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Margin Model 2022

The Margin Model by Nord Pool aims to determine collateral requirements based on members' trading behavior, ensuring they meet a minimum collateral of EUR 30,000 before trading. It calculates daily collateral requirements using two components: the Daily Net Position and the Daily Settlement Position, each with specific lookback periods and risk parameters. The model is designed to adapt to changes in trading behavior and market conditions as determined by Nord Pool's discretion.

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3 views3 pages

Margin Model 2022

The Margin Model by Nord Pool aims to determine collateral requirements based on members' trading behavior, ensuring they meet a minimum collateral of EUR 30,000 before trading. It calculates daily collateral requirements using two components: the Daily Net Position and the Daily Settlement Position, each with specific lookback periods and risk parameters. The model is designed to adapt to changes in trading behavior and market conditions as determined by Nord Pool's discretion.

Uploaded by

evertonalexandre1984
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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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.

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