The clearing challenge

Growing over-the-counter trade in the energy markets, much of it from hedge funds, coupled with exceptional price volatility, could test the current clearing system to the limit, warns independent consultant Chris Cook

For years, clearing houses have played a vital role in spreading the risk in derivatives trading in the energy markets. Their simple risk-management technique of lowering or raising margin deposits in line with volatility has been an effective enough strategy so far, and there have been no disasters that have overwhelmed these margins or given rise to significant calls upon a clearing house’s capital base.

However, the recent growth in over-the-counter (OTC) trade, much of it