Financial stability risks from energy derivatives markets

Oana Furtuna, Alberto Grassi, Annalaura Ianiro, Kristina Kallage, Robert Koci, Francesca Lenoci, Andrzej Sowiński and Francesco Vacirca

Financial Stability Review, 2022, vol. 2

Abstract: Energy sector firms use energy derivatives under different strategies depending on their main area of activity, business model and exposure to risk in physical markets. The significant volatility and skyrocketing prices seen in energy markets since March 2022 have resulted in large margin calls, generating liquidity risks for derivatives users. Strategies employed by companies to alleviate liquidity stress may lead to an accumulation of credit risk for their lenders or their counterparties in less collateralised segments of the derivatives market. Further price increases would accentuate nascent vulnerabilities, creating additional stress in a concentrated market. These issues underline the need to review margining practices and enhance the liquidity preparedness of all market participants to deal with large margin calls. JEL Classification: Q02, G13, G20

Keywords: energy derivatives; energy firms; initial margins; variation margins; commodity derivatives pricing (search for similar items in EconPapers)
Date: 2022-11
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