THE ROLE OF CENTRAL COUNTERPARTIES ON THE ENERGY MARKET

Sa？etak Market structures, behaviors, and trading practices are affected by the required regulations aiming to make the market safe and transparent; therefore another crucial goal for regulators is to clear certain OTC (over-the-counter) derivatives and commodities through central counterparties. As a result of the risk-sharing mechanism of the central counterparty, some participants may express overconfidence about the security provided to avoid default. We analyzed the importance of central counterparties and the systemic risk these infrastructures bear and what are consequences of failure and near failures. After presenting the biggest fails and near in history, we focus on the energy market and the struggles regulators, and the system’s participants face. In 2018 the electricity market was hit by distress, where central counterparties had a significant role in managing the stress. The situation was similar to the failures that occurred in the past caused by speculative positions. We analyzed this event by presenting the effects of developing countries. Overall, the welfare effects of a central counterparty can be both negative and positive. Our results also identify critical pitfalls policymakers should take into account when considering a seemingly harmless intervention in the markets