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In September 2018, trader and clearing member Einar Aas defaulted after a large spread position between Nordic and German power markets moved sharply against him. The episode shows how concentration, margin, liquidity, and clearing arrangements can turn a relative-value trade into losses beyond one participant’s collateral.

What happened

Nasdaq Clearing stated that the portfolio contained a large Nordic–German power spread position that was harmed by an extraordinary fluctuation in the price difference between those markets. When Aas could no longer meet the resulting margin requirement, the clearing house closed out the portfolio. Nasdaq reported that the default fund was affected by €107 million in addition to €7 million of Nasdaq junior capital. Norwegian regulator Finanstilsynet later reported weaknesses in Nasdaq Oslo’s internal controls and member follow-up and noted that the Swedish regulator was examining the default situation, including margin models and concentration risk.

Failure mechanism

1

A concentrated spread position is built

The portfolio depends heavily on the relationship between two regional power markets.
2

The spread moves unusually

The historical relationship changes sharply rather than reverting on the expected timetable.
3

Margin requirements rise

Mark-to-market losses require additional collateral.
4

The member defaults

Available resources are insufficient to meet the margin call.
5

The portfolio is closed

Losses extend into the clearing house’s financial resources and mutualized default fund.

Risk-management lessons

  • A spread trade can be directional with respect to the relationship between its legs.
  • Low historical volatility does not imply a small tail loss.
  • Concentration should be measured against market depth and liquidation capacity.
  • Margin models are controls, not guarantees that collateral will cover close-out losses.
  • Stress tests should include structural divergence, not only temporary deviations.
  • Clearing and counterparty structures determine who absorbs losses after a default.

Application to individual and prop traders

Pairs, baskets, and hedged positions can appear protected because they contain offsetting legs. The protection can fail if the relationship changes, liquidity differs between legs, or one leg cannot be closed near its expected price. Size the combined idea, not each leg in isolation.

Risk per trade idea

Apply one loss budget to related positions.

One-side betting

Detect exposure that is hidden by multiple symbols.

Primary sources

This summary is educational and condenses a complex market and clearing event.