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Amy Lawson Discusses OCC Clearing of Nasdaq Energy Derivatives

Amy Lawson

As part of Nasdaq's effort to expand its offering in the fixed income, commodities and currency space, the exchange is launching a line of proprietary commodity futures products that will be cleared through OCC. The expansion into energy futures and options products will be based on oil, natural gas and U.S. power benchmarks. The products are set to trade on the Nasdaq Futures Exchange (NFX) by mid-year.

This new product suite will allow market participants to further diversify their portfolios while providing a valuable hedging tool. Amy Lawson, Vice President of Business and Product Development, shares her insight on what this expansion means for OCC and its clearing members.

What preparations is OCC making to clear energy derivatives?

OCC is working on a number of fronts to make accommodations to clear for NFX and its energy futures and options on futures. NFX futures and options fit nicely within OCC's current operational, systemic, risk management and legal and regulatory structure with some fine tuning to accommodate the re-launch and renaming of the exchange as well as the specific product set. Existing OCC members that are Future Commission Merchants will be automatically qualified to clear NFX energies through OCC. Clearing members and vendors are planning to test in a planned end-to-end test with the exchange and OCC.

The exchange is leading an industry-wide effort to ensure that its business partners, customers, traders, clearing members, ISV, data vendors and regulatory bodies will all be ready on a near simultaneous basis for launch day. To date the exchange has displayed detailed planning and flexible leadership in orchestrating this product launch.

Are there any key differences in clearing energy derivatives from other products that OCC clears?

From an operational standpoint, the proposed cash settled futures and physically delivered options on futures behave much like other futures and options currently cleared by OCC and in the past. However, OCC is making some relatively minor adjustments to its software to handle energy derivatives' uniqueness in expiration calendar. For example these products do not expire on the third Friday of the month. OCC will also draw from energy market experts for default management analysis and planning.

In what ways do customers benefit from OCC expanding the products it clears?

Members will benefit from a standard platform and business model used by OCC to clear derivative contracts in all markets it clears. Existing OCC Future Commission Merchants members will be able to maintain a single clearing fund and collateral pool across all OCC products within an account. OCC cleared products use its sole operational and systemic interface, ENCORE clearing system as well as OCC's STANS margining and risk management processes.