After the financial crisis of 2008, the leaders of the G20 countries met in Pittsburgh in September, 2009 and stated: “All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.”
In this article, we will review why the multiple safeguards used in the clearing process reduce counterparty risk and detail why cleared transactions should be used as a key part of any strategy to reduce corporate risk.
The winner of our Innovation of the Year award is Nodal Exchange. Established in April 2009, Nodal Exchange is the first independent electronic commodities exchange to offer locational, or nodal, futures contracts to the organized North American electric power markets.
“We believe in central counterparty clearing as being a good idea, regardless of whether it’s mandatory or not. We don’t know how the legislative elements will turn out, but we certainly understand why the government is so enamored with the central clearing model… it does reduce systemic risk,” Cusenza says.
What have power trading and personal genetics got in common, and what are the advantages of a clearing house using VAR to calculate margin? Ben Preston, head of power trading at Macquarie Energy, puts his questions to Paul Cusenza, CEO of Nodal Exchange