It needs robust trading and clearing services, a solid and compliant regulatory framework and trust in our products and services.
Interview with Dr Clemens Völkert, who joined ECC as Chief Risk Officer in July 2021
1. Clemens, the second half of 2021 was a period of extraordinary market volatility – did ECC’s risk management processes pass the test?
Yes, our risk management processes passed the test. We’ve seen unprecedented volatility in the commodity markets last year, mainly in power and natural gas. As an example, the front year in German Power was trading at price levels around 300 EUR in December 2021, with daily price changes reaching 60 Euro. To put this into perspective, a year ago the contract was trading at price levels below 60 Euro. The resulting exchange of profits and losses (the so-called Variation Margin) led to a high number and amounts of intra-day margin calls and end-of-day settlements, especially in the fourth quarter of 2021. Extraordinary price movements across our major markets did pose challenges for participants trading in these markets and also tested the resilience of our operational processes and IT infrastructure. Our risk framework is designed to cope in such circumstances and I am proud to say that ECC is able to deliver stability in these uncertain times.
2. Markets will continue to be volatile in the future. How can clearing cope with this situation?
We’re convinced that clearing via a central counterparty is of high value, especially, in a stressed market environment. Counterparty credit risk was, and is, a prominent topic in many client conversations. High risk awareness implies moving more activity to the exchange where a CCP serves as a “safe haven” in stormy conditions. ECC guarantees financial transactions and ensures that counterparty credit risk is mitigated. We offer independent risk management on which participants can rely. In addition, clearing creates efficiency by netting offsetting positions. Another big advantage is the “network effect” that ECC can offer to its customers, meaning cross-margining across different markets and products, in all main energy and commodity markets. We’re well aware that managing liquidity in such market conditions is challenging for our clients. ECC already offers a wide variety of eligible securities to cover margin requirements. To support non-financial institutions, we believe that increasing the range of non-cash collateral eligibility is very important. For example, ECC recently improved its offering and now accepts emission certificates as margin credit.
In addition, I believe transparency is very important. This includes increasing the awareness of clearing members and trading participants about how CCP risk models work under normal as well as under stressed market conditions. ECC publishes a large amount of information on its website, offers tools for margin simulations, and is readily available to support clients with additional information.
3. What challenges do you expect for the clearing house in the future?
Against the background of the currently observed stressed marked conditions, with risk management topics being in the spotlight, we will continue to work hard to maintain robust operations. At the same time, we are striving to enhance our risk management solutions, ensuring safety and efficiency. As a CCP and financial market service provider, it’s a must for ECC to stay up-to-date and be compliant with changing regulatory requirements. That’s one of our main priorities. Finally, as a strong clearing partner for an international exchange group, we aim to continue our success by scaling our core business, diversifying our services and building new markets with our customers on a global level.
4. On a more personal note, you joined the company in the middle of the Covid-19 crisis. How have you settled in at ECC?
I received a very professional and warm welcome from all colleagues, across all group organisations and partner exchanges. It’s a great team with a lot of “energy”! Actually, I am used to a digital / hybrid workplace and the associated flexibility is an asset. One thing I would wish for is having more personal interaction with the EEX Group team and clients in 2022. I am very much looking forward to this.