• 3 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 8 minutes Why Is America (Texas) Burning Millions of Dollars Per Day Of Natural Gas?
  • 11 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 15 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 38 mins The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 7 hours Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 12 hours As Iran Nuclear Deal Flounders, France Turns To Saudi For Oil
  • 7 hours The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 16 hours Middle East on brink: Oil tankers attacked off Oman
  • 7 hours Russia removes special military forces from Venezuela . . . . Maduro gone by September ? . . . Oil starts to flow ? Think so . .
  • 10 hours Never Knew Gasoline Prices were this important!
  • 9 hours (Un)expectedly: UK Court Sets Assange U.S. Extradition Hearing For February 2020
  • 1 day Emmissions up, renewables nowhere
  • 1 day Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 4 hours We Are Better Than This
  • 1 day Only one country is contemplating destroying its own resource sector: Canada
  • 9 hours The Latest: Iranian FM Says US Cannot Expect To ‘Stay Safe’
Is Now A Good Time To Buy Energy Stocks?

Is Now A Good Time To Buy Energy Stocks?

Two bearish factors are weighing…

Oil Market-Maker Closes Shop On Unfavorable Regulations

Crude by rail

Geneva Energy Markets, a leading oil derivatives trader has liquidated its trading book after it incurred “significant losses” after its clearing bank’s insistence that it reduce its holdings, the FT reports, citing a source close to the market maker.

Before, GEM traded between 50 million and 100 million barrels of crude oil and oil products on a daily basis, focusing most on futures. But since last year it also took part in the options segment. The company was specialized in the over-the-counter market.

However, a tightening regulatory framework in Europe, where the company is also active although it is based in the United States, prompted its clearing bank to suggest a sharp cut to GEM’s open interest to avoid being hit with much higher capital requirements in order to be able to clear trades in futures and options.

The regulation in question is part of the Basel III financial market regulatory framework that deals with the ratio between capital and leveraged exposure. In other words, the ability of any one player on the financial market to meet its financial obligations.

GEM managing partner Mark Vonderheide told Bloomberg in an interview that the entry into effect of this regulation meant that GEM’s clearing bank would have to hold capital based on the trading firm’s gross, rather than net, exposure.

Related: China To Become Most Influential Player In Natural Gas Markets

"The notional value of our book was in excess of $50 billion," Vonderheide told Bloomberg, adding "However, the actual risk of the book was always relatively low, with at value-at-risk at around $2 million at any given time. The change to gross exposure meant a significant increase in capital requirement for our clearing bank, and we were asked to reduce our positions massively."

The founder of the company also said that "The new regulation is seriously damaging the liquidity in the energy market. If the regulation was intending to create a safer and more efficient market, it has done completely the opposite."

Meanwhile, the FT notes, open interest in oil futures on the New York Stock Exchange and ICE Europe recently dropped without any obvious reason.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News