Margins and the Current Market Situation

Margins are a key topic right now. We talked to Götz Dittrich, COO at ECC, about how margins are calculated and how we can both advise and support our customers in this respect.

Prices are rising – as are the margins that have to be deposited. What other factors are there?

Götz: Margins are calculated on the basis of two factors. The first one is the price level, i.e., the actual equivalent value of a position. The second one is the day-to-day price change. We cover the risk that, if a counterparty defaults, we have to close out its position in the market. If the market is very stable, the risk that we will see significantly different prices is very low. With the current high volatility, on the other hand, it is not. Unfortunately, at the moment, we are seeing both - very high price levels and very high volatility. This has led to an increase in collateral requirements of our participants.

Many market participants are complaining about current high margins. How can ECC accommodate them?

Götz: We can and do accommodate our client demand by constantly improving the efficiency of our margin offering as well as by accepting different types of collateral, in particular, to cover spot market margin requirements. Again – we provide a safe haven protecting our clients from material losses due to the default of their trading partners. This is our primary task – one that has never been more important than during these turbulent times.

We advise our clients on how they can optimise their margin requirements. This has, for example, led to volumes in the gas futures market more than tripling in the first five months of the year compared to the same period last year. This is primarily due to the fact that customers with large electricity positions are increasingly also moving their gas positions to the exchange because they consider the total net position when determining their margin requirements. This means you can lower your margins for electricity by also bringing your gas position to the clearing house. Many of our customers have taken advantage of this in recent months.

In addition, KfW loans are now also available for margins on the exchange. That certainly benefits you, doesn't it?

Götz: First and foremost, it benefits the trading participants, but it is also a very sensible initiative. Because even for those companies that are fully hedged as they have bought commodities in advance and sold their electricity volumes via electricity futures, the increased liquidity requirements are a challenge.

Götz, thanks for your insights. In case of further questions, who could customers turn to?

Götz: If you have any further questions on this topic, our clearing team is here to help. Please contact clearing@ecc.de. 

See also Christian Fleischers’s interview on optimizing margin requirements.