR at each time as following: Insurance, Real Estate, Technology, Telecommunications, and Travel
and Leisure) these series are extracted from DataStream database.
Each time series ranges from the 3rd of July 2017 to the 8th of December
¼ Φ−1 ðqÞρs=elec;t σ st
s=elec
ΔCVaRq;t ð18Þ
2017, which yields T = 1150 hourly observations. It seems that the
s=elec
study period is short. However, since the electricity is a non-storable
ΔCVaRq;t ¼ VaRsq;t ρs=elec;t ð19Þ commodity and its transmission is limited by physical and reliability
constraints, any variation in the electricity demand in the matter of
A weaker or positive ΔCVaR argued that the equity market is less minutes or hours can generate an enormous effect on the electricity
exposed to the electricity market collapse. price. Furthermore, changes made to the electricity industry are the
outcomes of the technological and economic alterations affecting the
4. Empirical analysis sector. In this vein, any variation in electricity market can be transmitted
directly to other sectors that rely on electricity in their activity. On
4.1. Nord pool power market the other hand, as the electricity market is an hourly market the use of
the hourly data allows determining an intraday hedging strategy for
The Nordic electricity market, also known as Nord Pool, is a power electricity market using stock indexes, which is the second goal of our
market dedicated to the electrical products. It was established in 1992 study.
and includes some Nordic countries such as Norway, Sweden, In this paper, we consider the return series, which is computed
Denmark, Finland, etc. In fact, this market started operating officially by taking the differences in the Logarithm of two consecutive prices
in 1993, where Norway was the only area. Later, Sweden joined in (Rt = ΔLogPt). In fact, the use of log difference sometimes makes the
January 1996. Finally, Finland was fully integrated in March 1999. The series stationary (see Figs. 2 and 4). Therefore, we analyse the Log-
Nord Pool market contains a spot market and a secondary market. Its return of each time series, in order to study their statistical and econo-
spot market, known as Elspot, allows market participant to sell and metric features.
buy electricity for delivery within 24 h. The operation market system The historical values of the Log- return electricity price is plotted in
is interesting, as it balances the demand and supply in volumes. In addi- Fig. 2, it shows that the price return increases over time, and reaches
tion, this market grew speedily; recently, 40% of the whole electricity maximum values during the months of November and December, i.e.
consumption in the Nordic area is registered on this market. It is notice- during the winter, due to the increase in electricity consumption during
able that the spot market is not compulsory: Only 25% of all electricity this period. Fig. 3 shows the consumption of electricity in the Nordic
traded in Norway and Sweden is managed by Nord Pool, while the area, it shows that the two curves (Log-return of electricity prices and
rest is covered by bilateral contracts. The derivatives market allows electricity consumption) have a similar evolution. This can be explained
the sale and purchase of raw materials, energy, equities, and bonds in by the fact that the temperature decreases gradually during these
predefined conditions (Hjalmarsson, 2000; and Weron, 2006; Junttila periods (November and December), which results in an increase in
et al., 2018). electricity consumption and since the electricity is not storable so any
Nord Pool distributes information, regarding the tender areas that increase in consumption leads to the price increase (Junttila et al.
will be applicable during the following week and on the operator's data- (2018)).
base system in Norway, to all market participants. These participants are The time evolution of Log-return for all-time series (see Figs. 2
mainly retailers, suppliers, large customers, traders, and financial insti- and 4) indicates that these series seem stationary. This hypothesis can
tutions. Today, there are N300 participants on Nord Pool market. It is also be supported by the unit root tests (ADF, PP and KPSS). In addition,
an active and liquid market, which is generally regarded as the most the series present a clustering of volatility since periods of low volatility
mature, and powerful market worldwide. It is considered as a good are followed by periods of high volatility. This is a sign of the presence of
example for other energy exchanges, seeing that the network structure ARCH effects in the series.
is quite simple, and structure of the industry is highly fragmented with We tested for stationarity by performing unit root tests, namely,
N350 production companies. Also, one can note that the level of cooper- augmented Dickey-Fuller (ADF), Phillips- Perron (PP) and Kwiatkowski,
ation between network operators, governments, and regulators is very Phillips, Schmidt, and Shin (KPSS) tests, for all Log-returns time series.
high. Furthermore, it is relevant to state that the system used by the These tests differ in the null hypothesis. The null hypothesis of ADF
Nord Pool shares several common characteristics with other electricity and PP tests is that a time series contains a unit root, while KPSS test
642 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

0.4
Log Return Elspot Price

0.3

0.2

Log-Return Spot Price (Euro/MWh)

0.1

-0.1

-0.2

-0.3

-0.4

-0.5

-0.6
0 28/07/2017 25/08/2017 22/09/2017 20/10/2017 17/11/2017 15/12/2017
Time/ Hours

Fig. 2. Hourly Log-Return of Electricity Spot Price for Nord Pool Electricity Market.

has the null hypothesis of stationarity. The results of these tests are departure from normality is also confirmed by the large value of the
reported in Table 1. Jarque-Bera (JB) test. Table 2 also presented the correlation between
ADF and PP unit root tests indicate that all Log-returns time series hourly return of electricity markets and each sector index return,
are stationary. In addition, the statistics of KPSS test support the accep- indicating that the correlation degree is higher and positive for the
tance of the null hypothesis of stationary. Thus, these series are station- Consumer Goods, the Basic Materials and Telecommunications indexes
arity and suitable for subsequent tests in this study. (0,084, 0,066 and 0,060, respectively), while electricity return is
The descriptive statistics of time series are reported in Table 2. negatively correlated with Banks sector (−0,0107). Finally, the
Table 2 shows that the average of hourly return of Travel and Leisure results of ARCH − LM test indicate the presence of the conditional
sector is the highest (4.30 × 10−5) compared to the other sectors. heteroscedasticity for all Log-return time series.
Hence, this sector is considered as one of the most promising economic We test for the long-range dependence in the conditional mean of
areas in the Nordic Market. However, Technology sector gives the electricity returns, using GPH (Geweke and Porter-Hudak, 1983) and
lowest average return (−1.83 × 10−4). In addition, values of standard LW (Robinson, 1995) statistics, which tests the null hypothesis of
deviation are quite small, while the kurtosis for all of the studied series the presence of short memory versus the alternative hypothesis of
ranges from 6.91 to 57.21, indicating fat tails in the distributions, which long memory. Corresponding results reported in Table 3, indicating
mean that underlying data are leptokurtic. For the skewness, most of the presence of long memory, are given for three bandwidth levels.
series are negatively skewed, indicating a distribution with an asym- As shown in Fig. 5, for Log-return of electricity price series, spectral
metric tail extending toward more negative values. This significant density, traced by periodogram, shows peaks at equidistant frequencies,

Fig. 3. Electricity consumption in the Nordic Area.

 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 643

Nordic Market Index Returns Bank Returns

Basic Materials Returns Construction Materials Returns

Consumer Goods Returns Financials Returns

Fig. 4. Hourly Log-Return of Sector Indexes for Nordic Stock Market.
644 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

Industrials Stock Returns Insurance Returns

Real Estate Returns Technology Stock Returns

Telecommunication Stock Returns Travel Leisure Stock Returns

Fig. 4 (continued).
 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 645

Table 1
ADF, PP, KPSS unit root testing results for all Log-return series.

ADF test PP test KPSS test

Log-return series Model (3) Model (2) Model (1) Model (3) Model (2) Model (1) Model (3) Model (2)

Electricity spot price −22.7711⁎⁎⁎ −22.7787⁎⁎⁎ (0.0000) −22.7884⁎⁎⁎ −94.1254⁎⁎⁎ −84.1465⁎⁎⁎ −78.8691⁎⁎⁎ 0.2877⁎⁎⁎ 0.3501⁎⁎⁎
(0.0000) (0.0000) (0.0001) (0.0001) (0.0001) [0.2160] [0.7390]
Nordic market Index −33.2299⁎⁎⁎ −33.2003⁎⁎⁎ −33.2117⁎⁎⁎ −33.2905⁎⁎⁎ −33.2733⁎⁎⁎ −33.2849⁎⁎⁎ 0.0274⁎⁎⁎ 0.1623⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Banks −21.6369⁎⁎⁎ −21.5510⁎⁎⁎ −21.5252⁎⁎⁎ −33.8445⁎⁎⁎ −33.8310⁎⁎⁎ −33.8308⁎⁎⁎ 0.0523⁎⁎⁎ 0.3665⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Basic materials −32.2693⁎⁎⁎ −32.2511⁎⁎⁎ −33.2117⁎⁎⁎ −32.3837⁎⁎⁎ −32.3768⁎⁎⁎ −33.3893⁎⁎⁎ 0.0414⁎⁎⁎ 0.1248⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Construction and materials −31.9965⁎⁎⁎ −31.9768⁎⁎⁎ −31.9211⁎⁎⁎ −32.3381⁎⁎⁎ −32.3422⁎⁎⁎ −32.3361⁎⁎⁎ 0.03617⁎⁎⁎ 0.1504⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Consumer goods −32.6517⁎⁎⁎ −32.6323⁎⁎⁎ −32.6462⁎⁎⁎ −32.9262⁎⁎⁎ −32.9280⁎⁎⁎ −32.9408⁎⁎⁎ 0.0450⁎⁎⁎ 0.1286⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Financials −21.6467⁎⁎⁎ −21.5653⁎⁎⁎ −21.5443⁎⁎⁎ −32.9169⁎⁎⁎ −32.8984⁎⁎⁎ −32.9001⁎⁎⁎ 0.0369⁎⁎⁎ 0.3212⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Industrials −32.1002⁎⁎⁎ −32.0481⁎⁎⁎ −32.0503⁎⁎⁎ −32.2615⁎⁎⁎ −32.2314⁎⁎⁎ −32.2377⁎⁎⁎ 0.0295⁎⁎⁎ 0.2237⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Insurance −33.4833⁎⁎⁎ −33.4729⁎⁎⁎ −33.4873⁎⁎⁎ −33.4833⁎⁎⁎ −33.4730⁎⁎⁎ −33.4873⁎⁎⁎ 0.0632⁎⁎⁎ 0.1404⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Technology −21.1696⁎⁎⁎ −21.1602⁎⁎⁎ −21.1094⁎⁎⁎ −32.8627⁎⁎⁎ −32.8657⁎⁎⁎ −32.8365⁎⁎⁎ 0.0176⁎⁎⁎ 0.0700⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]
Telecommunication −19.8967⁎⁎⁎ −19.8124⁎⁎⁎ −19.818⁎⁎⁎ −19.928⁎⁎⁎ −19.912⁎⁎⁎ −19.987⁎⁎⁎ 0.03806⁎⁎⁎ 0.2846⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.2160]
Travel and leisure −32.3685⁎⁎⁎ −32.3288⁎⁎⁎ −32.3370⁎⁎⁎ −32.4429⁎⁎⁎ −32.4354⁎⁎⁎ −32.4448⁎⁎⁎ 0.0572⁎⁎⁎ 0.2442⁎⁎⁎
(0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) [0.2160] [0.7390]

Notes: Model (3) With an intercept and a trend, Model (2) With an intercept, and Model (1) Without an intercept.
Levels of significance of the ADF and the PP tests are indicated between brackets and represent the p-value.
Levels of significance of the KPSS test are indicated between squared brackets, and represent the critical values at level 1%;
⁎⁎⁎ Denotes significance at 1% level.

which proves the presence of several seasonalities that requires the use memory model (k − factor GARMA). Estimation results are displayed
of generalized long memory model to estimate such process. in Table 4.
Mean estimation results indicate that only Log-return of electricity
4.3. Empirical findings and interpretations price is estimated using the k − factor GARMA model, which confirm
that this series is characterized by periodic long memory behavior
4.3.1. Generalized long memory process for conditional mean modelling (see Fig. 5). However, for sector indexes, k − factor GARMA model is
The conditional mean of Log-return of electricity price as well as Log- reduced to ARFIMA model for consumer goods, and to ARMA model for
return of each sector index are estimated using the generalized long all other sectors.

Table 2
Data statistic's descriptions for all Log-return series.

Mean Std. Dev Skewness Kurtosis Jarque-Bera Correlation ARCH (10)

Electricity spot price 1.19 × 10−4 0,0523 −1.2313 34.8777 48,940.2 1.0000 17.7800
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
Nordic market index −2.01 × 10−5 0,0019 0.0728 14.0647 5862.3 0.0370 22.0658
(0.0000)⁎⁎⁎ (0.0336)⁎⁎
−5
Bank −9.40 × 10 0,0028 0.7821 21.2503 16,063.1 −0.0107 10.5720
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
Basic materials 1.72 × 10−5 0,0031 −0.0085 13.4657 5243.7677 0.0668 16.1523
(0.0000)⁎⁎⁎ (0.0707)⁎
Construction materials −1.31 × 10−4 0,0027 −1.0819 18.2113 11,301.6 0.0122 7.5775
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
−6
Consumer goods −9.19 × 10 0,0022 −0.0765 13.8334 5619.8515 0.0848 13.141
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
−5
Financials −7.52 × 10 0,0024 0.7559 15.7624 7907.1935 0.0118 24.058
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
Industrials −5.07 × 10−5 0,0026 0.1220 12.1330 3996.2 0.0421 25.105
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
Insurance 9.02 × 10−6 0.0025 0.15467 6.9144 2291.4 0.0311 24.487
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
−4
Technology −1.83 × 10 0.0038 −3.2909 57.2168 142,800.8 0.0458 2.1873
(0.0000)⁎⁎⁎ (0.0165)⁎⁎
Telecommunications −3.08 × 10−5 0.0026 0.2026 9.1190 1800.4 0.0602 7.5930
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎
Travel and leisure 4.30 × 10−5 0.0031 1.1046 20.2894 14,544.6 0.0582 4.9150
(0.0000)⁎⁎⁎ (0.0000)⁎⁎⁎

Levels of significance of Jarque-Bera and ARCH tests are indicated between squared brackets.
⁎⁎⁎ Denotes significance at 1% level.
⁎⁎ Denotes significance at 5% level.
⁎ Denotes significance at 10% level.
646 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

Table 3
The GPH and LW long memory tests results for all Log-return series.

T = 1150 Bandwidth GPH Test LW Test

^m
d Standard error p-value ^m
d Standard error p-value

Electricity returns 0.6

T = 69 −0.4845⁎⁎⁎ 0.0855 (0.0000) −0.4042⁎⁎⁎ 0.0601 (0.0000)
T0.7 = 139 −0.1736⁎⁎⁎ 0.0580 (0.0000) −0.1361⁎⁎⁎ 0.0424⁎⁎ (0.0013)
T0.8= 281 −0.2955⁎⁎⁎ 0.0400 (0.0000) −0.399⁎⁎⁎ 0.0298⁎ (0.0000)

Levels of significance of GPH and LW tests are indicated between squared brackets.
⁎⁎⁎ Denotes significance at 1% level.
⁎⁎ Denotes significance at 5% level.
⁎ Denotes significance at 10% level.

Indeed, for the Log-return of electricity, according to the k − factor variance, which require the use of some fractionally integrated FIGARCH
GARMA estimation results, the seasonality can be observed in the fre- method to estimate such processes.
quency domain λi=1/T; where λ is frequency of the seasonality and T The conditional variance estimation results (Table 6) indicate that
is the period of seasonality. As shown, spectral densities, represented the variance equations are always estimated using FIGARCH model,
by periodogram (see Fig. 5), are unbounded at equidistant frequencies, which allows us to estimate the bivariate c − DCC − FIGARCH model,
which proves the presence of several seasonalities. They show special in the second step, between electricity returns and each sector index
_
peaks at frequencies λ m;1 ¼ 0:1334 (T1 = 7.49 ≃ 8hours = 1/3 day), returns. The FIGARCH process is estimated under the assumption of
_ skewed-student distribution (see Appendix), this last one proves its
and λ m;2 ¼ 0:2467 (T2 = 4.05 ≃ 4hours = 1/6 day), corresponding to efficiency compared to two other distributions methods (Normal and
cycles with 1/3 day, 1/6 day periods, respectively. Student), since it's able to assess both the excess of skewness and the
For sector indexes, we use some specifications of ARFIMA(p, d, q) fat tails in the data. Estimation results indicate that the parameters of
model and we consider all the possible combinations with p = 0; _ _ _
FIGARCH model δ , ψ and β are significantly different from zero. More-
1and q = 0; 1 to select the appropriate model for each sector index. _ _
Estimation results are reported in Table 4, indicating that the appropri- over, sum of the estimated coefficients of ARCH and GARCH, ψ and β ,
ate model of mean equation differ from one sector index to another. is close to one. These results indicate the presence of long-rang depen-
dence in the conditional mean and the persistence of the volatility
4.3.2. The long memory process for conditional variance modelling process.
The residuals from the conditional mean estimation are used as a Remind that these univariate estimation results are adopted to esti-
proxy for the conditional variance, which are modelled using fractional mate in-sample dataset5 % − VaR of each sector index returns and elec-
integration FIGARCH process. tricity returns.
For the residuals of the k − factor GARMA model, the spectral
density, traced by periodogram (Fig. 6) shows peak so close to the 4.3.3. Testing for breaks-points in the electricity returns
zero frequency. Moreover, the results of long memory GPH and LW In order to identify change-points in the dependence structure in
tests (Table 5) indicate the presence of long memory in the conditional electricity returns volatility, we test the stability using Bai and Perron

Fig. 5. Autocorrelation Function and Periodogram of the Log-Return Electricity price.

 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 647

Table 4
Mean equation estimation results.
Y
k
di
• The k-factor GARMA model:ΦðLÞ ðI−2νi L þ L2 Þ ðyt −μÞ ¼ ΘðLÞε t
i¼1
• The ARFIMA model: Φ(L)(1 − L)d(yt
− μ) = Θ(L)εt,
• The ARMA model: Φ(L)(yt − μ) = Θ(L)εt.
_ _ _ _ _ _
Parameters ϕ θ λ m;1 λ m;2
d m;1 d m;2

Electricity returns 0.5234⁎⁎⁎ _ 0.3982⁎⁎⁎ 0.2023⁎⁎⁎ 0.1334⁎⁎⁎ 0.2467⁎⁎⁎

(0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
Nordic market index _ _ _ _ _ _
Banks 0.7669⁎⁎⁎ −0.7314⁎⁎⁎ _ _ _ _
(0.0000) (0.0000)
Basic materials _ _ _ _ _ _
Construction and materials 0.0686⁎⁎ _ _ _ _ _
(0.0025)
Consumer goods 0.8973⁎⁎⁎ −0.9134⁎⁎⁎ 0.0400⁎ _ _ _
(0.0000) (0.0000) (0.0670)
Financials 0.7491⁎⁎⁎ −0.7162⁎⁎⁎ _ _ _ _
(0.0000) (0.0000)
Industrials 0.0617⁎⁎ _ _ _ _ _
(0.0118)
Insurance _ _ _ _ _ _
Real estate 0.0569⁎⁎ _ _ _ _ _
(0.0336)
Technology −0.7648⁎⁎⁎ 0.7787⁎⁎⁎ _ _ _ _
(0.0000) (0.0000)
Telecommunications 0.4842⁎⁎⁎ −0.4880⁎⁎⁎ _ _ _ _
(0.0000) (0.0010)
Travel and leisure _ _ _ _ _ _

Levels of significance (p-value) are indicated between squared brackets.

⁎⁎⁎ Denotes significance at 1% level.
⁎⁎ Denotes significance at 5% level.
⁎ Denotes significance at 10% level.

(2003) test, using absolute return as a proxy of volatility (Fig. 5). Indeed, The identification of volatility structure in electricity returns allows
Bollerslev and Mikkelsen (1996), Andersen and Bollerslev (1997), and us to investigate the impact of this structure changes on sector indexes.
Boutahar et al. (2008), adopt absolute returns as a proxy of volatility Specifically, we check whether this dependence is constant over period.
instead of squared returns because this latter measure can be noisy. In Concretely, we apply the Bai- Perron test, to check existence, number
addition, the absolute changes in series have a stronger autocorrelation and localisation of unknown change points. Test results (Table 7) indi-
than the square of changes (see Taylor (1986) for more details). cate the presence of two significant change-points.

Fig. 6. Periodogram of the squared residuals Log-Return Electricity price.

648 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

Table 5
GPH and LW long memory tests results for residuals of Log-return electricity price.

T = 1150 Bandwidth GPH Test LW Test

^δ Standard error p-value ^δ Standard error p-value

Residuals electricity spot price T0.6=69 0.1642⁎⁎⁎ 0.0284 (0.0001) 0.2443⁎⁎⁎ 0.0601 (0.0000)
T0.7=139 0.2320⁎⁎⁎ 0.0582 (0.0001) 0.2698⁎⁎⁎ 0.0424⁎⁎ (0.0000)
T0.8=281 0.2121⁎⁎⁎ 0.0403 (0.0000) 0.2639⁎⁎⁎ 0.0298⁎ (0.0000)

Levels of significance of GPH and LW tests are indicated between squared brackets.
⁎⁎⁎ Denotes significance at 1% level.
⁎⁎ Denotes significance at 5% level.
⁎ Denotes significance at 10% level.

Fig. 7 represents electricity returns volatility considering the pres- hedging parameters during the overall period as well as the three-
ence of two breaks (in 18/08/2017 and 10/11/2017, respectively). abovementioned sub-periods.
These change points divide the sample into three sub-samples.
The first period (pre-Beak 1) is characterized by a stability in elec- 4.3.4. Dynamic conditional correlation and conditional VaR estimation
tricity (calm period). The second period (between the two breaks) rep- results
resent more variability compared to the first period, and the third To investigate the reaction of sectors to electricity market variability,
period (post-Break 2) indicate high volatility compared to the previous we adopt DCC, VaR, CVaR and ΔCVaR models in order to examine the
periods. These periods can be associated to the electricity demand or presence of spillover effects and to recognize the level of resistance of
meteorological conditions variations. In fact, the studied period includes each sector to electricity turmoil. Estimation results are reported in
three seasons; the summer (July and August), the autumn (September Table 8.
and October) and winter (November and December). Therefore, we According to Fig. 8, it can be observed that 5 % − VaR electricity
can refer the break points to the change of temperature between sum- returns and 5 % − VaR of some sector indexes display a similar ten-
mer and autumn (first break point) and between autumn and winter dency for most of the period. To exemplify, a significant trough for Tech-
(second break point). Indeed, any drop-in temperature leads to an nology VaR prices follows the trough observed in electricity market at
increase in the electricity consumption (see Fig. 3) which leads to an the end of July and October 2017. It is worth noting that VaR measure
increase in the electricity price (that causes the high volatility), since is unable to confirm that these electricity returns turmoil caused these
the electricity is a non-storable commodity (Junttila et al., 2018). stock market failures, since there have been several other events that
This change of periods can affect simultaneously sectors that rely on can cause stock market declines. However, c − DCC and CVaR measures
electricity in their activities. Therefore, we need to compare the values can make it possible. Following Fig. 9, we can observe that c − DCC be-
of dynamic conditional correlation, tail dependence coefficients and tween extreme negative electricity market returns and selected sector
indexes are not stable and vary over periods. A high positive correlation
is observed, not only during the turbulence of electricity market (the
Table 6 3rd period) market, but also for the period of its stability (the 1st
The FIGARCH(1,δ,1) model for conditional variance.
period). This positive dynamic correlation between electricity and
Estimation FIGARCH(1, δ,1) stock market may support that electricity market stress can spread to
Parameters _ _ _
Ln(L) stock market and caused bearish periods.
ψ β δ
In order to study the interdependence between electricity market
Electricity spot price 0.1724⁎⁎ 0.6420⁎⁎⁎ 0.5267⁎⁎⁎ 2625.2200 and Nordic stock market, we have taken into consideration the Nordic
(0.0217) (0.0000) (0.0000)
market index, as the global market index, and 11 sector indexes.
Nordic market index 0.6220⁎⁎⁎ 0.8638⁎⁎⁎ 0.3821⁎⁎⁎ 5793.8851
(0.0000) (0.0000) (0.0000) Table 8 summarizes the results of VaR sector indexes, the corrected dy-
Banks 0.5610⁎⁎⁎ 0.8169 0.3460⁎⁎⁎ 5360.3620 namic conditional correlations c − DCC between electricity returns and
(0.0000) (0.0000) (0.0000) each sector index, which is determined through bivariate c − DCC −
Basic materials 0.4659⁎⁎⁎ 0.7748⁎⁎⁎ 0.3627⁎⁎⁎ 5208.6610 FIGARCH estimation, and the averages of CVaR and ΔCVaR.
(0.0000) (0.0000) (0.0000)
Construction and 0.5445⁎⁎⁎ 0.7787⁎⁎⁎ 0.3033⁎⁎⁎ 5437.1251
For the whole period, the results indicate on average that there ex-
materials (0.0000) (0.0000) (0.0000) ists a strong positive dynamic correlation between Nordic market
Consumer goods 0.5827⁎⁎⁎ 0.8195⁎⁎⁎ 0.3301⁎⁎⁎ 5631.0140
(0.0000) (0.0000) (0.0000)
Financials 0.5639⁎⁎⁎ 0.8286⁎⁎⁎ 0.3521⁎⁎⁎ 5562.6370 Table 7
(0.0000) (0.0000) (0.0000) Bai-Perron test for electricity returns volatility.
Industrials 0.5785⁎⁎⁎ 0.8369 0.3621 5472.2831
(0.0000) (0.0000) (0.0000) Sequential F-statistic determined breaks: 2
Insurance 0.5438⁎⁎⁎ 0.8506⁎⁎⁎ 0.4268⁎⁎⁎ 5396.2354
Break Test F-statistic Scaled Critical
(0.0000) (0.0000) (0.0000)
F-statistic Value⁎⁎
Real Estate 0.5698⁎⁎⁎ 0.8088⁎⁎⁎ 0.3256⁎⁎⁎ 5355.2012
(0.0000) (0.0000) (0.0000) 0 vs. 1⁎ 125.0329 125.0329 8.58
Technology 0.3587⁎⁎⁎ 0.5893⁎⁎⁎ 0.2460⁎⁎⁎ 5129.4880 1 vs. 2⁎ 17.75848 17.75848 10.13
(0.0000) (0.0000) (0.0000) 2 vs. 3 1.810090 1.810090 11.14
Telecommunications 0.5603⁎⁎⁎ 0.8598⁎⁎⁎ 0.4209⁎⁎⁎ 5371.7670⁎
(0.0000) (0.0000) (0.0000) Sequential F-statistic determined breaks: 2
Travel and leisure 0.6153⁎⁎⁎ 0.8071⁎⁎⁎ 0.2901⁎⁎⁎ 5222.6500
Break dates Repartition Date
(0.0000) (0.0000) (0.0000)
1 348 18/08/2017
Levels of significance (p-value) are indicated between squared brackets.
2 950 10/11/2017
⁎⁎⁎ Denotes significance at 1% level.
⁎⁎ Denotes significance at 5% level. ⁎ Significant at the 0.05 level.
⁎ Denotes significance at 10% level. ⁎⁎ Bai-Perron critical values.
 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 649

Fig. 7. Change periods of electricity returns volatility.

index and electricity market (0.81), and a positive dynamic correlation and Leisure sector (−4.37 × 10 −3 ), and Basic Materials sector
between electricity market and all other sector indexes, with various (−4.19 × 10 −3 ), hence these sectors are the most risky in this
levels. The highest positive c − DCC average was accomplished by market. However the lowest risk is observed for Consumer goods
Financials sector (0.89) followed by Industrials sector (0.85). However, sector with level of (−3.04 × 10−3) followed by the Financial sec-
the lowest positive c − DCC average was observed for Telecommunica- tor, Real Estate and Telecommunications sectors with a close level
tions and Travel and Leisure sectors (0.68). of (−3.5 × 10−3). Hence, these sectors are the least risky in Nordic
Concerning the VaR average values, the highest level of risk is market and can be advantageous especially for the risk averse
observed for Technology sector (−4.84 × 10−3) followed by Travel invertors.

Table 8
c − DCC, VaR, CVaR and ΔCVaR averages for Nordic market index and sector indexes.

Overall period 03/07/2017–18/08/2017 (Pre-Break 1)

c − DCC VaR CVaR ΔCVaR c − DCC VaR CVaR ΔCVaR

Nordic index 0,8105 −3.01 × 10−3 −4.21 × 10−3 −2.44 × 10−3 0,7187 −3.09 × 10−3 −4.38 × 10−3 −2.23 × 10−3
Banks 0,7900 −3.81 × 10−3 −5.35 × 10−3 −3.01 × 10−3 0,7703 −3.61 × 10−3 −5.08 × 10−3 −2.78 × 10−3
Basic materials 0,8186 −4.19 × 10−3 −5.84 × 10−3 −3.43 × 10−3 0,7992 −4.46 × 10−3 −6.25 × 10−3 −3.56 × 10−3
Constr & Mat 0,7929 −3.81 × 10−3 −5.35 × 10−3 −3.02 × 10−3 0,7257 −4.27 × 10−3 −6.04 × 10−3 −3.09 × 10−3
Consumer goods 0,7814 −3.04 × 10−3 −4.27 × 10−3 −2.37 × 10−3 0,7870 −3.36 × 10−3 −4.72 × 10−3 −2.64 × 10−3
Financials 0,8904 −3.50 × 10−3 −4.70 × 10−3 −3.12 × 10−3 0,8443 −3.08 × 10−3 −4.25 × 10−3 −2.60 × 10−3
Industrials 0,8571 −3.76 × 10−3 −5.15 × 10−3 −3.23 × 10−3 0,9177 −3.69 × 10−3 −4.85 × 10−3 −3.38 × 10−3
Insurance 0,7349 −3.84 × 10−3 −5.42 × 10−3 −2.83 × 10−3 0,7017 −3.48 × 10−3 −4.92 × 10−3 −2.44 × 10−3
Real Estate 0,7259 −3.52 × 10−3 −4.98 × 10−3 −2.56 × 10−3 0,6859 −3.42 × 10−3 −4.84 × 10−3 −2.35 × 10−3
Technology 0,7303 −4.84 × 10−3 −6.82 × 10−3 −3.49 × 10−3 0,7066 −4.37 × 10−3 −6.18 × 10−3 −3.08 × 10−3
Telecom 0,6880 −3.56 × 10−3 −5.02 × 10−3 −2.45 × 10−3 0,6328 −3.66 × 10−3 −5.15 × 10−3 −2.32 × 10−3
travel & leis 0,6850 −4.37 × 10−3 −6.17 × 10−3 −3 × 10−3 0,5117 −3.91 × 10−3 −5.36 × 10−3 −2.01 × 10−3

18/08/2017–10/11/2017 (between Break 1 and Break 2) 10/11/2017–08/12/2017 (Post-Break 2)

c − DCC VaR CVaR ΔCVaR c − DCC VaR CVaR ΔCVaR

−3 −3 −3 −3 −3
Nordic index 0,7855 −2.67 × 10 −3.72 × 10 2.13 × 10 0,6492 −3.25 × 10 −4.58 × 10 −2.11 × 10−3
Banks 0,7488 −3.82 × 10−3 −5.36 × 10−3 2.87 − × 10−3 0,8713 −4.50 × 10−3 −6.14 × 10−3 −3.92 × 10−3
Basic materials 0,7497 −3.30 × 10−3 −4.64 × 10−3 −2.49 × 10−3 0,8634 −5.56 × 10−3 −7.60 × 10−3 −4.80 × 10−3
Constr & mat 0,6623 −3.28 × 10−3 −4.62 × 10−3 −2.19 × 10−3 0,8829 −4.33 × 10−3 −5.86 × 10−3 −3.83 × 10−3
Consumer goods 0,7170 −1.33 × 10−2 −1.89 × 10−2 −9.59 × 10−3 0,7869 −4.03 × 10−3 −5.66 × 10−3 −3.17 × 10−3
Financials 0,8999 −3.09 × 10−3 −4.13 × 10−3 −2.78 × 10−3 0,9500 −4.24 × 10−3 −5.36 × 10−3 −4.03 × 10−3
Industrials 0,8187 −3.28 × 10−3 −4.57 × 10−3 −2.69 × 10−3 0,9035 −5.43 × 10−3 −7.24 × 10−3 −4.91 × 10−3
Insurance 0,7574 −3.54 × 10−3 −4.99 × 10−3 −2.68 × 10−3 0,7087 −3.71 × 10−3 −5.25 × 10−3 −2.63 × 10−3
Real estate 0,7236 −3.27 × 10−3 −4.62 × 10−3 −2.37 × 10−3 0,8206 3.75 × 10−3 −5.22 × 10−3 −3.07 × 10−3
Technology 0,6084 −4.72 × 10−3 −6.60 × 10−3 −2.86 × 10−3 0,6515 −6.36 × 10−3 −8.97 × 10−3 −4.14 × 10−3
Telecom 0,6071 −3.19 × 10−3 −4.47 × 10−3 −1.94 × 10−3 0,7088 −4.14 × 10−3 −5.86 × 10−3 −2.94 × 10−3
Travel & leisure 0,6242 −4.54 × 10−3 −6.38 × 10−3 −2.85 × 10−3 0,6917 −5.06 × 10−3 −7.16 × 10−3 −3.50 × 10−3
650 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

Fig. 8. VaR of electricity spot price against VaR of sector indexes.

Average risk of the aggregate Nordic market index is about the conditional extreme losses are higher than the overall extreme
(−3.01 × 10−3), this value is smaller than the value of the least losses estimated registered by these sector indexes during the same pe-
risky sector, which due to the diversification of sectors that compose riod (VaR). Indeed, the highest average CVaR is observed for Technology
this aggregate index and that's prove the importance of diversifica- sector and it's about (−6.82 × 10−3) which represent 140% of the
tion in decreasing the value of risk. estimated univariate VaR, followed by the Basic Materials and Travel
CVaR represents the conditional extreme losses, and it measure the and Leisure sectors. Therefore, these sectors seem more exposed to
contribution of electricity returns risk to the overall extreme losses the risk of electricity market variabilities. These results are confirmed
(measured by the VaR) for each sector index returns. The results of by ΔCVaR estimations.
the average conditional extreme losses (CVaR) indicates that the risk ΔCVaR measure the sector index exposure to electricity market tur-
increases for the aggregate index as well as for all sector indexes, since moil. Results indicate that Technology, Basic Materials and Industrials

Fig. 9. c-DCC between electricity returns and sector Index returns.

 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 651

sectors remain more exposed to electricity market risk than other sec- Secondly, we consider the problem of estimating a dynamic risk-
tors, with a significant overreaction measured by ΔCVaR which are minimizing hedge ratio (βs/elec, t) using the bivariate c − DCC −
close to (−3 × 10−3). In contrast, Consumer Goods and Telecommuni- FIAPARCH results. For minimizing the risk of this portfolio (electricity
cations sectors are less exposed to the electricity market variability, and sector stock markets), we measure how much a long position
with ΔCVaR evaluated at (−2.4 × 10−3), therefore, these sectors show (buy) of one-euro unit in the electricity market should be hedged by a
more resistance to the electricity market variability. The aggregate short position (sell) of (βs/elec, t) euro in the sector stock index, that is:
market index and the rest of sectors indexes demonstrate a moderate
spillover effect; which proves the stability of these sectors facing the σs
βs=elec;t ¼ ρ  ð22Þ
risk of electricity market deviations. σ elec
For the sub-periods, we notice that c − DCC reaches its maximum
values in the last period (post-Break 2) for all sector indexes, notably where σs and σelec are the standard deviations of the sectoral stock
for Financial, Industrials and Basic Materials indexes (0.95, 0.90 and returns and the electricity extreme returns, respectively, and ρ repre-
0.88, respectively). sent the correlation between the electricity market return and the
Moreover, sector indexes remain more exposed to electricity sectoral stock return.
market variations during the last period, since CVaR and ΔCVaR in this Finally, we examine the effectiveness of hedging (HE) of the portfo-
period are higher compared to the previous period. To exemplify, the lio diversification, this measure is judged through comparing return
highest CVaR average is achieved by Technology sector (pass from characteristics and the realized risk of the considered portfolios. The
−6.18 × 10−3 to −8.97 × 10−3), followed by Basic Materials and effectiveness of hedging (HE) across constructed portfolios (proposed
Industrials sectors (−7.60 × 10−3 and −7.24 × 10−3, respectively). by Ederington (1979)) can be evaluated by:
The ΔCVaR average of Basic Materials pass from (−3.56 × 10−3) during
the first sub-period, to (−4.64 × 10−3) during the second sub-period Varunhedged −Var hedged
HE ¼ ð23Þ
and reaches its maximal value (−4.8 × 10−3) in the last sub-period. Var unhedged
These findings can be explained by the fact that the third sub-period is
characterized by a high volatility of the electricity market (see Fig. 7), where variances of the hedge portfolio (Varhedged) are obtained from the
which increases the risk in the stock market, this result confirm the variance of return on electricity-stock portfolios, whereas the variance
existing of tail dependence between electricity market and stock of unhedged portfolio (Varunhedged) is the variance of return on the port-
market. folio of 100% stocks.
To sum up, Technology, Industrials and Basic Materials sectors are Estimation results (Table 9) show that the optimal portfolio weight
the most exposed to electricity market turmoil, since these sectors of electricity commodity varies substantially across sectors. For the
rely on electricity in their activities. However, the Nordic market index overall period, we observed that the highest average value of optimal
as well as the other sector indexes, notably Telecommunication, Insur- weights is for Basic Materials- electricity portfolio, indicating that the
ance and Real Estate sectors, show more resistance to electricity market optimal weight of electricity commodity is 18.32% and the remaining
risks. proportion of 81.68% is invested in the Basic Materials stocks. This is

4.3.5. Implications for portfolio designs and hedging strategies

Table 9
Our previous findings suggest that the volatility transmission across Average values of the optimal weight, hedge ratio and hedge effectiveness of the electricity
electricity market and stock markets is a crucial element for efficient market commodity in stock portfolios.
diversified portfolios and risk management. Investors in some stock
Overall period 03/07/2017–18/08/2017
sectors may need to hedge electricity risk more effectively than they (Pre-Break 1)
have to if they hold stocks of companies in other sectors. Practically,
We Bs/e HE We Bs/e HE
portfolio managers are required to quantify the optimal weights and
hedge ratios in order to hedge effectively against electricity market Nordic market index 0,1051 0,1012 0,3201 0,0828 0,0844 0,0396
Banks 0,1544 0,1500 0,4099 0,1349 0,1367 0,8791
risk. For minimizing the risk without reducing expected returns, we
Basic materials 0,1832 0,1729 0,3376 0,1823 0,1748 0,4706
now consider a portfolio construction of electricity commodity and Construction & materials 0,1502 0,1455 0,4303 0,1280 0,1368 0,1824
sector stock indexes. Consumer goods 0,1195 0,1166 0,3762 0,1105 0,1077 0,0872
At first, consider the problem of the portfolio optimal weight of Financials 0,1363 0,1319 0,2046 0,1224 0,1156 0,4635
Industrials 0,1385 0,1375 0,1505 0,1974 0,1712 0,5784
electricity commodity and stocks holding subject to a no-shorting
Insurance 0,1180 0,1150 0,101 0,0997 0,1068 0,0073
constraint, as given by Kroner and Ng (1998): Real estate 0,0974 0,1100 0,1674 0,0928 0,0985 0,1505
Technology 0,1626 0,1734 0,9204 0,1544 0,16,858 0,6713
hs;t −hs=elec;t Telecommunications 0,1023 0,1070 0,2777 0,0905 0,1027 0,1890
ωelec;t ¼ ð20Þ Travel & leisure 0,1213 0,1295 0,4026 0,0659 0,0992 0,0520
helec;t þ hs;t −2hs=elec;t
18/08/2017–10/11/2017 10/11/2017–08/12/2017
(between Break 1 and Break 2) (Post-Break 2)
Under the condition that
We Bs/e HE We Bs/e HE
8
< 0; if ωelec;t b 0 Nordic market index 0,1090 0,1047 0,1863 0,0648 0,0691 0,0020
ωs=elec;t ωelec;t ; if 0 ≤ ωelec;t ≤ 1 ð21Þ Banks 0,1446 0,1485 8.93 × 10−2 0,1852 0,1702 0,6316
: Basic materials 0.1845 0,1600 0.1450 0,1865 0,1687 0,1293
1; if ωelec;t N1
Construction & 0,1625 0,1199 0.1590 0,1521 0,1381 0,2114
materials
where ωelec, t refers to the weight of electricity commodity in one-euro Consumer goods 0,1366 0,1232 0,5345 0,1006 0,1000 0,0795
Financials 0,1780 0,1535 0,5797 0,2166 0,1530 0,2940
portfolio of the two assets defined above at time t, hs, t and helec; t are
Industrials 0,1851 0,1357 0,1445 0,1621 0,1448 0,2731
the conditional variances of the sectoral stock returns and the electricity Insurance 0,1690 0,1552 0,0985 0,1937 0,1065 0,2360
extreme returns, respectively, and hs/elec; t is the conditional covariance Real Estate 0,1589 0,1513 0,7346 0,1318 0,1255 0,2606
between electricity and the sectoral stock returns at time t. Technology 0,1419 0,2257 0,1123 0,0866 0,1217 0,01429
The optimal weight of the sectoral stock returns in the considered Telecommunications 0,1041 0,1100 −2.69 × 10−2 0,1122 0,1192 0,0313
Travel & leisure 0,1393 0,1761 0,6032 0,1054 0,1164 0,1120
portfolio is obtained by computing (1 − ωelec, t).
652 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655

followed by Technology- electricity portfolio and Construction The values of the hedge effectiveness index HE are positive for all
Materials- electricity portfolio, with optimal weights of electricity sector stocks and global index, due to the decreasing values of the
commodity close to 15% and 85% attributed to these stock sectors. hedged portfolio variance compared to unhedged portfolio variance.
Hence, for the Nordic stock market optimal portfolio is characterized We observe that the reduction of risk is close to 92% for portfolios in-
by high weights of sector stocks instead of electricity commodity. cluding Technology stocks and electricity commodity. These reductions
For the sub-period's windows, we observed that the optimal weight can also apply to portfolios of Construction and Materials and Banks
of electricity commodity for Industrials - electricity portfolio decreases with hedge effectiveness value of 40%.
over periods (pass from 19.75% during the first period, to 18.50% in Moreover, a close look at the hedge effectiveness index indicates also
the second period and reach 16.20% in the last period). The same change significant gains from adopting a dynamic hedging strategy, since the
is also observed for Technology- electricity portfolio and Construction introduction of electricity commodity decreases the risk for all stock
Materials- electricity portfolio. However, the optimal weight of electric- sectors and for the global market index, due to the decreasing of the
ity for Financials- electricity portfolio, Bank-electricity portfolio and hedged portfolio variance compared to the unhedged portfolio variance
Insurance-electricity portfolio increases over periods. To exemplify, for (100% stocks). These findings are important for the Nordic market in-
Financials- electricity portfolio, the optimal weight of electricity rises vestors seeking to reduce the effects on portfolio risk stemming from
from 12.24% during the first period to 21.66% in the third period, the volatility related to the electricity market returns.
which characterized by high volatility compared to the previous
periods. Hence, the weight of electricity in the portfolio increases in 5. Policy recommendations
favour of sector stocks. In sum, the optimal weight of electricity com-
modity decreases for sectors that are more exposed to electricity Our findings have several interesting policy implications for the
turmoil. In contrast, this weight increases for sectors that are more heterogeneity of various types of investors, market participants and
stable to electricity market variability. policymakers:
Average values of the hedge ratios (Table 9 and Fig. 10) are low in Results on the unconditional correlation coefficients (Table 1) indi-
general for all portfolios indicating that hedging effectiveness involving cate that the stock market sectoral returns can viewed as having low
electricity and stock markets is quite good. We observe that, for the to moderate positive correlation with electricity market returns. The
whole period, the lowest value of average hedge ratio is for Telecommu- only exception is the negative unconditional correlation observed for
nication - electricity Portfolio (0.10) followed by Insurance - electricity the Bank sector. However, a weaker positive correlation was noticed
Portfolio and Real Estate- electricity Portfolio (0.11). This indicates for Basic Materials, Telecommunications and consumer Goods. Based
that the investor can minimizes the risk, where a long position of one- on these findings, it is thus apparent that investors in Nordic Market
euro in the electricity market can be hedged by a short position of can achieve a diversified portfolio with Bank, Basic Materials, Telecom-
0.10 euro in Telecommunication stocks. For instance, the hedging strat- munications and consumer Goods.
egy for Telecommunication is buying electricity commodity and selling Continuing the analysis, our c − DCC results indicate that the lowest
Telecommunication stocks. This inversed hedging position can be used c − DCC average is observed for the Telecommunications and Travel and
also for investors in Insurance and Real Estate sectors. However, Leisure sectors. This relationship shows that electricity market assets
the highest value of average hedge ratio is observed for Technology - can be considered as a hedger for these stock sectors. Hence, Telecom-
electricity Portfolio (0.173) followed by Basic Materials - electricity munications and Travel & Leisure stock sectors can boost safety for
Portfolio (0.172) and Construction Materials- electricity Portfolio Nordic market investors during the period of electricity market turmoil.
(0.145). This indicates that the investors can minimizes the risk, Concerning the optimal portfolio weights, our results indicate that in
where a long position of one-euro in the electricity market can be Nordic Market the investor should hold more sector stocks than elec-
hedged by a short position of 0.17 euro in Technology stocks. tricity commodity to minimize the overall portfolio risk. This may be

Fig. 10. Optimal hedge ratios.

 B.A. Souhir et al. / Energy Economics 80 (2019) 635–655 653

explained by the fact that electricity market is more volatile than the since the conditional extreme losses are higher compared to the overall
stock market. extreme losses estimated on these sector indexes during the same
For the optimal hedge ratios, we observe that the Financials period (VaR). In addition, this study focused onΔCVaR, and the results
-Electricity portfolio, Insurance-Electricity portfolio and Banks vary over sectors and over time depending on the volatility of the elec-
-Electricity portfolio have the lowest values of average hedge ratio. tricity market returns for each period. In particular, the Technology, the
However, Technology- Electricity portfolio, Industrials -Electricity Basic Materials and the Industrials sectors remain more exposed to the
portfolio and Basic Materials -Electricity portfolio have the highest electricity market risk than other sectors. Finally, we extended our
value of average hedge ratio. methodology to portfolio diversification strategies, which is the most
According to these findings, we suggest that risk lover traders can important application to market participants and market makers. We
invest in the portfolio, which depicts minimum hedge ratio value. simulated optimal intra-day portfolios, given that electricity markets
Conversely, risk aversion traders can invest in the portfolio, which are hourly markets, in terms of the optimal weight, the optimal hedge
depicts the maximum hedge ratio value. ratio and hedging effectiveness across different periods. Our findings
It is worth noting that optimal weights and hedge ratios change over showed that optimal weights and hedging ratios vary over periods
the period according to the volatility structure of the electricity returns. and across sectors. More precisely, based on the optimal weights we
In such cases, investors and market participants such as traders are remarked that investors should hold more stocks than electricity com-
highly recommended to be cautious and better understand the risk modity. This may be referred to the fact that electricity markets are
factor originating from the volatility of electricity returns. For that pur- more volatile than the other stock markets. Likewise, the optimal
pose, it is crucial for them to re-weight their electricity- stock portfolios hedge ratios between electricity and sector stock markets allows inves-
according to the electricity market turmoil. tors to effectively hedge the electricity risk by using the short position of
The obtained results should be of interest to policymakers as sector stock indexes. Moreover, the hedge effectiveness index indicated
unfavourable electricity market fluctuations may have severe impacts significant gains, since the introducing of electricity commodity de-
on the stock market performance through reducing corporate cash creases the risk for all sector indexes as well as the aggregate market
flows. Furthermore, investors and fund managers can use our results index, due to the decreasing of hedged portfolio variance compared to
to build appropriate diversification and hedging strategies. If, for exam- unhedged portfolio variance (100% stocks).
ple, the electricity market exhibits high volatility (3rd sub-period), Two important results that emerge from this research are as follows.
profitable investment strategies can be constructed based on sectors, First, our study shows evidence of long run dependence between elec-
which are less dependent on electricity such as Financials, Insurance tricity returns and sectoral stock returns, and the results indicate that
and Bank sectors. Hence, electricity commodity can be used as a hedger the tail dependence is significant and varies across sectors and over
and diversifier asset to these sectors. periods. Secondly, the optimal weights and hedge ratios for electricity/
In summary, our findings provide an important guideline on build- stock portfolio holdings are sensitive to the sectors considered. There-
ing optimal portfolios using electricity commodity and sector indexes, fore, electricity commodity can diversify portfolio of sector stocks and
which requires some information on the optimal diversifiable portfolio serves to hedge electricity risk more effectively.
to minimize the electricity market risk without any impairment of These findings are important for Nordic market investors seeking
expected returns of the portfolio. to reduce the risk related to the electricity market. Hence, our research
offers useful and significant information for risk management and for
6. Conclusion optimal portfolio allocation decisions, which are the important objec-
tives of financial market participants.
With the deregulation movement reforming the electricity industry
worldwide, electricity prices are substantially more volatile than any
other commodity prices. On the other hand, electricity is an integral Acknowledgments
part of production and economic growth process. Therefore, electricity
market may affect the stock market through influencing the real output, We wish to thank the Editor and anonymous referee for their helpful
and as consequence, the sum of cash flows. Accordingly, investors are comments and suggestion which have led to substantial improvement
facing electricity market risks, and thus need to find ways to protect in the presentation of this paper.
their returns. In this study, we investigate the problem of establishing
a framework for risk management and hedging strategies in the Nordic Appendix A. Appendix
market. For that purpose, we considered the electricity return pairwise
in aggregate market index and some sectoral stock returns in the The standardised t-distribution with a given degrees of freedom υ
Nordic market, for the period ranging from the 3rd of July to the 8th (N2), designated εt ∼ St(0, 1,υ) is given by the following equation:
of December 2017.
Specifically, we examined, firstly, the adequate model for each time  
series; and our results indicated that the k − factor GARMA − FIGARCH υþ1
Γ −ðυþ1Þ

model seemed appropriate for the Log-return electricity price series. 2 ε2 2

g ðεt =υÞ ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi υ 1 þ t ð24Þ

However, the ARFIMA(p, d, q) − FIGARCH(1, δ, 1) model seemed appro- πðυ−2ÞΓ υ−2
2
priate for the aggregate market index and the sectoral stock returns.
Then, the univariate VaR estimation results indicated that Technology,
Basic Materials sectors are the riskiest sectors in the Nordic market.
Thereafter, the c − DCC − FIGARCH approach was adopted to assess where Γ(υ) denote the Euler's gamma function. Subsequently, Hansen
the spillover effects of the electricity market variations among aggregate (1994) was the first to develop a skew-student distribution for financial
and sectoral stock returns. Then, to analyse the tail dependence time series modelling. Later, Lambert and Laurent (2000, 2001)
between the electricity market and each sectoral stock markets, we extended this distribution by proposing a standardised version and
applied the CVaR approach. Our empirical findings point to the indicated that it may be assumed for the ARCH model innovations.
existence of significant volatility spillover across electricity market and Refering to Lambert and Laurent (2000, 2001), the random variable
sectoral stock markets, but the intensity of volatility interaction differs εt is assumed to be SKST(0, 1, ζ, υ), i.e., distributed by means of
from one sector to another and from one period to another. Particularly, standardised skew-student with parameters υ N 2 (that represent
the risk increases in cases of the Technology and Basic Materials sectors the degrees of freedom) and ζ N 0 (a parameter of the skewness), if its
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Margin Model
Nord Pool Risk Management

Valid from 12th October 2022

Introduction

The aim of the Margin Model is to produce a collateral requirement that simply and accurately
reflects the risk in a member’s trading behaviour. The model estimates a requirement that need to be
met by the member at all times, in line with Nord Pool’s Clearing Rules.

Initial Collateral
Initial Collateral is the requirement that needs to be met before any trading activity starts.
Nord Pool estimates the Initial Collateral for all Clearing Members based on the maximum
expected net MWh position for a delivery day. This estimate is inserted into the Daily Margin
Calculation - giving the Clearing Member an Initial Collateral Call which must be met before
trading starts. All members must post collateral as security that they can pay for the
contracts they have entered into. Minimum Collateral for all Nord Pool member’s is EUR
30.000.

Collateral Requirement
There are two margin components calculated daily, taking into account the Clearing Member’s
trading behavior:

The first component is defined as the sum of a Clearing Member’s net MWh position (Daily Net
Position), multiplied by the risk parameter, times the day factor set by Nord Pool. The Daily Net
Position has a lookback period, currently set to 30 days. The second component is the sum of a
Clearing Member’s net financial position (Daily Settlement Position), times a multiplier set by Nord
Pool. The Daily Settlement Position has a lookback period, currently set to 7 days. Note that all
parameters and the lookback periods for both the Daily Net Position and the Daily Settlement
Position may change, as they are set at Nord Pool’s discretion.

Collateral Requirement = ∑ Max1−n ( Daily Net position (MWh) × Risk Parameter × Day Factor)

+ Max1−n (Daily Settlement Position × Multiplier)

Where the;
- “Daily Net Position” is the sum of the volume flow for a specific delivery day, within a
specific bidding zone, between Nord Pool and the Clearing Member.
- “Risk Parameter”, or the Risk Price Parameter is a parameter set on either a net long or a
net short position per delivery bidding zone, estimated as a conservative spot price based on
modelling and analysis of historical prices.
- “Day Factor” is a parameter set to account for the Clearing Member’s exposure towards
Nord Pool over weekends, which can be increased at the discretion of Nord Pool.

2
 - “Daily Settlement Position” is defined as the net sum of all payments payable to and from
the Clearing Member for a settlement day, as defined in the settlement schedule.
- “Multiplier” is a parameter that can be used by the discretion of Nord Pool to increase the
collateral call in front of holidays or extraordinary market events.

- “Max1-n” defines the lookback period, which is currently set to 30 days for the daily net
position, and to 7 days for the daily settlement position

The Daily Net Position can be both a positive and a negative component in the margin calculation,
the Daily Settlement Position however, is only a net positive value or it is set to zero (in case the
settlement position is net negative per settlement date). Note that the Collateral Requirement will
never fall below the minimum requirement of EUR 30.000.

Example
If you have traded 1000 MWh net buy position in area SE and the risk parameter long is 50
then your daily trading margin will be 1000 MWh x € 50 x 1 = € 50k. On the same there is a new peak
in the net invoice payment of EUR 35K. The net invoice payment then stays below EUR 35K for the
rest of the period. On day 31 the peak value contributing to the Daily Net Margin (MWh) disappears
from the calculation, which further reduces the collateral requirement.

3
Margin Model
Nord Pool Risk Management

Valid from 07/06/24

Introduction

The aim of the Margin Model is to produce a collateral requirement that simply and
accurately reflects the risk in a member’s trading behaviour. The model estimates a
requirement that need to be met by the member at all times, in line with Nord Pool’s
Clearing Rules.

Initial Collateral

Initial Collateral is the requirement that needs to be met before any trading activity starts. Nord
Pool estimates the Initial Collateral for all Clearing Members based on the maximum expected net
MWh position for a delivery day. This estimate is inserted into the Daily Margin Calculation -
giving the Clearing Member an Initial Collateral Call which must be met before trading starts. All
members must post collateral as security that they can pay for the contracts they have entered
into. Minimum Collateral for Nord Pool members is €30 000.

Collateral Requirement for a given date;

Collateral Requirement = ∑ ({Max1−n ( Daily Net position (MWh) × Risk Parameter ) × Day Factor}
{
+ Max1−n (Daily Settlement Position × Multiplier ) }) × Credit Risk Adjustment
Where the;

- “Daily Net Position” is the sum of the volume flow for a given Risk date R (which
includes Intraday Continuous (IDC) trades with a delivery date of R-1, Intraday Auction
(IDA) trades with a delivery date of R and Day Ahead (DA) trades with a delivery date of
R+1) within a specific bidding zone, between Nord Pool and the Clearing Member.
- “Risk Parameter”, or the Risk Price Parameter is a parameter set on either a net long or
a net short position per delivery bidding zone, estimated as a conservative spot price
based on modelling and analysis of historical prices.
- “Day Factor” is a parameter set to account for Nord Pool’s exposure towards the
Clearing Member over extended non-banking days, which can be increased at the
discretion of Nord Pool.

- “Daily Settlement Position” is defined as the net sum of all payments payable to and
from the Clearing Member for a settlement day, as defined in the settlement schedule.

- “Multiplier” is a parameter that can be used by the discretion of Nord Pool to increase
the collateral call due to extraordinary market events.

- “Max1-n” defines the lookback period, which is currently set to 30 days for the daily net
position, and to 7 days for the daily settlement position

- “Credit Risk Adjustment”: The factor is a Multiplier reflecting the credit risk associated
with the clearing members trading behaviour. Please refer to the Collateral section of the
website for further details on the methodology and the relevant Multipliers.
2
Since 27/11/23 both the Daily Net Position and the Daily Settlement Position are always net
positive values, or set to zero, for the purposes of calculating Collateral.

Note that the Collateral Requirement will never fall below the minimum requirement
of €30 000.

Example

3
GENERAL TERMS
NORD POOL AS
GENERAL TERMS
Effective from: 17 February 2025

TABLE OF CONTENTS:
1. INTRODUCTION 3
2. DEFINITIONS AND INTERPRETATION 4
3. CONDITIONS FOR TRADING 4
4. REPRESENTATIONS AND WARRANTIES 6
5. MARKET MAKERS 8
6. GROSS BIDDING 8
7. LISTING OF PRODUCTS 8
8. TRADING AND CLEARING PLATFORMS 8
9. GENERAL PROVISIONS ON TRADING 12
10. TRADING DESK 14
11. FEES AND SETTLEMENT 15
12. VAT AND TAXES 15
13. MARKET CONDUCT AND MARKET SURVEILLANCE 16
14. EVENTS OF DEFAULT; SUSPENSION 17
15. MATERIAL EVENTS OF DEFAULT; TERMINATION 18
16. EVENTS OF DEFAULT: CLIENT REPRESENTATIVES 18
17. EVENTS OF DEFAULT: CLIENTS 19
18. FORCE MAJEURE 20
19. LIMITATION OF LIABILITY; INDEMNITY 21
20. MARKET INFORMATION SERVICES 23
21. PROPRIETARY RIGHTS IN DATA 24
22. COMMUNICATION 24
23. INFORMATION SHARING 25
24. AMENDMENTS 25
25. MISCELLANEOUS 26
26. GOVERNING LAW AND DISPUTE RESOLUTION 26

2 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

1. INTRODUCTION
1.1 Nord Pool Group is authorised to operate the Physical Markets in Norway through licenses
from Reguleringsmyndigheten for energi i NVE (RME) (RME) and is a designated NEMO
under EU Commission Regulation 2015/1222 of 24 July 2015 establishing a guideline on
capacity allocation and congestion management (CACM).
1.2 The Physical Markets comprise the Day-ahead Market and the Intraday Market.
a) The Day-ahead Market provides the possibility of Trading by means of the following
Auctions:
(i) With respect to the Nordic/Baltic Market and the CE Market, the SDAC
Auction, comprising of 24 (twenty-four) hourly Delivery Periods in respect
of each Delivery Day; and
(ii) With respect to the NO2 Market only, the NO2 Auction, comprising of 24
(twenty-four) hourly Delivery Periods in respect of each Delivery Day; and
(iii) With respect to the GB Market only:
a. the GB Auction, comprising of 24 (twenty-four) hourly Delivery
Periods in respect of each Delivery Day; and
b. the Half-hourly Auction, comprising of 48 (forty-eight) half-hourly
Delivery Periods in respect of each Delivery Day,
in each case based on all volume and price Orders received from Participants prior
to closing of the relevant Auction. Further provisions governing Trading on the Day-
ahead Market are set out in Schedule 2.1A (Day-ahead Market Regulations -
Nordic/Baltic Market and the CE Market), Schedule 2.1B (Day-ahead Market
Regulations – GB Market) and Schedule 2.1C (Day-ahead Market Regulations –
NO2 Market) to these General Terms.
b) The Intraday Market provides the possibility of Trading by means of the following:
(i) With respect to the Nordic/Baltic Market and the CE Market:
a. Single Intraday Coupling (SIDC/IDCT) whereby Transactions are matched
automatically when concurring Orders are registered in the Trading Platform.
b. SIDC Intraday Auctions (SIDC/IDA) which provides the possibility to trade
based on all the Orders submitted by the Participants to the relevant SIDC
Intraday Auction and received prior to the relevant Intraday Auction Gate
Closure..
(ii) With respect to the GB Market only:
a. the GB Continuous Intraday Market; and
b. the SEM-GB IDA1 and/or SEM-GB IDA2 auctions; and
c. such other Intraday Auctions as Nord Pool may, in its sole discretion,
introduce from time to time.
Further provisions governing trading on the Intraday Market are set out in Schedule
2.2 (Intraday Market Regulations) to these General Terms.
1.3 Each Physical Market offers such Products for Trading as set out in the applicable Product
Specifications.
1.4 These General Terms are a part of Nord Pool’s Rulebook which applies to all Trading and
Clearing on the Physical Markets, and are deemed to be incorporated by reference to any
agreement between Nord Pool and each Member in the Physical Markets. The Rulebook
comprises these General Terms, the Schedules, Specimen Agreements and Specimen
Collateral Documents, as applicable from time to time.

3 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

1.5 All Transactions entered into on the Physical Markets will be automatically and mandatorily
subject to Clearing with Nord Pool in accordance with the Clearing Rules, whereby Members
will become counterparties to Nord Pool acting as central counterparty in all Transactions.

2. DEFINITIONS AND INTERPRETATION

2.1 Definitions and interpretation
Capitalised terms shall have the meaning assigned to them in Schedule 1 (Definitions and
Interpretation) or as specifically defined in the text body of these General Terms, the
Schedules, Agreements or Specimen Collateral Documents. Terms and expressions shall be
interpeted as set forth in Schedule 1 (Definitions and Interpretation).

2.2 Conflict
In case of conflict between these General Terms and the specific regulations for each
Physical Market in the Schedules to these General Rules (“Specific Market Regulations”),
the provisions of the applicable Specific Market Regulations shall prevail.

3. CONDITIONS FOR TRADING

3.1 Prerequisites for Trading
3.1.1 Entities wishing to perform Trading on any Physical Market must enter into a Participant
Agreement with Nord Pool and be eligible as counterparty under the Clearing Rules prior to
the commencement of Trading on such Physical Market.
3.1.2 Entities wishing to perform Client Trading must be Participants and be approved as Client
Representatives for such Clients under the Clearing Rules before Client Trading can
commence.
3.1.3 In addition to the requirements under Sections 3.1.1 and 3.1.2, each Participant (or its
Clients, as applicable) must at all times:
a) be eligible as counterparty to each Transaction and its corresponding Clearing
Transaction under the Clearing Rules;
b) obtain, maintain and comply with all licences, authorisations and agreements required
by Applicable Law to enable it to conduct Trading on the relevant Physical Markets and
to perform its obligations under the Rulebook;
c) have appointed a Contact Person(s) and Traders (if relevant) and notified Nord Pool
thereof in accordance with Section 3.3;
d) have notified Nord Pool with respect to the Trading Portfolios in accordance with Section
3.4;
e) Each Participant and Client must in its own name (or, with respect to the Nordic/Baltic
Market, through an Open Supplier) have entered into an agreement on balance
responsibility with the relevant balance responsible party or Transmission System
Operator. If such agreement is terminated or suspended, the Participant or Client
Representative shall inform Nord Pool immediately. Nord Pool may in such cases
suspend the Participant or Client and terminate the relevant Participant Agreement or
Client Agreement, as the case may be.
3.1.4 Further rights and obligations of Members in respect of Trading and Clearing are set out in
the agreements entered into between Nord Pool and the Member and the market conduct
rules (clause 13 of these General Terms), as applicable.

4 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

3.2 Approval of Members

3.2.1 Entities wishing to enter into a Participant Agreement or a Client Agreement must send
Nord Pool a written application for membership in such form as Nord Pool shall prescribe
from time to time.
3.2.2 As part of the approval procedure, Nord Pool may require additional information from the
applicant on the applicant’s legal status, financial soundness, organisation, technical
systems, level of experience and competence and other relevant matters for evaluating
whether or not the applicant is fit and proper to become a Member.
3.2.3 Nord Pool may require an applicant to provide a satisfactory legal opinion on such issues as
Nord Pool reasonably considers appropriate including that the applicant is legally entitled
and appropriately authorised to conduct Trading in the relevant Physical Markets, and that
any relevant agreements with it have been executed by a duly authorised representative of
the applicant.
3.2.4 Nord Pool shall only admit applicants that Nord Pool in its sole discretion considers fit and
proper to become Members.
3.2.5 Nord Pool shall generally admit and treat applicants and Members on a fair and non-
discriminatory basis. Subject to the aforesaid principle, Nord Pool may however impose
special terms and conditions on individual entities if this, in the reasonable opinion of Nord
Pool, is necessary to reflect special circumstances applying to that entity or to admit an
entity which would otherwise be excluded from membership.
3.2.6 Nord Pool shall promptly inform the applicant in writing of the outcome of the application
process. If the application is approved, the relevant agreements shall be executed by duly
authorised representative of Nord Pool and the applicant.

3.3 Contact Person(s) and Traders

3.3.1 Each Member must appoint at least one general Contact Person, subject to the approval of
Nord Pool (not to be unreasonably withheld). Each Participant and Client Representative
may in addition appoint a Contact Person for Trading and Traders for the relevant Physical
Market, and each Participant and Client shall in addition appoint a Contact Person(s) for
Clearing. Unless otherwise requested by the Member and approved by Nord Pool, the
Contact Person appointed for Trading at any given time will automatically be appointed as
Contact Person for the Clearing. In case of Clients, the Contact Person shall always be the
Contact Person(s) appointed for its Client Representative at any given time. The Contact
Person(s) and Traders (if relevant) of each Member, and any change in such persons, shall
be notified to Nord Pool in such manner as may be specified by Nord Pool from time to time.
3.3.2 Unless otherwise agreed with Nord Pool, Contact Persons for Trading and Traders will have
full access to the Trading Platform in respect of all Trading Portfolios of such Participant or
the relevant Client. The Contact Person for the Trading will have a non-exclusive right to
appoint, amend or withdraw the access rights of the Traders to theTrading Platform. No
access rights may be granted directly to a Client unless the Client is in the same company
group as the Client Representative. Contact Persons for Clearing will have full access to the
Clearing Platform in respect of the Clearing Portfolios in accordance with the Clearing Rules.
3.3.3 Each Member shall ensure that each individual whom it appoints as its Contact Person(s) is
authorised in the name of the Member to sign all instruments, to give instructions, to correct
errors and to perform such other duties as may be required under the Rulebook and to
transact all requisite business in connection with the operations of Nord Pool. A Member
may, with the consent of Nord Pool, appoint different Contact Persons for different purposes.
A Member shall ensure that each individual whom it appoints as its Contact Person shall be
capable of taking such action in a manner consistent with the daily time schedules and other
requirements established by or pursuant to the Rulebook. The Member shall ensure that
each such Contact Person appointed by it is appropriately authorised to act for the Member
and shall, upon Nord Pool’s request, provide such documentation on the autority of the
Contact Person as Nord Pool may in its absolute discretion accept.
3.3.4 Traders and Contact Persons for Clearing will get access, respectively, to the Trading
Platform and the Trading Desk (for Trading) and the Clearing Platform (for Clearing) as
described in Section 8 and 10. Each Trader shall be fully authorised to register Transactions

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on behalf of the Participant or the relevant Client (if applicable) and to represent the
Participant or the relevant Client towards Nord Pool in all matters related to the Orders
and/or Transactions registered by the Trader, and is held to have authorised the subsequent
Clearing of any Transactions registered by it. Each Participant shall ensure that its Traders
shall be fully authorised to represent the Participant towards Nord Pool in all matters related
to Trading and shall be capable of taking such action in a manner consistent with the daily
time schedules and other requirements established by or pursuant to the Rulebook.
3.3.5 Following receipt by Nord Pool of a notification from the Member that the appointment of
any individual Trader or Contact Person is to be revoked, Nord Pool shall terminate such
Trader's or Contact Person’s access to the Trading Platform and/or Clearing Platform
immediately, and send a confirmation (in writing or electronically) thereof to the Member.
Notwithstanding such notification, the Member shall remain bound by and liable for all
actions or omissions of the Trader and/or Contact Person in respect of Trading and Clearing
during the period that the Trader and/or Contact Person has access to the Trading Platform
and/or Clearing Platfom, until such time as Nord Pool has confirmed in writing or
electronically that the Trader’s and/or Contact Person’s access has been terminated (cf
section 8.2.4).

3.4 Trading Portfolios

3.4.1 Each Participant and Client shall notify Nord Pool of the relevant details of at least one
Trading Portfolio for each of the Physical Markets in which it wishes to trade in such manner
as may be specified by Nord Pool from time to time.
3.4.2 Trading Portfolios are subject to fees set out in the Fee Schedules.

4. REPRESENTATIONS AND WARRANTIES

4.1 Representations by the Member
4.1.1 Each Member represents and warrants to Nord Pool on each date on which an Order is
submitted or a Transaction is entered into (as appropriate) that:
a) Power. It has the power to perform its obligations under the Rulebook and each
Transaction;
b) Status. It is duly organised and validly existing under the laws of the jurisdiction of its
organisation or incorporation (and, if relevant under those laws, is of good standing);
c) Organisation. It is properly staffed and organised to enable it to carry out, and its
personnel have the necessary competence and knowledge to carry out its obligations
under the Rulebook;
d) Risk assumption. It is aware of and understands the characteristics of each of the
Products and the risks related thereto, and it has submitted Orders and/or entered into
the Transaction to which it is a party after a full opportunity to review their terms and
conditions, and has an adequate understanding of those terms and conditions and of
their risks, and is capable of assuming those risks;
e) No violation or conflict. The execution, delivery and performance of the relevant
agreements and the adherence to the Rulebook do not violate or conflict with any
Applicable Law or any provision of its constitutional documents applicable to the
Member or any of its assets, or any contractual restriction binding on or affecting it or
any of its assets;
f) Required Authorisations. All Required Authorisations under Applicable Law have
been obtained and are in full force and effect, and all conditions of any Required
Authorisations have been complied with, and there are no further licences or filings
with or other acts by or in respect of any Competent Authority or competent court that
are required to be obtained, made or done by the Membert in connection with Trading
or Clearing, nor is it necessary in order to ensure the validity or enforceability of any
Transaction that the Transaction, the relevant Clearing Rules are filed, registered or
recorded by the Member in any public office;

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g) Principal. Save where a Participant is acting as a Client Representative as provided

for in the Clearing Rules or as otherwise allowed by the Rulebook, the Member has
negotiated, entered into and executed the Orders or Transactions as principal and not
as agent or in any other capacity, fiduciary or otherwise.
h) Accurate information. All applicable information that is furnished in writing by or on
behalf of the Member which is identified as being subject to or connected to the
Rulebook is, as of the date it is furnished to Nord Pool, true, accurate and complete in
every material respect;
i) Obligations binding. Its obligations under each Transaction and the Clearing Rules
constitute legal, valid and binding obligations of the Member, enforceable in accordance
with their respective terms subject to Applicable Law affecting creditors’ rights
generally and to equitable principles of general application;
j) No Event of Default. No Event of Default, or event that with notice or lapse of time
or both would constitute an Event of Default, has occurred with respect to it and no
such event would occur as a result of its entering into or performing its obligations
under the Rulebook; and
k) No litigation. No litigation, arbitration or administrative suit or proceeding at law or
in equity or before any court, tribunal, governmental body, agency, official or arbitrator
is pending or, so far as it is aware, threatened against it that would, if adversely
determined, result in a material adverse change in its financial condition or its ability
to perform its obligations under the Rulebook, or that is likely to affect the legality,
validity or enforceability against it of the Rulebook or its ability to perform its
obligations there under.
4.1.2 The Member is, when entering into a Transaction, deemed to repeat the representations
specified above as well as any further representations specified as such in the Rulebook.
4.1.3 The Member acknowledges that it is under a duty to notify Nord Pool in writing in case of
any breach or suspected breach of its representations immediately upon the Member
becoming aware of the same.

4.2 Representations by Nord Pool

4.2.1 Nord Pool represents and warrants to each Member in relation to each Transaction:
a) Power. It has the power to perform its obligations under the Rulebook and each
Transaction;
b) Status. It is duly organised and validly existing under the laws of the jurisdiction of its
organisation or incorporation (and, if relevant under those laws, is of good standing);
c) Organisation. it is properly staffed and organised to enable it to carry out, and its
personnel have the necessary competence and knowledge to enable it to carry out its
obligations under the Rulebook;
d) No violation or conflict. The execution, delivery and performance of the relevant
agreements with the Member or the adherence to the Rulebook do not violate or conflict
with any Applicable Law or any provision of its constitutional documents applicable to
Nord Pool or any of its assets, or any contractual restriction binding on or affecting it
or any of its assets;
e) Required Authorisations. All Required Authorisations under Applicable Law have
been obtained and are in full force and effect, and all conditions of any Required
Authorisations have been complied with, and there are no further licences or filings
with or other acts by or in respect of any Competent Authority or court that are required
to be obtained, made or done by Nord Pool in connection with its performance under
the Rulebook;
f) Accurate information. All applicable information that is furnished in writing by or on
behalf of Nord Pool which is identified as being subject to or connected to the Rulebook
is, as of the date it is first furnished to Members and unless as otherwise specified in
the applicable information, believed to be true and accurate in every material respect;
and

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g) Compliance. No default, or event that with notice or lapse of time or both would
constitute a default has occurred with respect to it and no such event would occur as
a result of it entering into or performing its obligations under the Rulebook.

5. MARKET MAKERS
5.1 A Participant may apply to Nord Pool for approval as a Market Maker in the Physical Markets.
If Nord Pool approves the appointment of the Participant as a Market Maker, the Participant
shall enter into a Market Maker Agreement with Nord Pool.

5.2 The rights and obligations of Market Makers are further set out in the individual Market
Maker Agreement.

6. GROSS BIDDING
6.1 A Participant or Client having volumes in both sales and purchase Transactions may apply
to Nord Pool to become a Gross Bidding Participant or a Gross Bidding Client (as the case
may be). The rights and obligations of a Gross Bidding Participant or a Gross Bidding Client
will be set out in the respective Gross Bidding Agreement.

6.2 Nord Pool may set standardized and objective criteria for a Participant’s or Client’s eligibility
as Gross Bidding Participant or Gross Bidding Client (as the case may be).

7. LISTING OF PRODUCTS
Nord Pool decides which Products shall be listed or delisted (removed) from any Physical
Market, following consultation with the Market Council (for the GB Market) or Customer
Advisory Board (for the Nordic/Baltic Market) and such other consultation procedures as
Nord Pool may establish from time to time (for the Central European Market) and subject
to Section 24.

8. TRADING AND CLEARING PLATFORMS

8.1 Access and use of electronic Platforms
8.1.1 Nord Pool provides electronic Platforms for Trading (the Trading Platform) and for Clearing
(the Clearing Platform).
8.1.2 The Trading Platform is the principal trading facility for all Participants wishing to perform
Trading on the Physical Markets. Participants may register their or their Client’s (as the case
may be) Orders in the Trading Platform, where Orders are ranked and matched in
accordance with the regulations for the applicable Physical Market.
8.1.3 The Clearing Platform conducts the financial settlement of all trades entered into in the
Trading Platforms and monitors the collateral requirements of all Clearing counterparties in
accordance with the Clearing Rules.
8.1.4 Members must at their own cost and risk set up and provide, and as necessary maintain,
replace and/or update, the necessary facilities to use the Platforms, including
telecommunication lines, equipment, operating platforms and software needed, unless and
to the extent these are explicitly to be provided by Nord Pool in accordance with a written
agreement. Nord Pool may exclude a Member who fails to maintain and/or update its
facilities (including related software and hardware installations) from accessing the
Platforms following a written warning from Nord Pool, provided that Nord Pool has

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reasonable cause for doing so.

8.1.5 Members will be provided with or will be allowed to generate one or several User IDs for
accessing the Platforms. User IDs will be dispensed to the relevant Contact Person or made
possible to generate by the Contact Person as soon as reasonably practicable following
fulfilment of the access criteria stated in Section 3.1 and 3.2. The Contact Person shall
ensure that User IDs are not generated or passed on to persons who are not entitled to use
them, hereunder in breach of Section 3.3.2.
8.1.6 Access to the Platforms is royalty-free, non-exclusive and non- transferable. Members shall
have a right of access to and use of the Platforms subject to:
a) the Participant fulfilling the conditions for Trading as set out in Section 3.1;
b) the Participant not having its Trading rights suspended or terminated in accordance
with the Rulebook; and
c) the Member’s compliance with the user terms as set out in the Rulebook.
8.1.7 The functionality of the Platforms is limited to such functionality and other operational
parameters which Nord Pool decides to make available at any given time, provided that
Nord Pool shall ensure that such functionality of the Platforms that is required, expressly or
by implications by the provisions of the Rulebook, will be provided. Nord Pool or its licensor
decides how all such functionality is implemented, including any human interfaces.
8.1.8 Nord Pool may offer different functionality to different Member categories, and may also
differentiate between groups of users within the Member’s organisation (including any
representatives of the Member).
8.1.9 The Platforms will from time to time be developed and updated with additional
functionalities, and each Member shall make itself acquainted with any such changes so as
to at all times operate the relevant Platforms properly. Nord Pool will inform affected
Members of such updates, including if necessary information on the need for changes to
equipment or software commonly used to connect with the Platforms.

8.2 Security requirements

8.2.1 Members shall ensure that those parts of their software and equipment used to connect
with the Platforms are interoperable with and complies with the minimum requirements to
connect to the Platforms from time to time as published by Nord Pool, and are solely
responsible for the functionality, availability and use of all facilities which Nord Pool does
not provide.
8.2.2 Members shall ensure that
a) any person acting on its behalf is properly authorised to do so;
b) the User IDs are used only in accordance with these General Terms;
c) any User ID(s) provided by Nord Pool to the Contact Person of a Member or generated
by such Contact Person is/are treated confidentially, used only for the intended purpose,
and that adequate security measures are in place to prevent unauthorised access or
use.
8.2.3 If a Member at any time has reason to believe that other entities than the authorised
persons have gained access to the User IDs, it shall immediately notify Nord Pool thereof.
8.2.4 The Member is strictly liable for all use of any User ID(s) registered to it until such time as
the Member has received Nord Pool’s confirmation that the relevant credentials have been
disabled. Such confirmation may be given in writing or electronically, either following a
request by the Member to disable the relevant credentials or as a reply to the Member
disabling the credentials at its own initiative.
8.2.5 If Nord Pool at any time becomes suspicious or aware that other entities than authorised
persons are using or attempting to use the User IDs of a Member, Nord Pool will as soon as
reasonably practical notify the relevant Member of any such attempts. However, Nord Pool
shall not be obliged to block such User IDs unless instructed to do so by the relevant Member
or unless Nord Pool receives clear confirmation thet the User ID is being misused.

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8.2.6 Without prejudice to any other obligations pursuant to the Rulebook, the Member and Nord
Pool shall use reasonable endeavours to ensure that its software and hardware shall be free
from any computer viruses and use its reasonable endeavours to ensure that no computer
viruses are introduced on to the other party’s software and hardware through the Platforms.

8.3 Quality, accessibility and security

8.3.1 Nord Pool will take all reasonable and practicable steps to maintain the continuity of access
to, and technical capacity, for Members to access the Platforms during Trading Hours, and
to provide Members with reasonable notice of system outages and other matters affecting
use or access to the Platforms, but will not be liable for:
a) any suspension, interruption, temporary unavailability or fault occurring in the provision
of the Platforms;
b) any loss or damage whatsoever and howsoever caused arising in connection with the
use of information or services acquired or accessed by the Member through use of the
Platforms howsoever; or
c) any loss or damage in connection with deficient deliveries from the suppliers of any
equipment or services rendered.
8.3.2 If Nord Pool at any time has reason to believe that a Member’s access to the Platforms is
causing a security threat to Nord Pool or to other Members, or is affecting Nord Pool’s or
other Members’ use of the Platforms in an adverse and unusual manner, Nord Pool may, at
its discretion, disconnect the Member from the Platforms, disable a particular User ID or
block the use of a particular User ID in respect of a particular Portfolio, and shall immediately
inform such Member thereof, together with its reasons for doing so.

8.4 Support
8.4.1 Nord Pool offers telephone support related to the Platforms’ functionality during Trading
Hours on any Trading Days, free of charge. Support is provided on an “as available” and
“reasonable effort” basis.
8.4.2 Support does not include support of any software or hardware which the Platform
application is used with, nor any on-site support or other support.
8.4.3 Where the Member requests the assistance and/or advice of Nord Pool in overcoming any
connection problems or any other failure of software or equipment for which Nord Pool is
not responsible:
a) any such support shall be undertaken only if and when Nord Pool has the ability, capacity
and availability for rendering such support;
b) Nord Pool shall not be responsible for actually resolving the problem, nor will any
guarantee be given that the solution represents a final and/or full remedy of the
problem;
c) Nord Pool shall not be liable for any damage to software, equipment or loss of data for
whatever reason; and
d) the Member shall reimburse all reasonable costs and expenses incurred by Nord Pool
(including any internal costs) in supporting the Member in overcoming or attempting to
overcome such problems.

8.5 Proprietary Rights to Platforms

8.5.1 The Members acknowledge and accept that as between Nord Pool and the Member, the
Platforms are the sole property of Nord Pool and/or its licensors. Except for the right to use
and access the Platforms in accordance with the Rulebook, the Member acquires no
intellectual property rights, property rights or other rights to the Platforms, and nothing
herein shall be deemed or construed as a transfer of or license to any such rights.
8.5.2 A Member shall not, and shall not attempt, except as pursuant to the Rulebook or as may
be permitted by mandatory provisions of Applicable Law, to:
a) grant access to the Platforms to anyone who is not an Authorised Employee;

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b) use the Platforms, or cause them to be used, for any other purpose than in the ordinary
course of business and directly related to Trading, Clearing and directly related
activities;
c) delete, change, remove or in any way obscure any copyright or proprietary notices of
Nord Pool or any third party on any copy of Transaction Information (or any part
thereof);
d) sub-license, supply, sell, assign, transfer, rent, lease, charge or otherwise deal in or
encumber the Platforms or any software program comprised in the Platforms and/or
installed on any equipment operated by or on behalf of Nord Pool in connection with
the operation of the Platforms or any accompanying documentation for itself or on
behalf of a third party or make the same available to any third party;
e) use, duplicate or display Transaction Information (or any part thereof) from the
Platforms or permit any third party to view the Transaction Information or present to
it for viewing in any manner not expressly permitted by the Rulebook;
f) supply, sell, assign, transfer, rent, lease, or otherwise dispose of equipment on which
any part of the Platforms (or a copy of it or parts of it) or the Transaction Information
(or parts of it), is stored, kept or to be found without first ensuring that all such data
have been previously deleted;
g) copy or imitate the data base structure, design elements or any other elements of the
Platforms or any software program comprised in the Platforms and/or installed on any
equipment operated by or on behalf of Nord Pool in connection with the operation of
the Platforms;
h) copy, imitate, enhance, modify, adapt, alter, decompile, reverse assemble or reverse
engineer the Platforms or any software program comprised in the Platforms and/or
installed on any equipment operated by or on behalf of Nord Pool in connection with
the operation of the Platforms or the User IDs; or
i) publish or otherwise redistribute the User IDs and/or user manuals without the prior
written consent from Nord Pool.
8.5.3 All User IDs and other measures or devices which are distributed to the Member in relation
to the Platforms are and shall remain the property of Nord Pool.
8.5.4 Nord Pool represents and warrants that the Member’s use of the Platforms will not infringe
any statutory or common law copyright, trademark or patent or otherwise infringe any
personal or proprietary right of any person or entity. This representation does not apply
where (i) the Member uses a version of the Platform(s)s (including any end user interface)
other than the most recent version issued by Nord Pool from time to time or (ii) a claim
arises out of the combination of the Platform(s)s or any part thereof with hardware and
software not meeting the specifications or requirements formally notified the Member in
writing by Nord Pool, where the Platform(s) would not alone have given rise to such
infringement.
8.5.5 Nord Pool shall defend, indemnify and hold the Member harmless from and against any
claim, demand, liability or expenses arising directly out of any claim by a third party,
including other Members, against the Member arising out of Nord Pool’s breach of Section
8.5.4, provided that the Member:
a) shall promptly provide Nord Pool with written notice of any claim which the Member is
notified and believes falls within the scope of Section 8.5.4; and
b) shall, upon if Nord Pool so requests and subject to reasonable compensation from Nord
Pool, assist in such defence; and
c) shall not make any admittance or otherwise respond to the claim to the third party
involved, except as and to the extent required by Applicable Law.

Nord Pool shall control any such defence and all negotiations related to the settlement of
any such claim, provided that such settlement (a) does not, without Member’s prior written
approval, (i) involve the admission of any wrongdoing by Member, (ii) restrict Member’s

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future actions, or (iii) require Member to take any action, including the payment of money,
and (b) includes a full release of the Member.
8.5.6 Following termination of the Member’s access to the Platforms for any reason the rights
granted to the Member hereunder shall immediately cease, except for Nord Pool´s rights in
relation to Section 8.5.5.
8.5.7 Upon termination, the Member shall immediately return to Nord Pool, or if Nord Pool so
agrees, destroy or delete, all software and other material received in connection with use
of the Platforms.

9. GENERAL PROVISIONS ON TRADING

9.1 Trading Platforms
9.1.1 Nord Pool facilitates Trading in Products between Participants and Clients by receiving
Orders in its Trading Platforms and determines traded volumes and prices according to
prevailing rules for price calculations. As a back-up to the Trading Platforms Nord Pool
provides access to its Trading Desk.
9.1.2 A Participant may on any Trading Day within Trading Hours for the relevant Product submit
Orders on behalf of itself and/or on behalf of the relevant Client(s) through the Trading
Platforms or, if necessary, via the Trading Desk. Processing and matching of Orders and
Transactions is subject to the applicable regulations for the relevant Physical Market.
9.1.3 Trading on the Physical Markets is anonymous except between Nord Pool and the individual
Participant entering an Order and between Nord Pool and the Participant or the Client
entering into a resulting Transaction, except as necessary to display Orders and
Transactions to Participants in accordance with this Section 9.1.3 or as otherwise set out in
Sections 20 and 21 of these General Terms, Nord Pool shall treat all Orders and other
information from Participants communicated to Nord Pool in relation to Transactions as
confidential, and shall not disclose such information to other Members or third parties unless
to the extent required by Applicable Law.

9.2 Availability of Traders and Contact Persons

9.2.1 Once a Trader has submitted an Order, the Trader or the Contact Person of the applicable
Participant must be available to be contacted by telephone at all times for as long as the
Order is valid. For the purposes of this Section 9.2.1 Orders in the Intraday Market are
deemed valid until they are removed or revoked in accordance with the Rulebook while
Orders in the Day-ahead Market are deemed valid until the relevant Auction is finished or
the order is revoked in accordance with the Rulebook.
9.2.2 Whenever a Participant or a Client has entered into a Transaction pursuant to the Rulebook,
the relevant Trader or Contact Person shall be available by telephone for a period of thirty
(30) minutes following the applicable Contract Time.

9.3 Right to refuse or remove Orders

Notwithstanding any other provision in the Rulebook, Nord Pool reserves the right, in its
sole discretion, and without prior notice to a Participant to reject, cancel or refuse to display
or match any Order which in Nord Pool's determinationhas an incorrect format or would
contravene the Rulebook or Applicable Law.
Furthermore, Nord Pool shall have a right (but not an obligation) in its sole discretion, and
without prior notice to a Participant to reject, cancel or refuse to display or match any
Order, if Nord Pool deems it necessary in order to secure orderly exchange trading or if
such deletion is in the interest of a well-functioning market or is carried out in order to
protect the legitimate interests of market participants.
Any such decision should be reasonably founded, and Nord Pool shall notify the Participant
of such decision as soon as practically possible.

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9.4 Suspension of Trading

9.4.1 Nord Pool may at any time suspend Trading via the Trading Platforms and/or via the Trading
Desk, for one or several Products, if Nord Pool reasonably determines that:
a) a system problem which is likely to affect Trading in such Product(s) has occurred or
suspension is necessary to prevent such problem from occurring, including problems
which affects the handling of Orders and the determination of prices; or
b) the applicable Trading would contravene the requirements of Applicable Law.
9.4.2 Without any prejudice to the above, Nord Pool reserves the right to continue Trading
provided that a sufficient number of Participants or Clients (in the opinion of Nord Pool) can
still participate in the relevant market.
9.4.3 Trading shall be re-opened as soon as the event that led to such suspension has been
rectified and Nord Pool has determined that Trading can be conducted in accordance with
Applicable Law and the Rulebook.
9.4.4 Nord Pool shall give the Participants information about a suspension of Trading and re-
opening of Trading immediately through the Trading Platforms or by such other means of
communication as Nord Pool deems efficient and appropriate given the circumstances. Nord
Pool must provide Participants with at least five minutes’ notice of a re-opening of Trading.
9.4.5 Notwithstanding this Section 9.4, Nord Pool may suspend Trading for individual Participants
due to Event of Default in accordance with Section 14 below.
9.5 Registration of Orders and Transactions
9.5.1 Registration of Orders and Transactions in the Trading Platform is conditional upon the
Participant or the Client (as the case may be) having satisfied the conditions for Clearing
in accordance with the Clearing Rules.
9.5.2 All Orders and Transactions in the Trading Platform will be stored electronically and kept by
Nord Pool in accordance with Applicable Law. Transaction Information resulting from such
records may be utilised as set out in Section 21.
9.6 “SMARTCAP” Capped Trading Model
9.6.1 Nord Pool may require at any time, including before the commencement of Trading, that a
Member is subject to the Capped Trading Model (as an alternative to being subject to the
Collateral Calculation Methodology). Nord Pool may in its absolute discretion modify from
time to time the criteria by which it determines if a Participant or a Client shall be subject
to the Capped Trading Model.
9.6.2 Any Member may request at any time that its Trading be subject to the Capped Trading
Model. Nord Pool will review such request in a timely manner and determinine if, in its
absolute discretion, the request is accepted or not. Nord Pool will inform the Member of its
decision as soon as possible.
9.6.3 Any Member subject to the Capped Trading Model may request to convert from being
subject to the Capped Trading Model and instead become subject to the Collateral
Calculation Methodology. Nord Pool will review such requests in a timely manner and
determine if, in its absolute discretion, the request should be accepted or not. Nord Pool
will inform the Member of its decision as soon as possible and, if it has agreed to the request,
will inform the Member of the amount of additional Collateral (if any) that is required to be
posted prior to such conversion taking effect. A Member shall be limited to one request to
convert per calendar year according to the provisions of this Section 9.6.3.
9.6.4 Nord Pool may require a Member subject to the Capped Trading Model to convert from being
subject to the Capped Trading Model and instead become subject to the Collateral
Calculation Methodology. Nord Pool will inform the Member of its decision as soon as
possible and will inform the Member of the amount of additional Collateral (if any) that is
required to be posted prior to such conversion taking effect.
9.6.5 Each Member subject to the Capped Trading Model will be required to establish its Trading
Limit by reference to such amount of Collateral posted to Nord Pool from time to time, being
not less than the Minimum Collateral Amount.
9.6.6 With respect to each Member subject to the Capped Trading Model, Nord Pool will

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continuously assess such Member’s utilisation of its Trading Limit.

9.6.7 Without prejudice to Sections 8.3 and 19, Members subject to the Capped Trading Model
hereby waive any and all claims they may have against Nord Pool arising as a result of:
a) any cancellation or curtailment under the Capped Trading Model of their (or their Client
Representative’s) ability to submit Orders to, or or have Orders matched in, the
Physical Markets; or
b) any Orders being submitted and/or matched in excess of the such Member’s prevailing
Trading Limit, whether due to any suspension, interruption, temporary unavailability
or fault occurring in the provision of the Capped Trading Model or otherwise, which
may result in Nord Pool serving an Extraordinary Collateral Call on such Member.

10. TRADING DESK

10.1 The Trading Desk is intended as a backup service to Participants. In situations where the
Trading Platforms are not working, or Nord Pool for other reasons deems the Trading Desk
to be a more viable option than one or more of the Trading Platforms, Nord Pool may in its
sole discretion approve that the Participant may submit its Orders or its Client’s orders, or
request changes to or cancellations of Orders, by telephone to Nord Pool. Nord Pool, may
at its discretion, limit the type of Orders that may be submitted to the Trading Desk.
10.2 Only Traders are authorised to contact the Trading Desk. When doing so, the Trader must
identify himself by full name and by the Participant he/she represents, stating that the call
concerns the submittal, change or cancellation of an Order (as appropriate) and explain
why the Participant is unable to submit, change or canceli its Order via the relevant Trading
Platform.
10.3 Provided that Nord Pool approves of the use of the Trading Desk, the Participant shall
provide such information as would be required if using the relevant Trading Platform, and
such additional information which Nord Pool may reasonably request to enable Nord Pool to
accurately register the Order.
10.4 Nord Pool shall submit, amend or cancel an Order in accordance with the instructions of a
Participant provided to the Trading Desk on the relevant Trading Platform as soon as
possible after receiving such instructions, and where instructions with respect to more than
one Order are submitted via the Trading Desk, endeavour to implement such instructions
in the same sequence as the instructions are notified to the Trading Desk.
10.5 An Order submitted, cancelled or amended via the Trading Desk is only considered
submitted, cancelled or amended when the Trading Desk has confirmed the entry, removal
or amendment (as appropriate) of such Order on the relevant Trading Plaform or otherwise
in writing. The submission or amendment of an Order becomes binding on the Participant
or the relevant Client from the time of entering of such submitted or amended Order on the
relevant Trading Platform, regardless of the time of confirmation.
10.6 The Participant shall be responsible for the correctness of all instructions with respect to
Orders which are communicated to the Trading Desk.
10.7 Nord Pool will make commercially reasonable endeavours to run an effective Trading Desk
and maintain the continuity of access to the Trading Desk, but the Trading Desk is provided
on an “as available” basis and Nord Pool makes no representation or warranty as to the
availability of the Trading Desk to any Participant at any given time.
10.8 All communication with the Trading Desk will be recorded, stored and used in connection
with the processing of Orders and Transactions, including for market surveillance purposes.
This may include personal data relating to individuals. Each Participant shall inform its
relevant employees and/or agents that their communication with the Trading Desk will be
recorded and procure all necessary consents from such employees and/or agents prior to
such individuals being authorised as Traders for such Participant.

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11. FEES AND SETTLEMENT

11.1 Fees
11.1.1 The prevailing fees shall be charged to Members and invoiced in accordance with the
applicable Fee Schedule. Unless as explicitly stated, all fees are stipulated exclusive of VAT.
Settlement of fees shall be carried out through Nord Pool in accordance with the Clearing
Rules and shall be included in the settlement of the corresponding Transaction(s)
11.2 Default interest
11.2.1 If a Party fails to pay to the other Party any amount due by the relevant due date (or
otherwise determined by any dispute resolution process), interest shall be payable (both
before and after any judgment) on that amount at an annual rate equal to the one (1)
month LIBOR rate (published by the Bank of England) applicable from time to time plus
three per cent (3 %) compounded monthly from and including the relevant due date to but
excluding the date payment is made.
11.2.2 If a Party, following the resolution of a dispute or otherwise to correct any mistaken
overpayment or underpayment made in good faith, is to pay an amount to the other Party,
interest shall be payable (both before and after any judgment) on that amount. The interest
rate shall be the one (1) month LIBOR rate referred to above applicable from time to time
plus one per cent (1 %) compounded monthly from the date when the amount would have
been paid or not paid (as applicable) if the dispute, overpayment or underpayment had not
occurred, to but excluding the date payment is made.
11.2.3 If the rate above ceases temporarily or permanently to be published then the Party entitled
to payment may substitute a rate that it considers in good faith to be equivalent to that
rate published by a London clearing bank.

12. VAT AND TAXES

12.1 Unless otherwise set out in this Section 12, each Member is responsible for and shall pay
any and all VAT and other Tax arising in connection with its membership and
Trading/Clearing activities and which is payable by that Member under Applicable Law.
12.2 Nord Pool will issue all invoices in respect of supplies made by Nord Pool to such Member
so that they are in compliance with its obligations under Applicable Law, hereunder Chapter
3 of Title XI to Directive 2006/112/EC regarding VAT invoices.
12.3 Each Member agrees to notify Nord Pool as soon as reasonably practicable if there are any
changes to its VAT registration.
12.4 All amounts referred to in the Rulebook are and will be calculated exclusive of applicable
Energy Taxes. In the case of Energy Taxes, if the cost of an Energy Tax is charged or passed
on by the Seller to the Buyer, the Buyer shall pay this amount of Energy Tax to the Seller,
provided that such amount of Energy Tax is identified separately on the invoice issued by
the Seller and confirmation is received by the Buyer, where applicable, that such amount
of Energy Tax has been duly paid or accounted for to the relevant Tax authority as
appropriate.
12.5 Where in accordance with Applicable Law there is an exemption or other relief, as applicable,
from Energy Taxes in respect of any supplies under an individual Clearing Transaction, the
following shall apply:
a) the Buyer and the Seller hereby covenant that they will do all such proper acts, deeds
and things as are necessary (which may include and shall not be limited to providing
to the Seller all such proper, true and accurate documentation or assistance as may
reasonably be required by the relevant taxing authority) to ensure that such supply is
exempt from Energy Taxes for the purposes of such legislation;
b) in the event that the Buyer or the Seller fails to comply with such obligation, the
noncompliant Party shall indemnify the other Party in respect of any and all Energy
Taxes, penalties and interest incurred by the other Party as a result of the non-
complying Party's failure to comply with the above covenant; and

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c) in the absence of the Buyer providing any documentation as referred to in letter a)

above, the Seller reserves the right to charge Energy Taxes.
12.6 With respect to each Clearing Transaction, the Buyer covenants to the Seller that, for the
purposes of a Tax which is targeted at the end-user or consumer of electricity either:
a) it will not be an end-user or consumer of such electricity delivered to it under any
individual Clearing Transaction, or
b) that the Buyer has the status of an intermediary or any equivalent status as defined
under Applicable Law, or
c) that the electricity delivered under any individual Clearing Transaction will either be re-
sold within the jurisdiction in which Delivery takes place or be transported to another
jurisdiction; and
d) that the Buyer will provide such documentation as may be required by Applicable Law
to evidence any of the foregoing.
12.7 All payments to be made by a Member to Nord Pool under the Rulebook shall be calculated
and made without any set-off or counter-claim and free from any Tax Deductions unless
required by Applicable Law. In the event a Tax Deduction is required by Applicable Law to
be made by or on behalf of a Member, it will:
a) promptly upon becoming aware of the requirement, notify Nord Pool of the amount of
the Tax Deduction;
b) pay the Tax Deduction and any payment required in connection with it to the relevant
taxing authority within the time allowed and in the minimum amount required by law;
c) deliver to Nord Pool evidence reasonably satisfactory to Nord Pool that the Tax
Deduction has been made or (as applicable) an appropriate payment has been made
to the relevant tax authority; and
d) pay to Nord Pool such additional amount as may be necessary to ensure that Nord Pool
receives and retains the full amount of the relevant payment as if such Tax Deduction
had not been made.
12.8 All amounts payable by Nord Pool to a Member shall be paid without any Tax Deduction
unless a Tax Deduction is required by Applicable Law, or has been made in respect of the
payment of the corresponding amount to Nord Pool. In either of these events Nord Pool
shall:
a) promptly upon becoming aware of the requirement, notify the Member of the amount
of the Tax Deduction;
b) pay the Tax Deduction and any payment required in connection with it to the relevant
taxing authority within the time allowed and in the minimum amount required by law
(or so far as it is reasonably able to do so, procure that the Tax Deduction and/or such
amount is paid);
c) subject to Nord Pool having such evidence in its possession, deliver to the Member
reasonable evidence that the Tax Deduction has been made or (as applicable) an
appropriate payment has been made to the relevant tax authority; and
d) pay to the Member the additional amount necessary to ensure that the Member
receives and retains the full amount of the relevant payment as if such Tax Deduction
had not been made, provided however that Nord Pool shall only be under an obligation
to pay such additional amount to the extent that Nord Pool has recovered the amount
payable by it from the other counterparty to the original Transaction.

13. MARKET CONDUCT AND MARKET SURVEILLANCE

13.1 General
13.1.1 Each Member shall, and shall procure that each of its Affiliates and all of its and its Affiliates’
officers, employees, agents and professional advisers shall, at all times comply with the

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market conduct rules laid down in these General Terms and Applicable Law. Non-compliance
with such market conduct rules may be sanctioned by Nord Pool in accordance with the
provisions of these General Terms.

13.1.2 No Member shall employ unreasonable business methods when Trading and shall always
use its best efforts to act in accordance with good business practice.

13.2 Market monitoring and duty to provide information upon request

13.2.1 Nord Pool will, via Market Surveillance, monitor the Physical Markets with a view to ensuring
that all Trading and other activities on the Market are conducted in accordance with these
General Terms and Applicable Law. Nord Pool may carry out investigations into the activities
of Members as set out in these General Terms.
13.2.2 Market Surveillance may make request to and collect information from Members concerning
their own or their Clients’ business. Such business includes all physical Trading as well as
financial trading.
13.2.3 Each Member is obliged to provide all such information as Nord Pool considers relevant
either in the context of the performance of its monitoring role or in the context of any
investigation of any suspected breach of Section 13.1, as soon as possible following a
written request from Nord Pool. Each Member shall make all necessary arrangements with
third parties in respect of confidentiality or personal data etc. to ensure it is able to comply
with its obligations under Section 13.2.
13.2.4 Each Member shall ensure that its officers, employees, agents and other personnel (and
those of its Affiliates) who are, or are likely to be involved, whether directly or indirectly, in
Trading, are subject to obligations which are substantially the same as those set out in
Section 13.1.
13.2.5 Each Member acknowledges that all communication with Nord Pool and Market Surveillance
may be recorded, stored and used in connection with the monitoring of compliance with
Applicable Law and these General Terms,
13.2.6 Communication between Members and Market Surveillance may include personal data
relating to individuals to the extent such information is comprised within any relevant
communication or is otherwise necessary.
13.2.7 Information received in accordance with this Section 13.2 shall only be used for the purpose
of surveillance under the General Terms and Applicable Law, including the investigation of
suspected breaches. Any information received may be shared with relevant regulatory
authorities, whether or not required by law.
13.2.8 In connection with investigations of Member’s business, Market Surveillance may gather
any data relating to trading and settlement of accounts directly from the relevant Balance
Responsible Party, Transmission System Operator or any entity authorised by the
Transmission System Operator for the balance settlement.

14. EVENTS OF DEFAULT; SUSPENSION

14.1 Nord Pool may, with effect from the date it first becomes aware of the occurrence of an
Event of Default and, thereafter, for as long as an Event of Default persists, suspend the
affected Member from Trading and/or Clearing with immediate effect. In the event that the
Event of Default concerns breach of Section 13 of these General Terms, the defaulting
Member may be suspended also if such breach no longer persists. During any such period
of suspension, the Member may only carry out Trading and/or Clearing following the express
written approval by Nord Pool. Further, Nord Pool may instruct the Client Representative to
withdraw all Orders and close positions as well as foreclose on the Collateral and set off
receivables of the Client against the Client’s obligations towards Nord Pool.
14.2 Where the suspension in question relates to a Collateral Deficit Event:
a) Nord Pool will conduct a full assessment of the Member’s collateral position on the
morning of the first Banking Day following such suspension and will discuss this with

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the Member. The suspension will be lifted as soon as Nord Pool is satisfied that the
Member in question has restored its collateral position.
b) No existing Clearing Transactions will be affected by a suspension under this Section
14.2. Only Clearing of new Clearing Transactions will be suspended.
14.3 If Nord Pool suspends any Member from Trading and/or Clearing in accordance with this
Section 14, Nord Pool shall as soon as practicable inform the Member of such suspension
via email. Where any suspension is subsequently lifted, Nord Pool shall as soon as
practicable notify the Member of the lifting of such suspension.

15. MATERIAL EVENTS OF DEFAULT; TERMINATION

15.1 A Material Event of Default exists if:
a) in respect of an Event of Default falling under paragraph (c) of the definition of Event
of Default where, in the reasonable opinion of Nord Pool:
(i) the representation in question is incorrect or misleading in a material respect
and has not been remedied within fifteen (15) calendar days following written
notice from Nord Pool; or
(ii) the misrepresentation clearly demonstrates that the Member is unfit for
continued access to Trading and/or Clearing;
b) the occurrence or persistence of an Event of Default is, in the reasonable opinion of
Nord Pool, likely to have an adverse effect on the Member’s ability to conduct Trading
and/or Clearing in accordance with the Rulebook and/or Applicable Law and such Event
of Default is not remedied within fifteen (15) calendar days after Nord Pool has sent
written notice to such Member. A breach of Section 13 of these General Terms may be
considered a Material Event of Default when occurred, regardless of if the breach
persists or not; or
c) the Event of Default was, in the reasonable opinion of Nord Pool, caused by the
negligence, wilful default or fraud of the Member, and such Event of Default (if capable
of being remedied) is not remedied within fifteen (15) calendar days after Nord Pool
has sent written notice to such Member. A negligent or wilful breach (in the reasonable
opinion by Nord Pool) of Section 13 of these General Terms, may be considered Material
Event of Default by Nord Pool as soon as it has occurred, regardless of if the breach
has been remedied or not.
15.2 Nord Pool may, with effect from the date it first becomes aware of the occurrence of a
Material Event of Default and without prejudice to any other rights Nord Pool may have
under the Rulebook or otherwise, terminate the relevant Member’s Participant Agreement
and/or Client Agreement (as appropriate) and exclude such Member from all future Trading
and/or Clearing with immediate effect.
15.3 Nord Pool’s right to suspend and/or terminate any agreement with a Member, in connection
with the occurrence of an Event of Default (or otherwise), shall be subject to the terms of
the relevant agreement.

16. EVENTS OF DEFAULT: CLIENT REPRESENTATIVES

16.1 The provisions of this Section 16 apply only in relation to Client Representatives, but are in
addition to the provisions of Sections 14 and 15.
16.2 A Client shall not have any new Clearing Transactions reallocated to it while its Client
Representative is suspended.
16.3 If a Material Event of Default has occurred with respect to a Client Representative Nord
Pool may terminate any one or more of the Client Agreements to which such Client
Representative is party, and any Client of the Client Representative may terminate its Client
Agreement with such Client Representative in each case as follows:

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a) immediately upon a termination of the Client Agreement by Nord Pool becoming

effective;
b) immediately upon the relevant Client entering into a Client Agreement with a new Client
Representative; or
c) where the Client does not enter into a new Client Agreement with a new Client
Representative, the later of: (i) at such time as there are no Open Positions registered
in the relevant Clearing Account of such Client; and (ii) at such time as there is no
amount owing to Nord Pool by the Client.
16.4 Following termination as set out in Section 16.3, the Client has the right to require the
Client Representative to transfer and re-register any Open Positions to a Clearing Account
established with another Client Representative of the Client, and/or to do all such acts as
are necessary in connection therewith, provided that all Collateral Calls relating to the Client
are met. In the event that a Client Representative does not observe such a request by a
Client within one (1) Banking Day, the Client may require Nord Pool to carry out such
transfers and re-registrations provided all Collateral Calls are met.
16.5 Following suspension or termination by Nord Pool of a Client Representative, the following
shall apply:
a) Nord Pool may designate another Client Representative for affected Clients on a
temporary basis, on such terms as Nord Pool may reasonably determine.
b) Nord Pool shall notify affected Clients of the suspension or termination of its Client
Representative. Each Client shall use its reasonable endeavours to enter into a Client
Agreement with another Client Representative (to be approved by Nord Pool).
c) If a Client Agreement is not entered into within two (2) Banking Days of a notice issued
pursuant to Section 16.5(b), the Client may be transferred to a Client Representative
appointed by Nord Pool. A corresponding Client Agreement shall be deemed to have
been entered into, and a bilateral agreement between the Client and the new Client
Representative shall be entered into on behalf of the Client on such terms as Nord Pool
may reasonably determine.
d) If a Client does not enter into a Client Agreement in accordance with Sections16.5(b)
or (c) above, the Client may either: (i) ask Nord Pool to close out any Open Positions
registered to it pursuant to the Clearing Rules; or (ii) retain any Open Positions subject
to the approval of Nord Pool, such approval not to be unreasonably withheld or delayed.

17. EVENTS OF DEFAULT: CLIENTS

17.1 The provisions of this Section 17 apply only in relation to Clients, and are in addition to the
provisions of Sections 14 and 15.
17.2 If at any time a Client fails to meet a Collateral Call, the Client Representative may enter
into Close-Out Transactions or Hedge Transactions for the Client’s account and risk to the
extent required to meet Collateral Calls. The Client Representative shall conduct such
Transactions applying best execution principles.
17.3 If at any time a Material Event of Default occurs with respect to a Client, the Client
Representative may terminate the Client Agreement by giving fifteen (15) calendar days'
written notice to the Client and Nord Pool, and Nord Pool shall immediately suspend the
Client from Clearing from upon receipt of such notice.
17.4 Following a termination of the Client Agreement, the Client Representative shall, subject to
reasonable instructions from the Client, or with the approval from Nord Pool if such
instructions cannot be obtained, enter into Close-Out Transactions relating to the Open
Position of the Client. The Client Representative shall conduct such Trading and Clearing
applying best execution principles.
17.5 Notwithstanding Sections 17.1-17.4 above, the Client’s responsibilities under the Clearing
Rules will remain in force for as long as the Client has Open Positions with Nord Pool or
owes any amount to Nord Pool, as will the Client Representative's responsibilities to Nord

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Pool in respect of the Client.

17.6 The Client Representative has the right to seek compensation for amounts owed by the
Client to the Client Representative in respect of amounts paid by the Client Representative
to Nord Pool on behalf of the Client in its role as Client Representative. Nord Pool shall upon
request from the Client Representative enforce, appropriate, realise and otherwise apply its
rights in relation to any Collateral posted by or on behalf of the Client to cover such claim
from the Client Representative, provided that: (i) the Client Representative must document
that the Client has not honoured such claim from the Client Representative within three (3)
days of written demand from the Client Representative; (ii) any such claim shall be
subordinated to those of Nord Pool and; (iii) that such coverage is allowed by the applicable
Collateral arrangements.
17.7 Following termination of a Client Agreement any excess cash balance or Collateral shall be
released to the Client after coverage of Nord Pool’s and the Clearing Representative’s final,
undisputed and due claims.

18. FORCE MAJEURE

18.1 If a Force Majeure Event prevents or hinders any Member or Nord Pool (the “Affected Party”)
from performing in whole or in part any obligation under the Rulebook or the relevant BRPA
at the prescribed time, the time for performance of such obligation shall be suspended for
as long as the Force Majeure Event persists but always subject to Section 18.2. The non-
Affected Party shall be entitled to suspend its obligations towards the Affected Party
accordingly.
18.2 If it appears to Nord Pool reasonably likely that a Force Majeure Event with respect to any
Member will persist for more than three (3) Banking Days (excluding the day on which the
Force Majeure Event occurs), and provided that the Member fails to meet its Collateral Call
or its Settlement obligations within the applicable time limits, Nord Pool shall be entitled to
invoke its rights pursuant to these General Terms and the Clearing Rules, provided that
Nord Pool shall (to the extent possible) give prior notice to the Member and take reasonable
account of the Force Majeure Event (including its anticipated duration) and the Member’s
reasonable requests (if any) when invoking such rights.
18.3 If a significant proportion of Members and/or Settlement Banks and/or Nord Pool is subject
to a Force Majeure Event, Nord Pool may declare a state of general force majeure in relation
to all Affected Parties. In such case, Nord Pool may temporarily suspend the Affected Parties’
obligations and/or invoke alternative arrangements or implement such other similar
measures as it deems necessary and appropriate in order to mitigate the effects of such
circumstances and to ensure the fair and orderly settlement, price formation or integrity of
the Physical Markets, taking into account the reasonably anticipated interests of all Affected
Parties.
18.4 Notwithstanding Sections 18.1 through 18.3, an Affected Party shall not be liable for any
consequential loss or damage caused by its delayed or whole or partial non-performance of
any of its obligations under the Rulebook or a relevant BRPA due to a Force Majeure Event,
and such Affected Party may not use any claim relating to such loss or damages as grounds
for set-off or withholding of its obligations towards any another Member or Nord Pool.
18.5 A Member shall only be entitled to claim relief due to a Force Majeure Event under this
Section 18 if the Member:
a) complies with Sections 18.6; and
b) continues to seek to perform its obligations under the Rulebook to the best of its
abilities.
18.6 Any Member seeking relief as an Affected Party under Section 18.1shall:
a) notify Nord Pool as soon as practically possible after it becomes aware (or should
reasonably have become aware) of the Force Majeure Event, providing reasonable
supporting evidence that a Force Majeure Event has occurred; and

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b) provide Nord Pool as soon as reasonably possible with a non-binding assessment of the
likely effect on the performance of, and the extent and expected duration of its inability
to perform, its obligations under the Rulebook, and shall provide reasonable updates,
when, and if available, of the extent and expected duration of the Force Majeure Event;
and
c) on request promptly provide all further information required by Nord Pool to enable it
to determine whether a Force Majeure Event has occurred and/or information in
relation to affected obligations; and
d) promptly take such action in respect of affected obligations as Nord Pool deems
necessary or desirable to manage the continued operation of the relevant market
and/or Clearing of Transactions in light of the Force Majeure Event.
18.7 Nord Pool shall, as soon as practically possible after it becomes aware that it is an Affected
Party, notify all Members of the Force Majeure Event and, to the extent reasonably possible,
provide a non-binding assessment of the likely effect on the performance of, and the extent
and expected duration of its inability to perform, its obligations under the Rulebook. Nord
Pool shall use all commercially reasonable efforts to mitigate the effects of the Force
Majeure Event and shall, during the continuation of the Force Majeure Event provide all
Members with reasonable updates, when and if available, of the extent and expected
duration of the Force Majeure Event.
18.8 No Affected Party shall, provided it complies with this Section 18, be liable for any loss or
damage caused by the non-performance of its obligations under the Rulebook, and no
counterparty to an Affected Party may use any claim relating to such loss or damages as
grounds for set-off or withholding of its obligations towards such Affected Party.
Notwithstanding the foregoing, interest in accordance with Section 11.2 will accrue even in
case of a Force Majeure Event.

19. LIMITATION OF LIABILITY; INDEMNITY

19.1 Limitation of liability under Norwegian law
19.1.1 This Section 19.1 shall apply only to those Members that have opted to, or by default or
otherwise pursuanto to the terms of the relevant agreements, have their relationship with
Nord Pool under the Rulebook governed by Norwegian law.
19.1.2 Exclusion of Liability. Nord Pool shall have no liability for the costs, losses, damage or
expenses (“Losses”) of any Member (or any group of Members) as the result of any act or
omission with respect to the performance of its obligations under the Rulebook, save to the
extent that such act or omission is a result of gross negligence, willful default or fraud of
Nord Pool.
19.1.3 Consequential Losses. To the extent possible under Norwegian law, Nord Pool shall not
be liable for any indirect or consequential Losses (including, but not limited to, loss of
business, loss of profits, trading losses, loss of opportunity and loss of use) howsoever
suffered or incurred or for any special, punitive or exemplary damages.

19.2 Limitation of liability under German law

19.2.1 This Section 19.2 shall apply only to those Members that have opted to or otherwise
pursuant to the terms of the relevant agreements have their have their relationship with
Nord Pool under the Rulebook governed by German law.
19.2.2 Exclusion of Liability. Subject to Section 19.2.3 and 19.2.4, Nord Pool and/or its agents
shall have no liability for the costs, losses, damage or expenses (“Losses”) of any Member
(or any group of Members) as the result of any act or omission with respect to the
performance of its obligations under the Rulebook, save to the extent that such Losses are
the result of the gross negligence (“grobe Fahrlässigkeit”) or intentional default (“Vorsatz”)
of Nord Pool and/or its agents.
19.2.3 Consequential Losses. Subject to Section 19.2.4, the liability of Nord Pool and/or its
agents does not include liability or any indirect and/or consequential Losses, including,

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without limitation loss of profit, goodwill, business opportunity or anticipated saving.

19.2.4 Gross Negligence, Intentional Default, and Fundamental Contractual Obligations.
Nothing in the Agreement operates to exclude or limit Nord Pool’s and/or its agents’ liability
for:
a) gross negligence,
b) intentional default;
c) any injury to life, body or health due to a negligent breach of duty; or
d) any action which violates the fundamental contractual obligations, the fulfillment of
which is a prerequisite of the proper implementation of this Rulebook, and on which
the Member regularly relies and may rely ("Kardinalspflichten").

19.3 Limitation of liability under English law

19.3.1 This Section 19.3 shall apply only to those Members that have opted to, or otherwise
pursuant to the terms of the relevant agreements, have their relationship with Nord Pool
under the Rulebook governed by English law.
19.3.2 Exclusion of liability. Nord Pool shall have no liability for the costs, losses, damage or
expenses (“Losses”) of any Member (or any group of Members) as the result of any act or
omission with respect to the performance of its obligations under the Rulebook, save to the
extent that such act or omission is a result of the negligence, willful default or fraud of Nord
Pool.
19.3.3 Consequential Losses. Nord Pool shall not be liable for any indirect or consequential loss
(including, but not limited to, loss of business, loss of profits, trading losses, loss of
opportunity and loss of use) howsoever suffered or incurred or for any special, punitive or
exemplary damages save in the case of fraud and wilful default.
19.3.4 Maximum liability. Nord Pool’s liability hereunder for Losses pursuant to this Section 19.3.
shall in all cases be limited to:
a) with respect to any particular Member, the GB Member Cap; and
b) with respect to all Members for whom the Rulebook is governed by English law, the GB
Market Cap.
19.3.5 Death or personal Injury. Nothing in this Section 19.3 shall exclude or limit the liability
of Nord Pool for death or personal injury caused by Nord Pool’s negligence or fraudulent
misrepresentation.

19.4 General exclusions

19.4.1 Without prejudice to Section 19.1 - 19.3, and always provided that no default of Nord Pool
has contributed to the relevant circumstances, Nord Pool shall have no liability for the
Losses of any Member to the extent that such Losses are in whole or in part attributable to:
a) The occurrence of any Default Event with respect to the Member or its Collateral
Provider;
b) Any delay or failure by the Member to perform any of its obligations to Nord Pool;
c) Nord Pool acting or relying on any communication from the Member (or its agent);
d) The act or omission of any counterparty, ECV Transferee or other third party;
e) Any suspension, interruption, temporary unavailability or fault occurring in the
provision of any Platform, except where such circumstances have been caused by the
gross negligence/negligence (as applicable pursuant to Sections 19.1 – 19.3) of Nord
Pool;
f) Any telecommunications failure or planned or unplanned outage or maintenance in
whole or part, or inadequacy of design, implementation or construction of any computer
system, communication system or software owned, operated, used or maintained by,
or on behalf of Nord Pool;
g) The use of information or services acquired or accessed by Members via the Platforms;

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h) The availability, functionality or accessibility of any system employed by the Member

to access any Platforms, including telecommunication lines;
i) A Market Decoupling event in the Day-ahead Market or any closing of border in the
Intraday Market in accordance with the applicable procedures; or
j) Nord Pool complying with Applicable Law.

19.5 Liability of Members

Nothing in the Rulebook shall limit any claim or remedy Nord Pool may have against any
Member for, and no set-off shall be permitted by a Member with its claims against, the
following:
a) failure by such Member to meet its Cash Settlement obligations under the Clearing
Rules;
b) the occurrence of any Default Event with respect to the Member or its Collateral
Provider;
c) any delay or failure by the Member to perform any of its obligations to Nord Pool;
d) Nord Pool acting or relying on any communication from the Member (or its agent); or
e) The act or omission of any counterparty, ECV Transferee or other third party.

19.6 Member’s duty to indemnify

Without prejudice to all other rights and remedies that may be available to Nord Pool, a
Member shall, on demand by Nord Pool, indemnify Nord Pool and any of its nominees,
subcontractors, Affiliates, agents, officers, employees and other representatives against any
Losses incurred by any such persons as a result of the following:
a) the occurrence of any Default Event with respect to such Member or any of its agents;
b) any delay or failure by such Member in the performance of its obligations under the
Rulebook;
c) investigating, defending and/or paying any claim brought against Nord Pool by any
third party resulting from (directly or indirectly) any breach of the Rulebook by such
Member;
d) Nord Pool complying with any court order or other legal or regulatory process in any
action brought by or with respect to such Member; and
e) any and all Losses incurred as a result of any claim from an ECV Transferee in relation
to an ECV Transfer relevant to such Member, (whether in tort, contract or otherwise
howsoever arising), irrespective of any negligent act or omission on the part of any of
the aforementioned persons.

19.7 Duty to mitigate Losses

Nord Pool and every Member shall use its respective commercially reasonable endeavours
to mitigate its Losses.

20. MARKET INFORMATION SERVICES

20.1 Intra-Day Market Information
Nord Pool shall continuously throughout every Trading Day supply Participants with
information of all Orders and Transactions registered in the Trading Platform on an
anonymous basis. Such Transaction Information will be made available through the Trading
Platform and such other information facilities as Nord Pool in its sole discretion decides, and
consideration for such information is included in the membership fees.

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21. PROPRIETARY RIGHTS IN DATA

21.1 Proprietary rights to Orders
All copyright and other intellectual property rights or proprietary rights of whatever nature
in data in the form of Orders provided by a Member to Nord Pool via the Platforms shall
belong to Nord Pool.
21.2 Proprietary rights to Transaction Information
All copyright and other intellectual property rights or proprietary rights of whatever nature
contained in the Transaction Information (including, for the avoidance of doubt, all database
rights and similar rights whether or not protected by law) are and shall at all times remain,
as between Nord Pool and the Members, the property of Nord Pool.
21.3 Members’ use of Transaction Information
Members shall, except as pursuant to the Rulebook or as may be permitted by mandatory
provisions of Applicable Law or other written agreement with or authorisation from Nord
Pool:
a) use any Transaction Information received only in the ordinary course of business as it
relates to its Trading, and not cause any unauthorized third party to access or use the
Transaction Information except where such third party is assisting the Member in
relation to its Trading;
b) ensure that its relevant employees, agents, independent contractors and other
recipients of Transaction Information do not act in violation of Nord Pool or its licensors
rights to the Transaction Information; and
c) take all such reasonable steps which shall from time to time be necessary, in the
reasonable opinion of Nord Pool, to protect the rights of Nord Pool or its licensors in the
Transaction Information.
21.4 Publicity
21.4.1 Nord Pool shall be entitled to use, copy, adapt, sub-license, supply, distribute, sell, assign,
transfer, rent, lease, charge or otherwise deal with Transaction Information and other
information regarding technical and financial matters, free from any duty of confidentiality
to any Member, so long as such information does not identify any individual Member.
Members shall have no right of remuneration in relation to such activities.
21.4.2 Nord Pool may pass on information to public authorities. Nord Pool may also pass on
information to Transmission System Operators if so required by Applicable Law or
regulation. Nord Pool will inform the affected Member of such provision of information to
the Transmission System Operators to the extent it is permitted to do so under Applicable
Law or regulation.
21.4.3 The market supervision body at the Transmission System Operators may, in connection
with the investigations relating to its markets, make requests to Nord Pool and collect
information regarding Members physical trading at Nord Pool’s Physical Markets.
21.4.4 For the purpose of any relevant market coupling Nord Pool will forward to cooperating power
exchanges aggregated and anonymized order information per bidding area.

22. COMMUNICATION
22.1 Communication between Members and Nord Pool shall be conducted in English unless Nord
Pool and the Member otherwise agree.
22.2 Any notice to be given under the Rulebook shall be in writing and shall be delivered or sent
by letter or email as follows:
a) to Nord Pool at the address or email address specified on its website at any time;
b) to the Member to the address or email address specified in its Participant
Agreement/Client Agreement or as amended by written notice to Nord Pool.

24 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

Nord Pool and Members may communicate via the Platforms in respect of issues that are
covered by the functionality of the Platforms. Nord Pool may also communicate generally
to Members via the website: www.nordpoolgroup.com
22.3 Notices shall be deemed to have been given (in the case of email communication) on the
date on which they are sent or (in the case of other communications) on the date of delivery
to the appropriate address.
22.4 Nord Pool shall be entitled to act and otherwise rely upon any communication (whether or
not in writing) which purports, and which Nord Pool believes in good faith:
a) to be issued by or on behalf of a Member; or
b) to have been approved by an individual who is authorised by that Member in such
matters (including any ECV Transferee in relation to BSC issues), and which (in the
case of an electronic communication) satisfies the requirements of any applicable
requirements of Nord Pool in relation to the security and integrity of information which
is transmitted electronically.

23. INFORMATION SHARING

23.1 Nord Pool may enter into information-sharing agreements or other arrangements or
procedures with other market operators or clearing organizations for the purpose of market
surveillance of the Products, or contracts or instruments related to the Products, provided
that the receiving entity is subject to materially similar confidentiality obligations and other
restrictions as those of Nord Pool in respect of the disclosed information. As part of any
such arrangements or procedures Nord Pool may:
a) provide Market Surveillance reports to other market operators or clearing
organizations;
b) share information and documents concerning current and former Members with other
market operators or clearing organizations;
c) share information and documents concerning ongoing and completed investigations
with other market operators or clearing organizations; and/or
d) require its Members to provide information and documents to Nord Pool at the request
of other market operators or clearing organizations with which Nord Pool has entered
into such arrangements.
23.2 Nord Pool may enter into any arrangement with any entity or body (including any
Competent Authority, any market operator or clearing organization) if Nord Pool (i) believes
that such entity or body exercises a legal or regulatory function under any law or regulation,
or a function comprising or associated with the enforcement of a legal or regulatory function,
or (ii) considers such arrangement to be in furtherance of Nord Pool’s purpose or duties
under Applicable Law. Nord Pool may disclose to any entity information concerning or
associated with a Member or other entities that Nord Pool believes is necessary and
appropriate in exercising a legal or regulatory function (including, without limitation,
information concerning any aspect of any clearing activity or business concerning Nord
Pool), whether or not a formal arrangement governing the disclosure exists or a request for
information was made.

24. AMENDMENTS
24.1 The Rulebook may be amended by Nord Pool with fourteen (14) days written notice,
published on Nord Pool’s website www.nordpoolgroup.com.
24.2 Significant amendments to the Rulebook may only be effected as follows:
a) for the GB Market following consultations with the Market Council, with at least one (1)
month for the Market Council to consider and comment on such amendments prior to

25 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

the issue of notice from Nord Pool as set out in Section 24.1;
b) for the Nordic/Baltic Market following consultations with Customer Advisory Board and
regulatory approval (if necessary);
c) for the CE Market following such consultation procedures as Nord Pool may establish
from time to time.
24.3 Notwithstanding Section 24.1 and 24.2, amendments to the Rulebook may be implemented
with immediate effect following notice to affected Members:
a) if so required by Applicable Law;
b) if such amendments in the opinion of Nord Pool are necessary for either the continued
Trading operations or the integrity of the relevant Physical Market;
c) if so required in order to facilitate the launch of one or more new Products, provided
that such amendments do not directly affect Trading in (or Clearing of) other Products
and provided that the Market Council or the Customer Advisory Board (as the case may
be) has consented to such amendments;
d) if such amendments are necessary to correct errors in the Rulebook; or
e) if such amendments are of editorial nature only and do not entail any substantive
changes to the Rulebook, including clarifications and changes in layout etc.

25. MISCELLANEOUS
25.1 Transfer of rights. Save as set out in Section 1.5, the rights and obligations of a Member
under the Rulebook are not assignable or otherwise transferable without the prior written
consent of Nord Pool.

25.2 Third Party Rights. No entity who is not Nord Pool or a Member shall confer any benefit
on, or give any right to enforce any provisions of the Rulebook to any person. Rights of
Third Parties to enforce any provision of the Rulebook pursuant to the English Contracts
(Rights of Third Parties) Act 1999 are expressly excluded.

25.3 Severability. If at any time any provision of the Rulebook becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the legality, validity
or enforceability of the remaining provisions of the Rulebook nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall in any way be
affected or impaired thereby.

25.4 Binding effect of determinations. Any certification or determination by Nord Pool of a

rate or amount under the Rulebook shall, in the absence of manifest error, be conclusive
evidence of the matters to which it relates. In any proceedings arising out of or in connection
with the Rulebook, the entries made in the trading accounts maintained by Nord Pool will
be prima facie evidence of the matters to which they relate.

25.5 Non-waiver of rights. No failure of a party to exercise, nor any delay on its part in
exercising, any of its rights (in whole or in part) under the Rulebook shall operate as a
waiver of the party’s rights or remedies upon that or any subsequent occasion.

26. GOVERNING LAW AND DISPUTE RESOLUTION

26.1 Governing law
Unless expressly provided otherwise in any agrement entered into between Nord Pool and
the relevant Member, the Rulebook, all Transactions, Settlement and Clearing effected
under it, and all non-contractual obligations arising out of or in connection with them, shall

26 COPYRIGHT © NORD POOL AS

GENERAL TERMS
Effective from: 17 February 2025

be governed by and construed in accordance with the law which governs the relevant
Participant Agreement or the relevant Client Agreement.

26.2 Dispute resolution

Unless expressly provided otherwise in any agreement entered into between Nord Pool and
the relevant Member, any dispute arising out of or in connection with the Rulebook, any
Transaction, Settlement, Clearing or any agreement entered into between Nord Pool and a
Member, including any question regarding to existence, validity or termination of any
specific agreement, shall be referred to and finally resolved as follows:

a) For those Members that have opted to, or by default, have their relationship with Nord
Pool under the Rulebook governed by Norwegian law, by arbitration in accordance with
the Norwegian Arbitration Act of 14 May 2004 nr 25. The number of arbitrators shall
be three. The seat, or legal place, of arbitration shall be Oslo;

b) For those Members that have opted to have their relationship with Nord Pool under the
Rulebook governed by English law, by arbitration under the LCIA Arbitration Rules,
which rules are deemed to be incorporated by reference into this clause. The number
of arbitrators shall be three. The seat, or legal place, of arbitration shall be London;,

c) For those Members that have opted to have their relationship with Nord Pool under the
Rulebook governed by German law, by arbitration by the German Institution of
Arbitration (DIS) and decided according to its rules, ousting the jurisdiction of the
ordinary courts. The number of arbitrators shall be three.

The language to be used in any arbitral proceedings shall be English and the arbitration
award shall be written in English.

[end of document]

27 COPYRIGHT © NORD POOL AS

Product
Specifications
Nordic/ Baltic Market Areas

Nord Pool AS
PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

CONTENTS

1. INTRODUCTION 3
1.1 Scope 3
1.2 Time References 3
1.3 Cash Settlement 3
2. DAY-AHEAD MARKET 4
2.1 General 4
2.2 Day-ahead Market Contract Codes: 5
2.3 Day-ahead Market Trading hours: 5
3. INTRADAY MARKET - CONTINUOUS TRADING (SIDC/IDCT) 5
3.1 General 5
3.2 Available Products 6
3.3 Continuous Trading contract code 6
4. INTRADAY MARKET - SIDC INTRADAY AUCTIONS (SIDC/IDA) 7
4.1 General 7
4.2 SIDC Intraday Auctions offered 7
4.3 SIDC Intraday Auctions: Market and Contract Codes 8
4.4 SIDC Intraday Auction Gate Opening 8

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

1. INTRODUCTION

1.1 Scope

These Product Specifications for the Nordic and Baltic Market Areas relate to the Physical
Markets organized by Nord Pool, and form part of the Rulebook. Further rules and regulations
regarding each market are set out in the Intraday Market Regulations, and the Day-ahead
Market Regulations as applicable.

1.2 Time References

References to points in time refer to CET time, and unless otherwise specified time is denoted
in the 24-hour format. Date references are to calendar days unless otherwise specified.

Short-clock change:

On the short-clock change day in March (beginning of summer savings time), there will only
be 23 hours so that the clock hour between 02:00 and 03:00 will be skipped on that day. The
length of all Products comprising several Delivery Hours that are directly affected by the clock
change will be 1 hour shorter than normal.

Long-clock change:

On the long-clock change day in October (end of summer savings time) there will be 25 hours,
so that the clock hour between 02:00 and 03:00 will occur twice, i.e. an additional Product
will be listed corresponding to 02:00 - 03:00 CET. The length of all Products comprising
several Delivery Hours that are directly affected by the clock change will be 1 hour longer
than normal.

1.3 Cash Settlement

Cash Settlement for Deliveries taking place on each Delivery Day will take place as follows,
regardless of Product Series:

For the Intraday Market:

 For each invoice with net Cash Settlement Amounts owing to Nord Pool: D+2
 For each invoice with net Cash Settlement Amounts owing from Nord Pool: D + 3

For the Intraday Auction Market:

 For each invoice with net Cash Settlement Amounts owing to Nord Pool: D+1
 For each invoice with net Cash Settlement Amounts owing from Nord Pool: D + 2

For the Day-ahead Market:

 For each invoice with net Cash Settlement Amounts owing to Nord Pool: D
 For each invoice with net Cash Settlement Amounts owing from Nord Pool: D+1

Further rules and procedures relating to Cash Settlement and Delivery are set out in the
Rulebook.

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

2. DAY-AHEAD MARKET

2.1 General
 Quotation Method: Continuous submission of Orders until Gate Closure, following
qualifying Orders will be matched using the Auction method set out in the Day-ahead
Market Regulations.

 Trading Hours: The coming 24 hours starting from 00:00 CET.

 Gate Closure: 12:00 CET

 Trade Lot: 0,1 MW

 Tick Size: Euro 0.01/MWh, NOK/SEK/DKK 0.01/MWh

 Currency: Orders may be submitted in Euro, NOK, SEK, DKK. Price calculation in Euro.

 Order Types: (a) Hourly Orders, (b) Block Orders, (c) Exclusive Groups, (d) Flexible
Orders*

 Block Order Volume Limit: 900 MW

 Minimum number of consecutive hours in Block Orders: 1 hours

 Maximum amount of Block Orders: 100 per Trading Portfolio

 Maximum amount of Exclusive Groups: 5 per Trading Portfolio

 Maximum amount of Block Orders within an Exclusive Group: 24

 Linked Block Orders: Seven levels, maximum 6 Block Orders per level, maximum 13
total Block Orders in a linked block group

 Spread Block Orders: One buy block and one sell block mutually linked, maximum 3
pairs of spread blocks per portfolio

 Price Steps: The number of Price Steps is 200 per hour (including the Upper Technical
Order Price Limit and the Lower Technical Order Price Limit)

 Lower Technical Order Price Limit: Euro – 500. NOK – 6500. SEK – 6500. DKK – 4000

 Upper Technical Order Price Limit: Euro + 4000. NOK + 52000. SEK + 52000. DKK +

32000

 Maximum Price Threshold:

 Nordic market: -
 Baltic market: Euro + 2400
 Minimum Price Threshold:
 Nordic market: -
 Baltic market: Euro – 500
 Delivery: Per applicable Delivery Period and pursuant to the Clearing Rules.

 Cash Settlement: See item 1.3 above. Settlement calculations will be based on actual
Deliveries per Delivery Hour on each applicable Delivery Day.

* Flexible orders are a part of the Exclusive Groups orders

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

2.2 Day-ahead Market Product Codes:

Type Prefix (fixed) Example

1 hour NOR_H_DA_1 NOR_H_DA_1-20220317-01

Year 2022, March 17th, hour 1

Suffix Explanation Range

(variable)
dd Day of month (two digits) 01 - 31
mm Month of year (two digits) 01 - 12
yyyy Year (four digits) Current year (next year)
nn Clock hour 00:00 – 24:00

2.3 Day-ahead Market Trading hours:

The time (gate opening) from which Orders for Transactions within a Delivery Day (starting
on 0:00h and ending on 24:00h) may be submitted, will normally occur 60 days prior to the
start of such day provided that, Nord Pool may, in its sole discretion, postpone the gate
opening, for example, but not limited to, in case of technical or operational reasons.

3. INTRADAY MARKET - CONTINUOUS TRADING (SIDC/IDCT)

3.1 General
 Quotation method: Continuous trading during Trading Hours where Transactions will
be matched automatically when concurring Orders are registered in the Trading Platform.
 Trading Hours: a series of delivery hours for the following day are listed and opened
for Trading the same day as the Day-ahead Prices are set, normally at 14:00 CET.
Trading is closed 1 hour before delivery commences in the Nordic and Baltic Market
Areas, with the exception of: (i) the Finland Estonia border, where it closes 30 minutes
before delivery; and (ii) Finland, where it closes at delivery
 Trade Lot: 0,1 MW
 Tick Size: Euro 0,01/MWh
 Currency: Euro
 Order Types: (a) Limit, (b) Fill-or-Kill Order, (c) Immediate-or-Cancel, (d) Iceberg Order
(minimum Clip Size 5 MW),
 Products: (a) 1 Hour (b) Quarter Hour* (c) Block Order
 Order quotation: Please see Section 3 of the Intraday Market Regulations.
 Lower Technical Order Price Limit: Euro -9 999
 Upper Technical Order Price Limit: Euro +9 999
 Linked Basket Order limit: maximum of 100 linked limit orders, TimeInForce ‘FOK’

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

 Delivery: As specified in relation to each Product and per applicable Delivery Period, see
sections 3.3 below and 1.3 above and pursuant to the Clearing Rules.
 Cash Settlement: See item 1.3 above.

3.2 Available Products

 Quarter Hour
 1 Hour
 Block Order

3.3 Continuous Trading Product Codes

The following Product Codes are used to identify the Intraday Market Products in the ETS:

Type Prefix Suffix Example

(fixed) (variable)
1 Hour PH- yyyymmdd-ph PH20140517-01 = Year 2014, May 17th – Hour 01

Quarter QH- yyyymmdd-ph QH-20140517-15 = Year 2014, May 17th – 3rd

Hour Quarter of PH-04
User PH- yyyymmdd-ph HH20140517-01 -PH20140517-04 = Year 2014,
Defined <Suffix>- May 17th – Hour 01 to hour 04
Block PH-
Orders <Suffix>

Suffix (variable) Explanation Range

Yyyy Year (four digits) Current year (next year)

Mm Month of year (two digits) 01-12

Dd Day of month (two digits) 01-31

PH Hour of day (two digits) 01-24

QH QH Quarter of day (two 01-96

digits)

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

4. INTRADAY MARKET - SIDC INTRADAY AUCTIONS

(SIDC/IDA)

4.1 General
 Quotation Method: Submission of Orders from the Intraday Auction Gate Opening until the
Intraday Auction Gate Closure as specified for the relevant Auction in the table below (see
paragraph 4.2), following which, qualifying Orders will be matched using the Auction method
set out in the Intraday Market Regulations (B. Intraday Auctions).

 Delivery Period: Either 24 or 12 hours, or alternatively, 96 or 48 quarter hours, respectively,

as specified for the relevant auction in the table below (see paragraph 4.2) following the
Intraday Auction Gate Closure of the relevant Intraday Auction.

 Trade Lot: 0,1 MW

 Tick Size: Euro 0,01/MWh
 Currency: Euro
 Order Types: (a) Quarter Hour (b) Block Orders, (c) Exclusive Groups, (d) Flexible Orders*
 Block Order Volume Limit: 900 MW
 Minimum number of consecutive MTUs in Block Orders: 1 quarter hour period
 Maximum amount of Block Orders: 100 per Trading Portfolio
* Flexible Orders are part of Exclusive Group Orders

 Price Steps: 200 Price Steps per delivery period (including the upper and lower Order Price
Limits)

 Lower Technical Order Price Limit: Euro -9 999

 Upper Technical Order Price Limit: Euro +9 999
 Delivery: Per applicable Delivery Period and pursuant to the Clearing Rules.
 Cash Settlement: See item 1.3 above. Settlement calculations will be based on actual
Deliveries per Delivery Period on each applicable Delivery Day.

4.2 SIDC Intraday Auctions offered

IDA1 IDA2 IDA3
Auction short name 15:00h auction 22:00h Auction 10:00h Auction
Intraday Auction Gate Opening See 4.4 below
Intraday Auction Start Time 14:40 21:40 09:40
Intraday Auction Gate Closure 15:00 22:00 10:00
Intraday Auction End Time 15:20 22:20 10:20
Countries EE, FI, LT, LV, DK, NO, SE
[00:00 – 24:00] [00:00 – 24:00] [12:00 – 24:00]
Delivery Period
the following day the following day the same day

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PRODUCT SPECIFICATIONS (NORDIC/BALTIC MARKET AREAS)

Product granularity per area:

Bidding zone Product granularity

EE, FI, LT, LV, DK, NO1, NO2, NO3, NO4,

15 min
NO5, SE1, SE2, SE3, SE4

4.3 SIDC Intraday Auctions: Market and Product Codes

Market codes: NOR_IDA_1, NOR_IDA_2, NOR_IDA_3

Product Codes: NOR_IDA_x-yyyymmdd-nn_pp

Suffix (variable) Explanation Range

dd Day of month (two digits) 01 - 31
mm Month of year (two digits) 01 - 12
yyyy Year (four digits) Current year (next year)
nn Delivery period 01-96 (15 min Products)
01-24 (60 min Products)
pp Product granularity QH (15 min Products)
PH (60 min Products)
x Auction: 1 denotes Product traded in 15:00 auction, 2 1,2,3
in 22:00 auction and 3 in 10:00 auction

Example:
NOR_IDA_1-20240613-01_QH
(15:00 auction in the Nordic & Baltic region on 13th June 2024 for delivery period 00:00 –
00:15)

4.4 SIDC Intraday Auction Gate Opening

The time (gate opening) from which Orders for Products within a Delivery Day (starting on 0:00h
and ending on 24:00h) may be submitted, will normally occur 60 days prior to the start of such day
provided that, Nord Pool may, in its sole discretion, postpone the gate opening, for example, but
not limited to, in case of technical or operational reasons.

COPYRIGHT © NORD POOL AS

Effective from: 18 March 2025
8
Clearing Rules
Schedule 4

Nord Pool AS
SCHEDULE 4 - CLEARING RULES

TABLE OF CONTENTS

Table of Contents

1 CLEARING OF PHYSICAL MARKETS BY NORD POOL 3

2 CLEARING MEMBERS 3
3 CONDITIONS OF ELIGIBILITY 3
4 CONTINUING INFORMATION OBLIGATIONS ON CLEARING MEMBERS 4
5 TERMINATION AND SUSPENSION OF CLEARING ACCESS 5
6 CLEARING ACCOUNTS 6
7 ENERGY ACCOUNTS (GB MARKET ONLY) 6
8 CASH SETTLEMENT ACCOUNTS 7
9 CASH COLLATERAL ACCOUNTS 7
10 CLEARING PROCEDURES 8
11 HANDLING OF TRADING ERRORS 9
12 INFORMATION SERVICES AND REPORTS 9
13 CLIENT TRANSACTIONS 10
14 COLLATERAL CALLS: GENERAL 10
15 INITIAL AND DAILY COLLATERAL CALLS 11
16 EXTRAORDINARY COLLATERAL CALLS 12
17 INTRA-DAY ONLY COLLATERAL REQUIREMENTS Error!
Bookmark not defined.
18 TRADE RESTRICTIONS 13
19 CASH SETTLEMENT 13
20 CASH SETTLEMENT ERRORS 15
21 NOTIFICATION PROCEDURES 15
22 ECV TRANSFERS (GB MARKET ONLY) 16
23 CLAIMS WITH RESPECT TO NOTIFICATION FAILURE 17
24 MATERIAL EVENTS OF DEFAULT 18

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SCHEDULE 4 - CLEARING RULES

1 CLEARING OF PHYSICAL MARKETS BY NORD POOL

1.1 Nord Pool operates the Physical Markets in accordance with the Rulebook and is responsible
for the Clearing of all Transactions in accordance with these Clearing Rules.

1.2 Transactions concluded on a Trading System are automatically and mandatorily subject to
Clearing in accordance with these Clearing Rules.

1.3 Clearing is effected by Nord Pool whereby, through an automatic process of novation, it
becomes the central counterparty to the matched buyer and seller on each side of every
Transaction.

1.4 Upon the conclusion of a Transaction on a Trading System and allocation of the Transaction
to a Trading Portfolio, the Transaction will be immediately replicated (mirrored) to the
Clearing Portfolio associated with the applicable Trading Portfolio, and Clearing Transactions
are created and allocated to the applicable Clearing Accounts in accordance with Section
11.

1.5 Every Clearing Transaction will be allocated by Nord Pool to the appropriate Clearing
Portfolio of the Clearing Account of the relevant Clearing Member, as further described in
these Clearing Rules.

1.6 The Transaction Confirmation also serves as Clearing Confirmation from Nord Pool with
respect to the corresponding pair of Clearing Transactions.

1.7 Clearing by Nord Pool is subject to the fees set out in the relevant Fee Schedule.

2 CLEARING MEMBERS

2.1 Nord Pool recognises the following categories of persons for Clearing purposes:

(a) Participants, who may have Clearing Transactions allocated to them in their own name
and account; and

(b) Clients, who may have Clearing Transactions allocated to them in their own name and
account, but only pursuant to Orders submitted by a Client Representative.

2.2 Nord Pool will only admit a person as a Clearing Member if it considers, in its absolute
discretion, that such person is a fit and proper person for Clearing.

3 CONDITIONS OF ELIGIBILITY

3.1 Only Clearing Members are eligible to become a counterparty to Nord Pool in Clearing
Transactions.

3.2 Each Clearing Member must (either directly or via an appropriate nominee) enter into and
maintain a BRPA with a relevant Transmission System Operator (or its agent). If such
agreement is terminated or suspended for any reason with respect to any Clearing Member,
the Clearing Member in question must inform Nord Pool immediately. Nord Pool may in such
case suspend the Clearing Member from Clearing and/or terminate such Clearing Member’s
Participant Agreement or Client Agreement (as appropriate).

3.3 A Clearing Member may conclude its BRPA through an appropriately qualified third party, in
which case Nord Pool may require that such Clearing Member provides reasonable evidence
of an agreement to this effect with such third party.

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SCHEDULE 4 - CLEARING RULES

3.4 Each Clearing Member shall, in respect of each Clearing Transaction registered with Nord
Pool for Clearing, and until all deliveries under that Clearing Transaction have been
successfully completed:

(a) appoint a Contact Person for Clearing in accordance with Section 3.3.1 of the General
Terms;

(b) establish one or more Clearing Accounts with Nord Pool in accordance with Section 6;

(c) establish and nominate one or more Cash Settlement Accounts in accordance with
Section 8;

(d) provide such initial Collateral as may be stipulated in its Initial Collateral Call;

(e) insofar as such Clearing Member is not subject to the Capped Trading Model, meet its
Collateral Calls in accordance with Sections 15;

(f) meet its Extraordinary Collateral Calls (if any) in accordance with Section 16;

(g) not be in breach of any Trade Restriction applicable to it as set out in Section 18;

(h) not have had its access to Clearing or the Clearing Platform suspended or terminated
in accordance with these Clearing Rules;

(i) in respect of the GB Market only:

(i) have established access to one or more Energy Account(s) and must ensure that
Nord Pool is nominated as ECV Notification Agent in respect of the same in
accordance with Section 22;

(ii) ensure that it or its nominated ECV Transferee (if applicable) is a party to and in
compliance with the BSC in relation to each applicable Clearing Transaction; and

(iii) have conducted its affairs (and, if applicable, procure that its ECV Transferee has
conducted its affairs) so as to not give any cause for any ECV Notification made
on its or its ECV Transferee’s behalf by Nord Pool to be refused, rejected,
cancelled, disapplied or nullified (whether in whole or in part) on the grounds that
it or its ECV Transferee is in Credit Default (as defined under the BSC) or any
other default under the BSC or is not in compliance with any applicable credit
cover requirements under the BSC.

3.5 Each Clearing Member must at all times, and immediately upon request from Nord Pool, be
able to provide reasonably documentary evidence that it (or, where applicable, its ECV
Transferee) fulfils the criteria of Section 3.4.

4 CONTINUING INFORMATION OBLIGATIONS ON CLEARING

MEMBERS

4.1 Nord Pool may at any time and from time to time investigate and or monitor a Clearing
Member's financial standing and soundness, level of competence and other matters relevant
(in the opinion of Nord Pool) to the financial and legal status of the Clearing Member.

4.2 Each Clearing Member shall ensure that Nord Pool promptly upon request receives such
financial and other information as Nord Pool in its reasonable discretion may request in
order for Nord Pool to assess the eligibility and financial status of the Clearing Member at
all times, even where such information is held by third parties. All such information shall be
provided free of charge to Nord Pool.

4.3 Each Clearing Member shall immediately notify Nord Pool in writing as soon as the Clearing
Member becomes aware that, or finds it likely that, any of the following events has occurred
or will occur in relation to it:

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SCHEDULE 4 - CLEARING RULES

(a) any Event of Default under the Rulebook;

(b) any breach of any representation and warranty given or made under the Rulebook;

(c) any disciplinary, criminal, or regulatory proceedings related to its Trading or Clearing
involving the Clearing Member (or any one or more of its officers, employees, agents
or professional advisers);

(d) any merger, de-merger, or other business re-organisation of the Clearing Member
affecting one-third or more of the Clearing Member's net capital value (as assessed by
reference to the latest annual or interim accounts of the Clearing Member);

(e) any material change to its business;

(f) in the case of an undertaking with share capital, any reduction in its nominal share
capital;

(g) any other matter relating to it which the Clearing Member acting in good faith would
reasonably expect to be of interest to Nord Pool in relation to Clearing and its status
as a Clearing Member; or

(h) In respect of GB Market only, any non-compliance or breach of it or its ECV Transferee
of any requirement applicable under the BSC, including any non-compliance by it or its
ECV Transferee with Sections 3.4(g)(ii) or (iii).

4.4 In respect of the GB Market only, a Clearing Member that has appointed an ECV Transferee
shall upon request deliver such similar information as required pursuant to the terms of
Section 4.2 as Nord Pool may require in relation to the ECV Transferee and its status as ECV
Transferee, and shall procure that its ECV Transferee notifies Nord Pool in the event that
any events analogous to those set out in Section 4.3 occur in respect of its ECV Transferee
and which would reasonably be expected to be of interest to Nord Pool in relation to ECV
Transfers, ECV Notifications and/or the ECVNA Authorisation in respect of the ECV
Transferee.

5 TERMINATION AND SUSPENSION OF CLEARING ACCESS

5.1 Access to Clearing may be terminated and/or suspended pursuant to these Clearing Rules.

5.2 If Nord Pool decides to suspend or terminate a Clearing Member’s access to Clearing, Nord
Pool shall immediately notify the Clearing Member of such decision. In any case where a
suspension of Clearing is lifted, Nord Pool will give notice to the Clearing Member as soon
as practicable during normal business hours.

5.3 Upon valid and undisputed termination of a Clearing Member’s access to Clearing for any
reason, the Clearing Member may require accelerated termination of its access
notwithstanding the applicable termination period in accordance with the Rulebook. The
Clearing Member’s right to accelerated termination is conditional upon the Clearing Member
not having any Open Positions and not owing any amount to Nord Pool under the Rulebook
other than, if applicable, fixed Pending Settlements that are secured by Collateral. Upon
receipt of a written request for accelerated termination, and provided that the Clearing
Member is eligible for accelerated termination in accordance with the foregoing provisions
of this Section, Nord Pool shall suspend the Clearing Member’s right to have new Clearing
Transactions allocated and effect termination of the Clearing Member’s access to Clearing
as soon as practicable.

5.4 Termination of a Clearing Member’s access to Clearing will not affect the Clearing Member’s
rights and obligations with respect to Clearing Transactions already allocated at the time of
termination and these Clearing Rules shall remain in force for as long as the Clearing
Member has Open Positions or owes any amount to Nord Pool. Nord Pool may require a

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Clearing Member to close out its Open Positions upon termination of the Clearing Member’s
access to Clearing, prior to effective termination, and may reasonably restrict a Clearing
Member’s ability to enter into new Clearing Transactions except for Close-Out Transactions
in the period from a valid termination notice is sent or received until termination becomes
effective.

5.5 Following termination of a Clearing Member’s access to Clearing, and subject to Nord Pool’s
rights in the Collateral pursuant to Section 24, and except as may otherwise follow from
relevant Collateral arrangements, any remaining Collateral shall be released and/or
returned as soon as practicable after the date of termination, provided that in each case all
amounts owing to Nord Pool by the Clearing Member are undisputed and have been fully,
finally and unconditionally paid or discharged to Nord Pool and to the extent the Clearing
Member has no Open Positions. Nord Pool may furthermore withhold Collateral to the extent
necessary to secure Pending Settlements.

6 CLEARING ACCOUNTS

6.1 Upon approving a Clearing Member, Nord Pool shall establish at least one Clearing Account
in the name of such Clearing Member.

6.2 Each Clearing Account may contain one or more Clearing Portfolios, and must have
associated with it, in the name of the Clearing Member:

(a) a Cash Settlement Account; and

(b) where Collateral is to be provided by the Clearing Member in the form of a cash deposit,
a Cash Collateral Account.

6.3 Clearing Accounts will be opened for registration of Clearing Transactions only while the
Clearing Member has and continues to satisfy the conditions of eligibility in Section 3.4.

6.4 Collateral Calls and Cash Settlement Amounts will be calculated separately and individually
for each Clearing Account. Individual Collateral Calls and Cash Settlement Amounts may
not be aggregated or set off (netted) against each other except as may otherwise be agreed
by Nord Pool.

6.5 Clearing Members may request the establishment of one or more additional Clearing
Accounts, subject to approval from Nord Pool. The provisions of this Section 6 will apply
accordingly to all additional Clearing Accounts.

6.6 Establishment of, changes to and the closure of Clearing Accounts (including with respect
to individual Clearing Portfolios within a Clearing Account) are subject to the procedures
laid down by Nord Pool from time to time and may incur additional fees.

6.7 When approving a Client for Clearing, Nord Pool shall establish a Clearing Account in the
name of the Client. The Client Representative shall have power to allocate Clearing
Transactions and otherwise access information related to the Clearing Account opened in
the name of its Client. The Client Representative shall be authorised to represent the Client
in all Clearing Transactions without further verifications or actions by Nord Pool.

7 ENERGY ACCOUNTS (GB MARKET ONLY)

7.1 With respect to the GB Market only, each Clearing Member must nominate and maintain an
Energy Account for each of its Clearing Accounts in accordance with the procedures laid
down by Nord Pool from time to time.

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7.2 Energy Accounts may be held either by the Clearing Member itself or an ECV Transferee of
the Clearing Member, however all Energy Accounts associated with a single Clearing Account
must be held by the same person.

7.3 Nomination of an Energy Account with an ECV Transferee is subject to the approval of Nord
Pool. An ECV Transferee must be party to the BSC and fulfil all applicable criteria for being
an ECV Transferee under the Clearing Rules, its ECV Transferee Agreement and the BSC at
all times. Further regulations relating to ECV Transfers are set out in Section 22.

7.4 Changes to Energy Accounts are subject to the procedures laid down by Nord Pool from
time to time and may incur additional fees.

8 CASH SETTLEMENT ACCOUNTS

8.1 Each Clearing Member must at its own cost establish and maintain at least one Cash
Settlement Account.

8.2 Clearing Members may associate a Cash Settlement Account with one or more of its Clearing
Accounts, provided that, where more than one Clearing Account is associated with any Cash
Settlement Account, the appropriate Cash Settlement Amount will be calculated jointly for
all Clearing Accounts associated with such Cash Settlement Account.

8.3 Nord Pool offers an automated Cash Settlement arrangement whereby Nord Pool will effect
instructions to debit or credit a Cash Settlement Account as part of the Cash Settlement on
each Banking Day. Clearing Members wishing to utilise such arrangements for their Cash
Settlement Account(s) must enter into and maintain such banking arrangements as Nord
Pool may reasonably require from time to time, and perform all such acts and instructions
as Nord Pool or the Settlement Bank or non-Settlement Bank (as applicable) may require
in order to affect such arrangements, including the issue of Cash Settlement Instructions.
The Clearing Member remains responsible towards Nord Pool for any delayed or failed Cash
Settlement that is not caused by the negligence of Nord Pool or otherwise excusable under
the Clearing Rules.

8.4 Changes to Cash Settlement Accounts are subject to the procedures laid down by Nord Pool
from time to time and may incur additional fees.

9 CASH COLLATERAL ACCOUNTS

9.1 If a Clearing Member wishes to provide Nord Pool with Collateral in the form of cash, it must
at its own cost establish and maintain at least one Cash Collateral Account. Cash Collateral
Accounts must be held with a bank that has been approved with Nord Pool for such purpose.
In approving a bank Nord Pool may require that the holding bank for the Cash Collateral
Account has an adequate Credit Rating (to be determined by Nord Pool), that the Cash
Collateral Account is held in a jurisdiction acceptable to Nord Pool, that it facilitates
automated balance requests from Nord Pool, and that it otherwise has an account setup
and surrounding systems which in the opinion of Nord Pool are compatible with the Cash
Collateral Account arrangements.

9.2 Cash Collateral Accounts may not be held with:

(a) the Clearing Member itself; or

(b) an Affiliate of the Clearing Member; or

(c) any other entity which in the opinion of Nord Pool could entail an unacceptable credit
risk or general business risk to Nord Pool’s interest in the relevant Collateral in case of
an Insolvency Event involving the Clearing Member or any of its group companies.

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9.3 With respect to the Nordic/Baltic Market and the CE Market only, a Cash Collateral Account
may, with the prior agreement of Nord Pool in its absolute discretion, be substituted by or
used in addition to a Pledged Settlement Account for the purpose of satisfying a Clearing
Member’s Collateral requirements.

9.4 Changes to Cash Collateral Accounts shall be subject to such procedures as may be
stipulated by Nord Pool from time to time.

10 CLEARING PROCEDURES

10.1 Upon the formation of a Transaction (the “Original Transaction”) in accordance with
Sections 1.4 or 11.2 (as applicable), the Original Transaction will be replaced, by a process
of automatic novation, with two corresponding Clearing Transactions.

10.2 For each pair of Clearing Transactions created in this way with respect to each Original
Transaction:

(a) Nord Pool will as the new counterparty to each Clearing Transaction assume, with
respect to each original buyer or seller (as the case may be), all the rights and
obligations of the original counterparty to such buyer or seller; and

(b) each counterparty’s rights and obligations towards the other counterparty under the
Original Transaction will be replicated and replaced with corresponding rights and
obligations as between, respectively, such counterparties and Nord Pool.

10.3 Upon the creation of each corresponding pair of Clearing Transactions in accordance with
Sections 10.1 and 10.2, the Original Transaction shall cease to exist and, except as set out
in Section 12, the parties to the Original Transaction shall have no rights or obligations
towards each other in respect of the Original Transaction.

10.4 Clearing Transactions will be allocated as follows:

(a) Each Clearing Transaction to which a Clearing Member is counterparty shall be

allocated to the relevant Clearing Portfolio within the Clearing Account of the relevant
Clearing Member.

(a) Upon allocation of a Clearing Transaction to a Clearing Account, and subject to Section
12, the Clearing Transaction shall be offset against the Open Position of such Clearing
Account, creating a revised Open Position on such Clearing Account.

(b) Each Clearing Member's obligations with respect to the Clearing Transactions previously
allocated to such Clearing Account shall forthwith and automatically be replaced by an
adjusted set of obligations to make Deliveries and/or Cash Settlements resulting from
the new Open Position in accordance with the Clearing Rules.

(c) Any Transaction Information retained in the Clearing Portfolios is for informational use
only.

(d) With respect to the GB Market only, notwithstanding paragraphs ((a)) through (c)
above, Energy Contract Volumes are calculated and notified separately to the ECV
Aggregation Agent in accordance with Section 21.

10.5 The Clearing Transactions allocated to a Clearing Account shall, in the absence of any
material allocation error, represent the definitive record, as between Nord Pool and the
Clearing Member, of the Clearing Transactions attributable to such Clearing Member.

10.6 Each Clearing Member acknowledges and agrees that the terms of these Clearing Rules
shall be deemed to form a master agreement between the Clearing Member and Nord Pool
for all Clearing Transactions entered into by it, and that these Clearing Rules shall bind the
Clearing Member in relation to all its Clearing Transactions. Each Clearing Transaction is

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accepted by Nord Pool in reliance upon the fact that all Clearing Transactions with each
Clearing Member constitute a single business and contractual relationship with that Clearing
Member and that each Clearing Transaction is made in consideration of each other Clearing
Transaction.

10.7 Each Clearing Member agrees to perform all of its obligations with respect to each Clearing
Transaction to with it is a counterparty and, except insofar as otherwise expressly stated in
these Clearing Rules, agrees and accepts:

(a) that a default in the performance of any such obligation shall constitute a default by it
in respect of all Clearing Transactions to which it is a counterparty under these Clearing
Rules;

(b) that Nord Pool shall be entitled to set off claims and apply property held by it in respect
of any Clearing Transaction to which it is a counterparty against obligations owing to it
in respect of any other Clearing Transactions; and

(c) that payments, Deliveries and other transfers made by either Nord Pool or the Clearing
Member with respect to any Clearing Transaction shall be deemed to have been made
in consideration of payments, Deliveries and other transfers with respect to any other
Clearing Transactions between Nord Pool and such Clearing Member, and the
obligations to make any such payments, Deliveries and other transfers may be applied
against each other and netted.

11 HANDLING OF TRADING ERRORS

11.1 For Clearing Transactions resulting from Transactions conducted on a Trading System, Nord
Pool will handle complaints related to Trading Errors in accordance with the Rulebook. Any
changes or cancellations in a Transaction made by Nord Pool will trigger a corresponding
change or cancellation to the corresponding Clearing Transactions. A Clearing Member may
not raise any other objections against Nord Pool in respect of Trading Errors.

11.2 Notwithstanding Section 11.1, Nord Pool may correct substantial errors involving the
allocation of Clearing Transactions. Any such correction will be binding on the Clearing
Members involved. Nord Pool shall not be liable to any Clearing Member for any exercise or
non-exercise of its powers under this Section 11.2, provided that it has acted in good faith.

12 INFORMATION SERVICES AND REPORTS

12.1 Nord Pool will provide continuous information about each Clearing Member’s Open Position
in each Product Series and on each Clearing Portfolio and Clearing Account, including
information about Cash Settlement and Collateral. Nord Pool will make such information
available to the Clearing Member through reports in the Clearing Platform and through such
other means as Nord Pool decides.

12.2 Unless as otherwise set out in these Clearing Rules, reports found in the Clearing System
are offered as a service for information purposes only, and Nord Pool makes no warranty
express or implied that the reports are updated in real-time or that they are correct in all
respects.

12.3 For each Clearing Day, Nord Pool will make available static reports relating to each Clearing
Account for the previous Clearing Day at such time as set out in the Clearing Schedule.
These reports form the basis of the Collateral Call and the Cash Settlements relating to that
Clearing Day.

12.4 Client Representatives will have access to the same information and reports as the Clients
for all Clearing Accounts for which they are nominated as Client Representative.

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13 CLIENT TRANSACTIONS

13.1 The following provisions will apply with respect to all Clearing Transactions derived from
Client Transactions:

(a) A Participant may only act as a Client Representative when approved by Nord Pool
to do so under a valid and effective Client Agreement.

(b) All communication between Nord Pool and the Client relating to Client Transactions
shall take place exclusively through the Client Representative, unless Nord Pool in
its discretion decides to involve the Client.

(c) Such Clearing Transactions shall be allocated to the Clearing Account of the relevant
Client.

(d) The Client shall, subject only to Section 12, become the counterparty to Nord Pool
in respect of all such Clearing Transactions as are validly allocated to the Clearing
Account of the Client.

(e) The Client Representative shall check that each of its Clients has posted an
appropriate level of Collateral with Nord Pool prior to the allocation of any Client
Transactions to the Client's Clearing Account.

(f) Nord Pool shall inform the Client Representative if a Client fails to post Collateral in
accordance with any Collateral Call.

14 COLLATERAL: GENERAL

14.1 Subject always to the Minimum Collateral Requirement, each Clearing Member is
responsible for ensuring that an appropriate amount of Collateral is posted and maintained
with Nord Pool at all times in accordance with these Clearing Rules.
14.2 Clearing Members may choose to provide Collateral through any one of, or any combination
of, such forms of Collateral as may be permitted by Nord Pool from time to time.

14.3 All Collateral arrangements shall be subject to the express approval of Nord Pool.

14.4 Unless otherwise specified in these Clearing Rules, the Collateral posted by or on behalf of
each Clearing Member may be applied by Nord Pool jointly and severally to any one or more
of its Clearing Accounts.

14.5 Nord Pool may at any time reject and/or depreciate the recognized value of all or any part
of the Collateral posted with it by any Collateral Provider if it:

(a) has reasonable cause to believe that the Collateral Provider, or any Affiliate of the
Collateral Provider, is subject to an Insolvency Event that could reasonably affect
the anticipated realisation value of, or Nord Pool’s security interest in, the relevant
Collateral;

(b) deems that the Credit Rating of the relevant Collateral Provider and/or the
Settlement Bank or non-Settlement Bank (as applicable), is no longer acceptable to
it;

(c) the provision of such Collateral from the Collateral Provider, or held with the
Settlement Bank or non-Settlement Bank (as applicable), would entail a
concentration risk to Nord Pool; or

(d) becomes aware of any other circumstances that may adversely affect the anticipated
realisation value of, or Nord Pool’s security interest in, the relevant Collateral.

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14.6 The affected Clearing Member will be notified immediately of any decision pursuant to
Section 14.5 above. Following such decision, Nord Pool may in its absolute discretion:

(a) issue an Extraordinary Collateral Call to such Clearing Member to cover the shortfall
in the required amount of Collateral and/or;

(b) suspend the Clearing Member from Clearing until it is satisfied that suitable
additional Collateral has been provided or that the situation has otherwise been
remedied.

14.7 An outstanding Collateral Call shall be deemed to have been satisfied only when the total
Collateral posted by or on behalf of the applicable Clearing Member equals or exceeds such
Collateral Call, provided always that:

(a) In case of Cash Collateral, the Clearing Member shall confirm to Nord Pool the
balance of the Cash Collateral Account. Such confirmations shall be sent by SWIFT
message to Nord Pool from the bank holding the applicable Cash Collateral Account,
and the balance reported by the bank will be definitive in determining the amount of
Cash Collateral posted in favour of Nord Pool as at the date of such confirmation;
and/or

(b) In case of a Letter of Credit or Bank Guarantee, the maximum amount recoverable
(face value) by Nord Pool under the Letter of Credit or Bank Guarantee from time to
time will be deemed as the amount of such Collateral posted; and/or

(c) In case of other Collateral, the amount of such Collateral posted will be determined
by Nord Pool on a case by case basis upon receiving evidence satisfactory to Nord
Pool that such Collateral amount has been posted.

14.8 With respect to the GB Market only, each Clearing Member must comply with all Collateral
Calls in relation to such of its Clearing Transactions as are subject to ECV Transfers and the
fact that an ECV Transfer has or will be made with respect to any Clearing Transaction will
not affect Nord Pool’s calculation of, or the Clearing Member’s liability for, any Collateral
Calls with respect to such Clearing Transactions.

14.9 Failure to post Collateral in accordance with this Section 14 in relation to any individual
Collateral Call will result in the Clearing Member being deemed to have committed a Material
Event of Default with respect to the applicable Collateral Call and Section 24 shall apply.

14.10 Nord Pool may charge a reasonable fee to cover its expenses in connection with the
establishment of or changes to Collateral, including the perfection of the security under any
Collateral arrangement.

15 INITIAL COLLATERAL CALLS

15.1 Prior to the commencement of Trading, Nord Pool will determine the initial Collateral
requirement for each Clearing Member, taking into consideration its expected type and
volume of Clearing Transactions and other relevant factors, and issue to such Clearing
Member its Initial Collateral Call.

15.2 With respect to the GB Market only, such other relevant factors shall include matters relating
to any ECV Transferee of the Clearing Member.

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16 DAILY COLLATERAL CALCULATIONS

16.1 With respect to all Clearing Members other than those subject to the Capped Trading Model,
on each Banking Day Nord Pool will perform a calculation of each such Clearing Member’s
Collateral Requirement in accordance with the terms of the Collateral Calculation
Methodology.

16.2 Any change in the Collateral Calculation Methodology shall be notified to Clearing Members
via a notice issued by Nord Pool on its website no less than two days’ prior to the effective
date of such change.

16.3 Following each calculation of the Collateral Requirement for a given Clearing Member, Nord
Pool will be entitled to issue a Collateral Call to such Clearing Member for the relevant
amount of additional Collateral as specified by such Collateral Call.

16.4 In any case where, with respect to any Clearing Member that has posted Collateral with
Nord Pool, the Collateral Requirement is lower than the aggregate amount of Collateral
posted by or on behalf of such Clearing Member, the Clearing Member in question may:

(a) in the case of Cash Collateral, request Nord Pool to return to it all or part of the
Cash Collateral currently posted to it, provided that the maximum amount of Cash
Collateral to be returned in such circumstances shall not exceed the lower of:

(i) the aggregate amount of Cash Collateral currently posted with Nord Pool by
such Clearing Member in accordance with these Clearing Rules; and

(ii) the difference between the aggregate amount of Collateral posted by or on

behalf of such Clearing Member and the prevailing Collateral Requirement;

(b) in the case of Collateral in the form of a Letter of Credit and/or a Bank Guarantee,
request that Nord Pool accepts such suitable replacement Letter of Credit and/or
Bank Guarantee as reflects such lower Collateral Requirement.

16.5 Collateral required to be provided in response to any Collateral Call must be posted by or
on behalf of the Clearing Member by no later than the Collateral Deadline, on the same
Clearing Day in the form of Cash Collateral, or by otherwise increasing the Collateral
provided by or on behalf of the Clearing Member by no later than the Collateral Deadline.

17 EXTRAORDINARY COLLATERAL CALLS

17.1 Nord Pool may issue an Extraordinary Collateral Call to any individual Clearing Member,
including any Clearing Member subject to the Capped Trading Model, or to all Clearing
Members, if Nord Pool decides that extraordinary circumstances so require. Extraordinary
circumstances may include but are not limited to major price fluctuations, trading activity,
general changes to the Market and other matters that indicate a higher credit risk in respect
of the Clearing Member or its ECV Transferee (whether individually or generally), including
that a Clearing Member has one or more Open Position(s) in one or more Product Series
which exceed the Collateral currently posted.

17.2 An Extraordinary Collateral Call applies in addition to the Initial Collateral Call and any
subsequent Collateral Calls, and will be calculated by Nord Pool applying such risk
calculation methodologies that it considers appropriate under the relevant circumstances.

17.3 Without prejudice to any of its other rights under the Rulebook, if Nord Pool determines that
any Clearing Member holds more than fifteen per cent (15%) of all positions with respect
to a single Product Series, Nord Pool may calculate an Extraordinary Margin Call based on
the increased risk to which Nord Pool determines it is exposed as a result of such holding.

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17.4 Nord Pool may require a Clearing Member subject to an Extraordinary Collateral Call to
immediately disclose its positions in all transactions to which it is a party (including
transactions which are not subject to Clearing) which may have relevance to Nord Pool’s
calculation of the Extraordinary Collateral Call. If a Clearing Member fails to immediately
disclose such positions, or if Nord Pool has cause to believe that all positions have not been
disclosed or have been disclosed incorrectly, Nord Pool may in its discretion calculate the
Extraordinary Margin Call based on the assumed positions of the Clearing Member.

17.5 An Extraordinary Collateral Call must be complied with by no later than 150 (one hundred
and fifty) minutes after the Clearing Member (or, in respect of a Client, its Client
Representative) receives notification of the Extraordinary Collateral Call through increasing
the Collateral provided by or on behalf of the Clearing Member.

17.6 The following shall be deemed a satisfactory posting of Collateral in relation to an

Extraordinary Collateral Call:

(a) In case of Cash Collateral, that Nord Pool has received from the bank holding the
applicable Cash Collateral Account(s) either: (i) SWIFT notice; or (ii) other written
confirmation as reasonably satisfactory to and authenticated by Nord Pool; that the
credit on the Cash Collateral Account has been or will be increased as soon as
possible so as to comply with the Extraordinary Collateral Call; and/or

(b) In case of a Letter of Credit or Bank Guarantee, Nord Pool shall have received a
written confirmation from the applicable Collateral Provider, reasonably
authenticated and satisfactory to Nord Pool, that the maximum amount recoverable
(face value) by Nord Pool under the Letter of Credit or Bank Guarantee has been or
will be increased as soon as possible to comply with the Extraordinary Collateral
Call; and/or

(c) In case of other Collateral, Nord Pool will determine in its absolute discretion
whether or not the Extraordinary Collateral Call has been met on a case by case
basis.

18 TRADE RESTRICTIONS

18.1 Nord Pool may set individual Trade Restrictions for a Clearing Member, or general Trade
Restrictions for all or groups of Clearing Members, including any criteria for such Trade
Restrictions to apply. Except as may be agreed with the applicable Clearing Member(s) Nord
Pool shall apply Trade Restrictions in a fair and non-discriminatory manner.

18.2 Notice of Trade Restrictions applicable to a Clearing Member, whether individual or general
in nature, shall be provided to the relevant Clearing Member through reports in the Clearing
Platform or by other written correspondence from Nord Pool.

18.3 Trade Restrictions (and any amendment to them) may be brought into force immediately
upon notice from Nord Pool in accordance with Section 18.2.

19 CASH SETTLEMENT

19.1 Nord Pool shall on each Banking Day for each Clearing Member calculate the Cash
Settlement Amount(s) due on that Banking Day, and shall issue payment instructions in the
form of invoices to each Clearing Member via the Clearing Platform. Except where otherwise
specified on the applicable invoice, all invoices are due on the same Banking Day as they
are issued at such time as specified in the Clearing Schedule.

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19.2 Nord Pool agrees to issue and each Clearing Member agrees to accept self-billed invoices
from Nord Pool in respect of Clearing Transactions, and each Clearing Member further
agrees not to raise any other invoice in respect of any Clearing Transaction.

19.3 The Cash Settlement Amount is calculated by aggregating and setting off the relevant Cash
Settlement Amounts due to or from the Clearing Member on a given Banking Day, including
all fees and other amounts payable to Nord Pool under these Clearing Rules or otherwise
under the Rulebook.

19.4 With respect to the GB Market only, the Cash Settlement Amount will include any amounts
payable by or to the Clearing Member in respect of Clearing Transactions that are subject
to ECV Transfers and will not take account of any amount agreed between the Clearing
Member and the ECV Transferee relating to the ECV Transfer.

19.5 On each day on which Cash Settlement takes place under the Clearing Rules, the Clearing
Member shall pay such Cash Settlement Amount to Nord Pool, or Nord Pool shall pay such
Cash Settlement Amount to the Clearing Member, in immediately available funds for value
on the due date. Whenever a Cash Settlement Amount falls due on a date which is not a
Banking Day then Cash Settlement shall not take place until the following Banking Day.

19.6 The following procedures apply for Cash Settlement:

(a) Nord Pool will send a notification to Clearing Members of the Cash Settlement
Amount and the due date for payment by such time and in such format as set out
in the Clearing Schedule.

(b) For Cash Settlement Amounts owing from a Clearing Member to Nord Pool, the
Clearing Member shall through its applicable Cash Settlement Account confirm the
transfer of the applicable Cash Settlement Amount to Nord Pool’s Cash Settlement
Account.

(c) For Cash Settlement Amounts owing from Nord Pool to a Clearing Member, Nord
Pool will confirm or cause to be confirmed the transfer of the applicable Cash
Settlement Amount to the Clearing Member’s Cash Settlement Account.

(d) Confirmations under paragraphs (b) and/or (c) above shall be sent by SWIFT
message so that they are received by Nord Pool or the Settlement Bank or non-
Settlement Bank (as applicable) by such time as set out in the Clearing Schedule
on the due date. In the event that Nord Pool is delayed in sending its notification
under (a) above by more than 1 (one) hour, the deadline for confirmation shall be
extended correspondingly for any delay exceeding the said 1 (one) hour.

19.7 Except as set out under Section 24, all Cash Settlement Amounts must be paid and executed
as separate transactions in accordance with the terms of the individual payment instructions
from Nord Pool and these Clearing Rules, and a Clearing Member may not set off any Cash
Settlement obligation to or from the Clearing Member against any Cash Settlement
obligation to or from Nord Pool, irrespective whether such obligations are due or not.

19.8 Without prejudice to its other rights and remedies, Nord Pool may set off any matured
obligation due to or from a Clearing Member against a matured obligation due to or from
Nord Pool under these Clearing Rules, regardless of the place of payment or currency of
either obligation. If the obligations are in different currencies, Nord Pool may convert either
obligation at the currency exchange rate offered to Nord Pool at the time of set-off.

19.9 Cash Settlement Amounts shall be calculated and paid in the currency applicable for the
respective Product Series.

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20 CASH SETTLEMENT ERRORS

20.1 The Clearing Member shall, if it believes that a Cash Settlement has been carried out
incorrectly, notify Nord Pool as soon as possible and not later than five (5) Banking Days
after the relevant Cash Settlement took place, failing which the Clearing Member will be
bound by the Cash Settlement.

20.2 Nord Pool shall as soon as possible deal with notices issued in accordance with Section 20.1
and if the Cash Settlement was incorrect, carry out a corrected Cash Settlement between
the affected Clearing Members with two (2) Banking Days’ notice, by including it in a Daily
Cash Settlement.

20.3 Irrespective of the time limits above, Nord Pool may carry out a corrected Cash Settlement
in the event of substantial errors;

(a) with respect to corrections of errors in Transactions concluded on a Trading Platform

as determined in accordance with the relevant Trading Rules;

(b) in respect of errors in Reference Prices.

20.4 Any correction in accordance with these Clearing Rules will be binding on all Clearing
Members concerned. Nord Pool shall not be liable to any Clearing Member for any exercise
or non-exercise of its powers under this Section 20.4, provided that it has acted in good
faith.

21 NOTIFICATION PROCEDURES

21.1 With respect to each Delivery Period and each Clearing Transaction Nord Pool shall be solely
responsible, for itself and on behalf of each of its counterparties, for making such
notifications as are required to be made by it pursuant to the terms of the relevant BRPA
(each a “Notification”) to facilitate the delivery to or acceptance by the relevant Clearing
Member of the relevant Energy Volume.

21.2 With respect to the GB Market only:

(a) Nord Pool will act as ECV Notification Agent in all Clearing Transactions and any
corresponding ECV Transfers and send ECV Notifications on behalf of both
counterparties to every Clearing Transaction and ECV Transferees involved to the
ECV Aggregation Agent.

(b) Each Clearing Member shall ensure that:

(i) Nord Pool is appointed as ECV Notification Agent for each Energy Account
nominated by it in accordance with the applicable requirements of the BSC
and the procedures of Nord Pool from time to time;

(ii) Nord Pool’s status as ECV Notification Agent for such Energy Accounts is
maintained at all times, so as to enable Nord Pool to make ECV Notifications
in respect of Clearing Transactions and ECV Transfers to such Energy
Accounts;

(iii) that all such actions are taken by it or its ECV Transferee as may be required
pursuant to the BSC or otherwise as reasonably requested by Nord Pool in
order for Nord Pool to act as ECV Notification Agent under the BSC pursuant
to the Clearing Rules at all times.

(c) Subject to the Clearing Member’s compliance with Section 21.2(b), Nord Pool shall
ensure that it fulfils the eligibility criteria as ECV Notification Agent in accordance

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with the BSC. Clearing Transactions registered to a Clearing Account will be notified
to the Energy Account associated with such Clearing Account as per Section 7.

(d) ECV Notifications made by Nord Pool will reflect the net ECV positions for each of its
counterparties or ECV Transferees (as the case may be) for every applicable
Delivery Period and will be dispatched at regular time intervals in accordance with
the time schedule set out in the Clearing Schedule. Clearing Transactions (and any
corresponding ECV Transfers) entered into five (5) minutes or more prior to the
time of dispatch of each ECV Notification will be included in each relevant ECV
Notification. Clearing Transactions (and any corresponding ECV Transfers) entered
into less than five (5) minutes prior to the to the time of dispatch of each ECV
Notification may be included in the ECV Notification, but Nord Pool makes no
warranty and expressly excludes all liability to this effect.

(e) ECV Notifications from Nord Pool will be composed and notified to the ECV
Aggregation Agent using an “overwrite” principle, whereby the net position for each
counterparty or ECV Transferee for a relevant Delivery Period will be reported and
each new ECV Notification will replace the previous ECV Notification for the same
counterparty or ECV Transferee and Delivery Period.

(f) Nord Pool shall, when acting as ECV Notification Agent, follow the applicable rules
and procedures of the BSC. In case of conflict between the notification procedures
of these Clearing Rules and the BSC, the rules and procedures of the BSC shall
prevail.

22 ECV TRANSFERS (GB MARKET ONLY)

22.1 Whenever a Clearing Transaction is registered to a Clearing Account that is associated with
the Energy Account of an ECV Transferee (following nomination of the Energy Account by
the Clearing Member under Section 7.1), a corresponding ECV Transfer will be deemed to
be created and executed automatically between the relevant Clearing Member and the ECV
Transferee in accordance with this Section 22.

22.2 Where Section 22.1 applies to any Clearing Transaction, the delivery obligations in respect
of the Clearing Transaction and the corresponding ECV Transfer shall (subject to Section
22.2(d)) be effected in accordance with the following:

(a) Nord Pool will make an ECV Notification on behalf of the ECV Transferee in accordance
with Section 21 in respect of the relevant Energy Contract Volume for entry on the
applicable Energy Account of the ECV Transferee, indicating whether the ECV
Transferee is the buyer or the seller (according to whether the ECV Transferee is the
buyer or seller under the corresponding ECV Transfer);

(b) Nord Pool will make an ECV Notification on its own behalf in accordance with Section
21 in respect of the relevant Energy Contract Volume for entry on its own applicable
Energy Account, indicating whether Nord Pool is the seller or the buyer (according to
whether Nord Pool is the Seller or the Buyer under the Clearing Transaction);

(c) The ECV Notifications under Section 22.2(a) and (b) in respect of the Clearing
Transaction and the corresponding ECV Transfer shall be a pair of matching equal and
opposite ECV Notifications for the purpose of the BSC;

(d) Notwithstanding Sections 22.2(a)-(c), ECV Notifications made by Nord Pool on behalf
of an ECV Transferee will in accordance with Section 21.2(d) reflect the net ECV position
of such ECV Transferee in respect of all ECV Transfers to which it is a party in each
relevant Delivery Period;

22.3 Notwithstanding Section 22.2:

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(a) Nord Pool shall not become a party to any ECV Transfers and shall not (except in
respect of the making of ECV Notifications in accordance with this Section 22.2) have
any obligations in respect of any ECV Transfers;

(b) Any bilateral arrangements between the Clearing Member and its ECV Transferee in
relation to ECV Transfers shall be exclusively between those persons and the Clearing
Member shall ensure that such arrangements do not conflict with the Clearing Rules;

(c) The Clearing Transaction corresponding to an ECV Transfer (including the applicable
Energy Contract Volume) shall remain in full force between Nord Pool and its
counterparty in accordance with the Clearing Rules; and

(d) The Clearing Member's Open Position shall not be affected by any ECV Transfer and
the Clearing Member shall remain liable to Nord Pool for the performance or non-
performance of its obligations with respect thereto.

22.4 The Clearing Member shall ensure that its ECV Transferee complies with Sections 21 and 22
in its capacity as buyer or seller (as applicable) under each ECV Transfer. Any non-
compliance with the BSC or the Clearing Rules on the part of such ECV Transferee in relation
to any ECV Transfer will be deemed to be a default by the applicable Clearing Member in
relation to the corresponding Clearing Transaction.

22.5 If an Energy Account held by an ECV Transferee has been nominated as the Energy Account
for more than one Clearing Member, and in the case of a Notification Failure affecting such
Energy Account, all relevant Clearing Members will be deemed to have defaulted in
performing their obligations under the corresponding Clearing Transactions affected and the
relevant Clearing Members shall be severally liable to Nord Pool in proportion to their
applicable net Energy Contract Volumes under such Clearing Transactions in the relevant
Delivery Periods.

22.6 This Section 22 shall apply in addition to any other relevant parts of the Clearing Rules and
prevail in the case of conflict with other parts of the Clearing Rules.

23 CLAIMS WITH RESPECT TO NOTIFICATION FAILURE

23.1 Clearing Members wishing to claim a Notification Failure in respect of one or more Clearing
Transactions must do so in writing no later than 30 calendar days following the applicable
Delivery Period to which the Notification Failure relates, and must in the complaint specify
the claim so as to reasonably enable Nord Pool to identify the Notification Failure and the
alleged Delivery Failure Cost. Upon receipt of a valid claim, Nord Pool will investigate
whether there has been a Notification Failure and either: (i) calculate the Delivery Failure
Cost attributable to the Notification Failure(s); or (ii) dispute the claim by written notice,
setting out in reasonable detail its reasons for doing so.

23.2 If a valid claim is not received by Nord Pool by the deadline stated in Section 23.1, the claim
will be deemed null and void.

23.3 Claims for one or more Notification Failures relating to any 24 hour period that do not
exceed an aggregate Delivery Failure Cost of Euro 1,500 (one thousand five hundred Euros)
or its equivalent in any other currency shall under all circumstances barred.

23.4 Payments for undisputed claims for Delivery Failure Costs will be made promptly following
the end of each calendar year and the expiry of the claim period as set out in Section 23.1.

23.5 With respect to the GB Market only, if one or more claims for a Notification Failure are
disputed at the time when payment is due, and payment of the disputed claim(s) would
result in the GB Market Cap being exceeded, Nord Pool may withhold an amount equal to
such excess amount and deduct it from the payment to Clearing Members having

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undisputed claims on a pro rata basis, and full payment to Clearing Members (subject to
the GB Market Cap) will only be made following final resolution of the dispute(s).

23.6 Advance payments for undisputed claims for Delivery Failure Costs may be made promptly
following the end of each calendar quarter upon the prior written request from the claiming
Clearing Member by no later than the end of the relevant calendar quarter, provided that:
(i) the Clearing Member provides Collateral acceptable to Nord Pool in respect of such
advance payments; and (ii) any interest which may fall due in accordance with section 11.2
of the General Terms from the date of payment if the advance payment (or part thereof) is
repayable to Nord Pool due to the GB Market Cap coming into effect.

24 MATERIAL EVENTS OF DEFAULT

24.1 If a Material Default Event occurs with respect to a Clearing Member, and without prejudice
to any other remedies that may be available to Nord Pool under the Rulebook or otherwise,
Nord Pool may take any one or more of the following steps:

(a) declare any or all claims of or against the defaulting Clearing Member due on that
date;

(b) take such action, at the Clearing Member’s own expense and risk, as it considers
reasonably necessary or expedient to close-out any Open Positions by entering into
Close-Out Transactions or otherwise discharging and/or netting the rights,
obligations and positions of the Clearing Member;

(c) withhold any Cash Settlement Amount owed to the Clearing Member;

(d) enforce, appropriate, realise and otherwise apply its rights in relation to any
Collateral posted by or on behalf of the Clearing Member;

(e) set off or otherwise apply any Open Positions related to a Clearing Account against
any other claims from Nord Pool related to the other Clearing Accounts of the
Clearing Member; and/or

(f) set off or otherwise apply all profits, Pending Settlements and other claims owed by
the Clearing Member to Nord Pool and by Nord Pool to the Clearing Member so as
to produce a single net sum payable by or to the Clearing Member, irrespective of
whether such claims are in different currencies and regardless of their origin or
character.

24.2 Nord Pool may take the steps set out in Section 24.1 above with respect to any one or more
of the Open Positions registered on a Clearing Account.

24.3 No court order or filing or any other legal act shall be required prior to the taking of any of
the steps stated in Section 24.1 above. Amounts due and not paid by the defaulting Clearing
Member shall, to the extent possible, be discharged by applying any Cash Collateral before
any other forms of Collateral are utilised.

24.4 Nord Pool shall inform the Clearing Member in writing of any measures taken under this
Section 24.

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