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Meet the phantom trader who blew a hole in world's oldest power market

Lars Paulsson & Mikael Holter | Bloomberg/ 15 Sep 18 | 09:20 PM

For almost two decades, Einar Aas was the most successful trader on one of Europe’s largest power markets. He was also a phantom.


Every other trader knew his name, but hardly anyone had actually ever met him. The 47-year-old didn’t attend trader meetings, conferences or other industry gatherings. Instead, he spent most of his time at home, making huge bets on Nordic power from his house in Grimstad, a small seaside town three hours south of Oslo. There he amassed a fortune trading on his own account -- in 2016 it was enough to make him the single biggest taxpayer in Norway. This year, he made one big bet too many.

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On Thursday, Nasdaq, which sets prices in the Nordic power market that supplies millions of homes and businesses across northern Europe, announced it had expelled Aas after he racked up millions of euros of losses he couldn’t make good.


Aas is incredibly shy. He bought a huge house on the water in 2004 and later spent many millions on buying up properties around it to ensure his privacy. He appears never to have given an interview. Attempts to reach him since the scandal broke were unsuccessful.


Bloomberg pieced together the story of his rise and fall from talking to fellow traders, who asked not to be identified talking about a competitor, as well as reports in the Norwegian media.


Aas grew up as the third of four siblings on a farm just outside Grimstad. An ease with numbers was apparent early on: he got top grades and was described in the school yearbook as the “bookmaker of the class." Former classmates and colleagues have said he was a poker aficionado who like to bet on horses.


He graduated in the early 1990s from the Norwegian School of Economics, the nation’s elite business school, whose alumni include top crime writer Jo Nesbo, the chief executive officer of energy company Equinor ASA, Eldar Saetre, and the head of Norway’s $1 trillion wealth fund.


He got his start working as a risk manager at Interkraft Trading, but soon became a trader in his own right. His old boss, Lars Eckhardt, told local business newspaper Dagens Naeringsliv that Aas had a “speculative drive" and soon became their best trader. He left in 2001 to set up his own firm Kraftinvest. From 2005 he traded in his own name.


But it wasn’t just the power market that took his fancy. As his wealth grew, he piled into everything from a cutting edge energy-technology provider to property, both at home and abroad. 


He bought a giant apartment on the Oslo waterfront, one of Norway’s most expensive neighbourhoods.

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At the start of last decade, energy markets from power to oil and coal were on a roll that lasted years -- until the financial crisis strangled credit lines for trading and prices plunged. And while Aas suffered losses like most traders, since 2002 he’s posted a total taxable income of 3.5 billion kroner ($420 million).


Easily his best year was 2016 when he earned 833 million kroner and paid 227 million in tax, making him the top individual tax payer in Norway, where people’s returns are public documents


One admiring trader said that despite his huge loss, you can’t take away from him that for fifteen years he probably bet bigger, and better, than anyone else in the entire market.


The trade that ended Aas’s golden run was a bet that the spread between the Nordic and German power would narrow. As the market opened on Monday, carbon emission allowances, the best performing commodity this year, were on a tear. That helped push up the German market, while at the same time, wetter weather forecasts sunk the Nordic next-year contract by the most since January 2017. Aas was in trouble.


In a statement to Dagens Naeringsliv on Thursday, he said he’d taken a position that was too big in relation to the liquidity in the market. After “extraordinary price changes," in the Nordic and German contracts he was forced to pay the exchange his last free liquid funds. That wasn’t enough and at 8:20 a.m. on Tuesday he was declared in default and put under administration. His portfolio was liquidated on Wednesday night.


The market movement that day was 17 times larger than the normal observed daily spread changes and could be characterised as a true “Black Swan event," Nasdaq said on Friday.


While the loss is a personal disaster for Aas himself, it’s also a big blow to Nasdaq, who bought the market in 2010 as part of its drive to expand in commodities. Once the kingpin of European electricity trading, activity on the world’s oldest power market is now languishing at its lowest level since 1999 after some of the biggest banks, hedge funds and industrial consumers left the market, driven away by rising costs and prices that were little changed for years.


“It is sad to hear about it, and it is one big trader less," said Hermund Ulstein, chairman of the Nordic Association of Electricity Traders. The market now will have to move on without “Einar from Grimstad," he said.


But as the dust began to settle, traders and utilities have begun to question how Aas’s demise could happen.


Unusually, Aas was allowed to be his own clearer, or guarantor of trades. That meant that at least one level of oversight was gone. If he’d gone through another clearing member, that company could possibly have stopped the bets earlier by demanding additional collateral.


“This is a question that Nasdaq Clearing has to answer," Daniel Gedeon, director of financial markets infrastructure supervision at the Swedish Financial Supervisory Authority, said by email. “As a supervisor we are investigating the situation thoroughly."


Other clearing members -- banks, brokerages and utilities -- now will have to top up Nasdaq’s default fund that was used to help cover Aas’s losses to the tune of more than 100 million euros. Fortum Oyj, Finland’s biggest utility will pay as much as 20 million euros, it said on Friday. The company “expects Nasdaq to have adequate collateral and security arrangements at all times," it said.


The exchange said it will raise margin levels on spread positions and has hired an independent company to review all clearing house processes and risk practices. In addition, a temporary “Junior Capital" facility of about 19 million euros has been set up to help replenish the default fund.


Traders also raised the prospect that the Aas default could help the European Energy Exchange AG’s push into the Nordic market. The rival exchange in Germany is planning to expand its offering, a spokeswoman said.


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