NASDAQ OMX commodities introduced inter commodity spread credit

NASDAQ OMX commodities introduced inter commodity spread credit

28/04/10

NASDAQ OMX Commodities today successfully introduced Inter Commodity Spread Credit (ICSC). As a result of this, NASDAQ OMX Stockholm's clearing procedures have been updated.

Inter Commodity Spread Credit has been introduced to meet members' growing need for margining efficiencies. The purpose of ICSC is to enable collateral benefits to members by giving credit to off-set positions in products with sustained price correlation when calculating margins.

“The new ICSC methodology aims at reducing the size of margin calls for members pooling their positions in price-correlated instruments with the clearinghouse, says Geir Reigstad, Senior Vice President of NASDAQ OMX Commodities. - “Hence, the cost of capital could be significantly reduced for members who decide to maximize the benefit from this innovative solution”, he elaborates.

ICSC will offer margin benefits both for products from the same product series (e.g. Nordic power v. German power) and for products from separate product series (e.g. Nordic power v. EUA allowances). ICSC will be implemented within the existing and SPAN margin model, optimizing the daily margin call for clearing members.

As an example, a member with risk intervals as of April 19, 2010, with offsetting positions in Nordic power e.g. ENOQ3-11 and German power e.g. EDEBLQ3-11, could have had a margin reduction of up to 30 percent, compared to a situation without ICSC.