Nasdaq stated: "At Nasdaq, our primary focus is the protection of our clients and the integrity of our markets. With respect to the events of this week we want to remain transparent and provide the following details. On Tuesday, September 11, Nasdaq Clearing declared a member in default. The defaulted portfolio contained a large spread position between Nordic and German Power that was negatively impacted by extraordinary fluctuations in the spread. When the member no longer could meet the margin requirement due to the losses in the portfolio, Nasdaq Clearing had to declare the member in default. Our rules require that we then close out the portfolio as soon as possible to mitigate further risk of loss. Nasdaq data analysis concluded that the market movement was 17 times larger than the normal observed daily spread changes, which was confirmed by two external parties, and could be characterized as a true "Black Swan" event. The defaulting portfolio was closed out according to Nasdaq Clearing's close-out procedures and has been fully contained. Within 48 hours all of the positions had been closed through an auction. However, the close out resulted in a loss for Nasdaq Clearing that exceeded the defaulting member's collateral and default fund contribution. The loss meant that Nasdaq Junior Capital of EUR 7M and a portion of the Commodity Member Default fund, amounting to EUR 107M needed to be utilized. The utilization of the Default Fund impacted the 166 clearing member firms with capital contributions into the Default Fund on a pro-rata basis. As a result, Nasdaq has taken the following actions: Nasdaq Clearing this morning implemented a temporary Junior Capital addition for the Commodity Market of 200 million SEK, or approximately EUR 19M. This new capital is in addition to the EUR 7M that Nasdaq has already replenished in the Default Fund as Junior Capital. This temporary Junior Capital will be added in addition to existing capital in the clearing default waterfall and will be funded by Nasdaq Clearing. In the event of a future default, the temporary Junior Capital would be utilized first, before the remaining funds in the existing Commodity Default Fund. Replenished member funds would be the last tranche to be utilized during the interim period. The temporary Junior Capital will remain in place during an interim period of 90 days starting today. In order to reduce the risk profile in the market situation following the default, Nasdaq Clearing has decided to increase margin levels. Confidence levels have been increased in order to shift risk of a particular portfolio from the mutualized default fund to the owner of the portfolio. We have increased margins on spread positions. Nasdaq has engaged a third-party validator to review all clearing house processes and risk practices. We will continue to communicate with our clients as the integrity of our market is the primary consideration of the company's Management, Board of Directors and Clearing House Risk Committee."
