Launch of a new margin offset model for Power Groups

On 1 March 2019, the IRGiT Management Board adopted a resolution to determine the rules for set-off of initial margins and rules for set-off of additional margins for Power Group Members.

The set-off of the margins for a Power Group is conditional upon submission of a set-off application by Power Group entities (“Set-off Participants”) and conclusion of an Agreement by and between IRGiT and all the Set-off Participants, defining the rules for establishing financial guarantees.

The model applied to date allowed for setting off an additional margin and obtaining at most up to a 100% reduction of the required margin within a group. The model is based on setting off theoretical profits and losses on the positions of all the Set-off Participants.

The new model also makes it possible to apply setting off of initial margins, allowing for obtaining at most 80% of reduction of the required margin level at the scale of the Power Group. The set-offs are made for positions of Set-off Participants within corresponding periods of delivery.

The new proposal by IRGiT aroused a strong interest from power groups executing transactions on power and gas markets of the Polish Power Exchange; in the near future, we expect most of the groups to join the new model. IRGiT actively encourages power groups to take advantage of the opportunity to reduce costs of guarantees, among others by the decision to resign from collecting the fee for setting off margins until the end of the first quarter of 2019. The House consistently performs projects which take into consideration the expectations of the House Members to make the offering of clearing and guarantees more attractive. The assumptions of the model have been developed after consultations with the market and also obtained approval of the Risk Committee operating at the IRGiT,” said Andrzej Kalinowski, President of the IRGiT Management Board.

The implementation of the new methodology for setting off margins is a key element of the Clearing Guarantee System Optimization Project and allows for a significant reduction of the level of required guarantees from power groups, while maintaining a high level of security due to applied agreements concerning joint and several liability of Set-off Participants. It is worth emphasizing that from the point of view of risk, covering power groups trading on the PPE with the new model and treating them at the level of the guarantee system as a single entity allows for reducing the maximum exposures of the largest entities to risk, which increases the security of the entire clearing guarantee system and, in particular cases, may contribute to a reduction of the total level of payments to the Guarantee Funds,” added Łukasz Goliszewski, Director of the Risk Management Department at the IRGiT.