NOS has been offering MNS to OTC/uncleared derivatives markets since October 2008.
The goal of MNS is to reduce risk and capital stress in relation to delivery of standardised, uncleared OTC derivative contracts. Participants in these markets normally hold a number of contracts with several counterparts, some with profit, some with loss on time of delivery.
The settlements are normally done trade by trade triggered by gross invoices. Since these markets don’t have the netting and single counterpart solutions characterised by cleared contracts, the capital stress and default probability is quite high.
After the financial crisis hit in 2008, the banking industry no longer provides the participants with the necessary liquidity to fulfill all settlements.
NOS was approached by the freight industry, and asked to offer services, that could reduce the default probability for a market that already faced large financial stress due to the collapse of the dry bulk market.
Through MNS, NOS acts as a provider of position and settlement netting to the market.
Each month the MNS service goes through the following stages:
1. Participants sign up through an agreement (please contact NOS for the latest agreement)
2. List of participants is distributed to all
3. Participants report to NOS all OTC trades with participants on the list
4. NOS match all buyers and sellers and calculate a net settlement for each participant
5. Participants with a debit settlement pays to NOS
6. NOS pays to participants with a credit settlement.
The netting effect has proven to be very effective, and the netting effect is usually between 80-90%.
The service is offered as a stress remover under the extreme market conditions, and therefore priced modestly:
Participation fee: USD 2000 per month
Transaction fee: USD 100 per matched trade
The service is presently offered to the freight market, but NOS is willing to receive OTC derivatives trades for netting from other markets as well.