Regulators and traders against DG Markets’ ideas
Regulators are standing with traders in vehement opposition to proposals from the EU Commission’s markets directorate (DG Markets) made in October for mandatory central clearing for all trades and standardised limits on positions.
Johannes Kindler, vice president of the European Regulators’ Group for Electricity and Gas (ERGEG) and German regulator Bundesnetzagentur, spoke against the “one-size-fits-all” design, as this would expose the commodity markets to higher capital requirements. The over-the-counter (OTC) market often trades highly customised contracts, which would mean that participants would have to provide more collateral. The DG Markets approach would affect the development of the markets, pressuring OTC derivatives to become standardised. Kindler added that sector transparency would be the best defence against participants building dangerous positions, as the view of the market would be more realistic.
Traders support sector-specific legislation for the commodity markets. Karl-Peter Horstmann, who handles market design and regulatory affairs for RWE Supply & Trading, told ICIS Heren: “We think a tailor-made solution will be fair, and attract more market participants. While the one-size-fits-all approach raises barriers… Market integrity is fine – transparency of fundamental data to regulators and the public – but what’s not OK is mandatory clearing, exchange-only trading and position limits. These aren’t appropriate for the electricity, gas and emissions markets.”
He pointed out that October’s communication from the Commission’s markets directorate acknowledged the specifics of the energy sector, and hinted that there could be some leeway: “Nevertheless, they’re still keen to go with a ‘one-size-fits-all’ approach,” Horstmann said.
Single regulator spat
Regulators and traders are also coming out against the idea of a single EU commodity markets regulator. The Commission said earlier this month that centralised data reporting was likely to be the preferred option.
But ERGEG has expressed a preference for a single supervisory body for power and emissions trading at national level. These would work in close cooperation, to ensure consistency across the EU. Any coordinated supervisory body should be only a data repository, according to Kindler of ERGEG and Bundesnetzagentur.
Peter Styles, chairman of the electricity committee for the European Federation of Energy Traders (EFET), said that his organisation had already opposed detailed and onerous transaction reporting when the third energy package was being debated, resulting a quite different proposal. However, EFET does support fuller publication of transaction data to national regulators in a way that regulators can access the information and perhaps ask for commercially sensitive information.
“To regulate for a delivery channel is a huge mistake. That’s where the previous proposals go wrong,” Styles said. “But we’ve not got that message across. One delivery channel might be a good thing, but that would [only] be an enormous database.”
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