Satyajit Das, Columnist

The Risk of Derivatives Isn’t Gone. It’s Merely Morphed.

The problem child of the 2008 financial crisis now lives in central counterparties.

September 17, 2018 at 10:00 PM UTC

By Satyajit Das

Satyajit Das is a former banker and the author, most recently, of "A Banquet of Consequences."

Einar Aas, a private trader and one of Norway’s richest men, suffered 114 million euros ($132.6 million) of losses on energy-futures positions traded on Nasdaq. — Einar Aas, a private trader and one of Norway’s richest men, suffered 114 million euros ($132.6 million) of losses on energy-futures positions traded on Nasdaq.
Photographer: Eric Thayer/Bloomberg

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Markets have served a timely reminder of the latent risk from derivatives — the wild beasts of finance. Ten years after the collapse of Lehman Brothers Holdings Inc., almost to the day, a private trader and one of Norway’s richest men suffered 114 million euros ($132.6 million) of losses on energy-futures positions traded on Nasdaq.

The default ate through around two-thirds of Nasdaq’s mutual default fund, using up several layers of protection. Members of the clearing house must now make substantial cash contributions to rebuild that cushion.