Clearing: Take Control of Unexpected Events

Clearing is a very efficient tool to help protect your business and avoid potential negative market events impacting your targeted profits. At the start but also later on, a structured approach to optimizing the clearing setup is key for avoiding unnecessary costs and keeping you in control, even when market turbulence is causing serious margin calls.

Markets Evolve, Clearing Follows

In today’s energy markets, the number of trading participants has grown very fast. These new players represent new segments of the total energy space: next to utilities and traditional trading houses, also Stadtwerke, local battery operators, start-ups and spinoffs from large trading houses have entered, and many more are on their way in. Many of them start trading energy commodities via exchanges and clearing their positions through a central counter party (CCP). Their intentions might differ just like their backgrounds, levels of professionalism, and knowledge. Nevertheless, they all have one thing in common:  the desire to be successful and generate profit.

This increased competition raises the pressure on companies to position themselves well. Having access to the full range of opportunities for their traders, while ensuring protection against downside effects and risks, becomes essential.

One of the important pillars is the financial coverage of the trading activities. Clearing has become a key topic with a proven importance and an impressive reliability over many years, as it has existed for several centuries.

During the energy crisis of 2022, as volatility peaked, margin requirements reached extreme levels and put significant liquidity pressure on many firms. These events remain present in the minds of many market participants and are often cited  as arguments against clearing, particular by those who observed only the outcomes rather than fully understanding the mechanism and underlying reason.

Clearing protects

Such extreme situations undoubtedly create stress, and at the same time, they emphasize the need to be prepared for such events. Clearing is in fact one of the strongest protections for market stability, but it requires thoughtful preparation. When designed correctly, a clearing setup enables companies to benefit from the various advantages while protecting from sudden market shocks.

Human nature often leads us to forget difficult experiences once the pressure has eased. Some firms, might be tempted to lower the interest in sophisticated clearing arrangements or switch to less rigid and less complicated solutions. Often without realizing that those alternatives, like OTC trading, come with higher overall risk, including counterparty exposure.

Preparation for a Solid Base

One of the most crucial steps for companies being active in a cleared environment is to have a well-structured clearing strategy. Understanding the setup, the clearing arrangements, account setup, risk protections and financial instruments are making a significant difference for the efficiency and resilience of your trading operations.

This part is often neglected by trading companies because clearing is seen first as a necessity to access the exchange rather than a strategic component full of optimization potential.

However, optimization is not only about avoiding large margin calls and cash constraints. The optimal setup balances multiple factors:  risk, financial structure, sustainability and flexibility. Avoiding cash constraints also means the intelligent use of available financial instruments like guarantees, margin waivers, and eligible assets.

Attention to the clearing setup is a continuous process, even for established and experienced companies. There are many variables with a certain impact: portfolios grow (in size and diversification), markets and trading evolve, regulations change, geopolitical developments reshape risk dynamics, etc. Internal needs and goals might change over time as well. Even changes in the clearing methodologies will have side effects that demand renewed attention.

Continuous Attention: Migration from SPAN to VaR Based Clearing Models

Clearing in itself went through massive changes initiated by the various clearing houses, market developments, and impactful events. One of the most significant transitions is the current shift from SPAN-based margin models to VAR (Value-at-Risk) based methodologies. These VaR margin models capture portfolio correlations more accurately, include broader offsetting across positions and, not to forget, lead to (significantly) lower margins, essentially bringing a positive effect for the end-user.

The recent move by ICE Clear to their VaR based model IRM 2.0 in early November 2025 is a good example: initial margin reductions of up to 25-30% have been observed.

However, VaR models also respond much faster to price volatility and rely less on slowly adjusting parameters. Margins can change more dynamically from one day to the other. On top, each CCP is developing its own version making it more difficult for trading firms to replicate the margin calls or even forecast the expected amounts for the next day with the same precision as before.

Besides this obvious impact, these developments can affect the entire value chain, including the way clearing banks structure their services and manage client risk.

This triggers the need to give clearing the strategic attention it deserves: choosing the right clearing partner but also the right account type, understanding the level of protection, assessing residual risks, reviewing the clearing agreements and conditions etc. Only after all that the final step is to define a full response plan for unexpected and extreme events.

Clearing: a Strategic Element of Your Trading Business

With the right level of preparation, clearing is not a threat but a solid advantage. It enables firms to operate with confidence, reducing key risk elements to a bare minimum while maintaining access to the transparent, secure and well-regulated environment that exchanges offer. A well-designed clearing setup acts as both a professional framework for daily trading and as a strong protection shield against exceptional market turbulence.

For new start-ups, clearing is not something to be afraid of, and for established market players, the current changes are a strong signal to review and strengthen the arrangements. Companies that invest in this preparation will be well positioned to benefit from the opportunities in today’s dynamic energy markets.

© Mario Claeys 2026