In response to the European Commission’s concerns about the current level of margins and excessive volatility in energy derivatives markets, the European Securities and Markets Authority (ESMA) proposed the following solutions on Thursday 22 September: - increasing the commodity clearing threshold; - improving the reporting on commodity derivatives trading; - supervising commodity traders acting like investment firms.
In June 2022, ESMA had submitted to the Commission regulatory technical standards in which it was proposed to increase - from €1 billion to €4 billion - the commodity clearing threshold.
Regarding the reporting obligation, ESMA considers it “crucial” that national competent authorities have “increased visibility regarding OTC transactions for contracts with the same underlying asset as those traded on EU trading venues”. Supervisors could then assess the exposures and risks that financial actors might face in extreme market circumstances.
ESMA would like to remove the current exemption from reporting transactions between two subsidiaries of the same non-financial group in the European Market Infrastructure Regulation (EMIR), where at least one of the entities is non-financial.
Furthermore, the European authority recalls that under the Markets in Financial Instruments Directive (MiFID II), wholesale energy products such as gas and electricity, which must be physically settled and traded on an organised trading system, are not considered financial instruments.
Finally, ESMA recommends revising the exemption that allows non-financial entities to trade and provide investment services in financial commodity derivatives without being authorised as investment firms.
To read the ESMA letter: https://aeur.eu/f/3a2 (Original version in French by Anne Damiani)