All customers have to post collateral as a guarantee that they can pay for the contracts they have entered into.
Collateral can be posted under different types of agreements which is described below.
Posting collateral for customers trading in the UK
Cash collateral account
The cash collateral account will be established by the collateral security deed and maintained as a blocked, segregated account (pledged in favor of Nord Pool). No money may be withdrawn from the cash collateral account, except on the express instructions of Nord Pool.
Letter of credit
The letter of credit denotes a letter issued by a bank to serve as a guarantee for a buyer’s payment to Nord Pool.
The bank guarantee designates from the guarantor that the liabilities (or the payments) of a buyer will be met, should the buyer fail to settle its financial obligations.
All the above mentioned collateral agreements can be found under Rules and regulations, under section D.
Posting collateral for customers trading in the Nordics, Baltics and Germany
All customers trading on the Nord Pool Nordic, Baltic and/or German market must establish a pledged cash account agreement, pledged collateral account agreement or an on-demand guarantee to cover their collateral requirements towards Nord Pool.
Pledged cash account
The pledged cash account agreement will be established and maintained as a semi-blocked account. This means that collateral will always be blocked on the account, but any amounts excessive of the collateral call can be withdrawn by the customer without any consent by Nord Pool. The pledged account must be opened with an approved settlement bank. The pledged account can also be used for settlement of daily trades.
Pledged collateral account
The pledged collateral account agreement will be established and maintained as a blocked, segregated account (pledged in favour of Nord Pool). No money may be withdrawn from the cash collateral account, except on the express instructions of Nord Pool.
The on-demand guarantee is a bank guarantee that imposes a primary obligation on the guarantor to pay the beneficiary in first demand. The guarantee acts as security for the liabilities (or the payments) of a buyer towards Nord Pool.
All the above mentioned collateral agreements can be found under Rules and regulations, section D.
Bank guarantees and letter of credit issuers must be registered within an OECD country. Please read our rating requirement document for guarantee and letter of credit issuers.
Margining and collateral
Before a customer starts to trade, he or she must meet the initial collateral call. This is calculated as the max net exposure a customer trades during one delivery day together with a day factor of two. The minimum collateral level is set to EUR 30,000,- which means that the collateral call for all counterparts will never be below this level.
After the customer has started to trade, Nord Pool calculates the customer’s daily margin, and this denotes the daily exposure towards Nord Pool.
The collateral call is set as the maximum level of the daily margin that has been calculated for that customer, looking back on the last 30 days. Customers must meet their collateral calls towards Nord Pool on a daily basis.
Monitoring of collaterals
Customers can monitor their collateral calls and postings through CASS. After settlement is run, customers will be able to check whether they are within their collateral limit, and whether they have to post more collateral within the payment deadline the following business day.
In the morning of the due date of the collateral call, customers will be able to check their final cash position towards the collateral call to be met that business day.