The saga of Einar Aas, the Norwegian trader whose 15-year golden run came to a calamitous end earlier this month when he was caught on the wrong side of a stunning blowout in power-price spreads, has ended, as many anticipated, with the liquidation of Aas’ estate and an expected bankruptcy filing. 

According to Reuters, Nasdaq’s Nordic commodities exchange has reached an agreement with Aas’ attorneys on the sale of Aas’ assets that will allow him to cover a 114 million euro ($134 million) hole in the exchange’s clearing-house buffers that nearly brought trading to a grinding halt.

Nasdaq’s Nordic commodities exchange has reached agreement on the sale of assets belonging to a private trader who defaulted on his commitments last week, it said on Friday.

Einar Aas, a Norwegian derivatives trader who made large bets on the power market, left a 114 million euro ($134 million) hole in Nasdaq’s Nordic clearing house buffers when his funds ran out.

Within just two working days of the default, members of the exchange, and Nasdaq itself, were forced to replenish the funds in order to continue trading.


Funds recovered via the process will be distributed to default fund participants on a pro rata basis, it added.

“Nasdaq would support liquidation of the assets in a swift and timely manner consistent with realization of maximum value for members and will liaise with members in relation to this matter,” the exchange said.

Aas’ lawyers added that the estate sale would likely lead to their clients’ personal bankruptcy (he has already paid out all of his liquid assets). To put his personal losses in context, just two years ago, Aas was Norway’s biggest taxpayer.

While Aas had run out of cash, he still owns real estate and other assets that could be sold.

“Nasdaq would like to inform our members and clients that Mr. Aas and his lawyers have agreed to submit to a consensual arrangement with creditors to liquidate Mr Aas’s estate,” Nasdaq Clearing Commodities said in a statement on Friday.

For readers who haven’t been following one of the most stunning cautionary tales about the failure of risk oversight and its consequences, Aas – a legendary power trader with a seat on the Nasdaq Nordic commodities exchange – wracked up a staggering loss that when the spread between German and Norwegian power prices widened by 17 times during a single trading day, an incident that Nasdaq has described as a “a true black swan event.”

The blowout was triggered by an extremely unlikely confluence of factors: A jump in the price of European carbon allowances, which caused German power prices to soar, and forecasts for unusually heavy rains in the hydropower-reliant Nordic region, which caused Nordic power prices to drop.



At the time, Aas had a huge open position betting that the spread would narrow. So when it widened by such an extreme degree, Aas was forced to surrender all of his liquid assets to cover his margin. But it wasn’t enough, and the exchange was forced to liquidate his position at a massive discount in what is typically an unusually illiquid market (European power markets, once rife with hedge funds and other traders, have seen trading activity plunge over the past two decades as volatility stabilized, eliminating the incentive for speculation).

When the dust had cleared, other exchange members were forced to contribute back-up capital to cover the loss, narrowly averting what could have been a catastrophic collapse.

“Nasdaq has dropped the ball on this one,” said Stephen Connelly, an associate professor in law at University of Warwick and a former financial litigator in London. “It’s really surprising in this day and age.

For its part, Nasdaq said it has implemented safeguards to ensure (to the best of its ability) that one monstrously sour trade won’t drive the exchange to the brink of insolvency. It’s increasing its margin requirements and hiring consulting firm Oliver Wyman.

Regulators in Sweden, where Nasdaq Nordic is based, say they are planning to investigate how Nasdaq allowed such a massive failure of oversight.

“This is a question that Nasdaq Clearing has to answer,” said Daniel Gedeon, director of financial markets infrastructure supervision at the Swedish Financial Supervisory Authority. “As a supervisor we are investigating the situation thoroughly.”

But perhaps the biggest irony here is the fact that Aas could have avoided responsibility for such staggering risk if he had only bothered to register his own trading firm – a relatively simple process, according to Aas’ old boss.

“When you operate on this scale and with this liquidity risk, I’m a bit surprised he hasn’t done anything about that,” Eckhardt said. “It would have taken him a day to register the company and maybe a week to transfer contracts.”

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