ESMA consults on physical gas and power forwards



The European Securities and Markets Authority (ESMA) released the latest installment of the saga on whether physical power and gas forwards are derivatives. If they are, then most over-the-counter trades in power and gas would come within the scope of the European Market Infrastructure Regulation – EMIR. That would mean energy companies would have to start to centrally clear or post certain collateral to back up trades if they breached a €3bn threshold.

Back in February, the European Commission asked ESMA to issue guidelines on the definition of a derivative, particularly forward commodities, in the Markets in Financial Instruments Directive – MifID. This is what the Paris-based body’s latest consultation is on.

Although not said explicitly, ESMA seems to suggest the model introduced in the UK, where power and gas trades are executed on special delineated platforms, could be applied more broadly.

The Paris-based authority also asks about its use of  ‘must’ be physically settled and contracts that ‘can’ be  physically settled for physical forwards.  ESMA is considering any contract that ‘can’ or’ must’ be settled be included in C6 of MiFID.

This means the question of venue will be important for energy companies. Any trade that falls into C6 and is executed on a multilateral trading facility would be swept into EMIR. This is why brokers have created non-multilateral trading facilities (the special delineated platforms mentioned above).

So basically what ESMA is suggesting as the way forward around definitions of physical forwards will keep most over-the-counter trade from counting towards EMIR thresholds. But as this is a consultation, the potential for change exists.

Dodging EMIR might just be a stay of execution for energy companies. The same authority is beavering away on its advice for MiFID II, due to be in the commission’s inbox by the end of the year.


Threat to EMIR three-year phasing in of clearing obligation


ESMA has published responses to its consultation on the clearing obligation for...

Learn more

ESMA's 2015 work programme


The European Securities Markets Authority has been in a bit of a publishing fren...

Learn more
More posts
Clock is ticking on MiFID II

Time is running out for energy companies that have to work out if they will be included or exempted ...

No alternative: Europe’s low-carbon energy transition will come of age in 2017

“Alternative energy”. Is that still a common phrase? In some quarters, it is. In a recent New Yo...

Should the EU get tough on the gas network codes?

Following the recent publication of the EU Agency for the Cooperation of Energy Regulators’ (ACER)...

2016 – for LNG it was the year that wasn’t

The long-awaited surge of new global LNG production has not led to the widely-expected and sustained...

Ballast bonuses sink shipping activity

The cancellation of two planned LNG vessel charters in Europe this week shows that it’s becoming h...

A crazy week in UK power. But will the madness return this winter?

In recent days, UK power has been a crazy energy market to trade in. Late in the day on 14 September...

What’s in a name? That which we call a Bulgarian hub

Bulgaria and the European Commission have recently been announcing, with much fanfare, the country i...

This winter it really is about the weather

The cliche about weather driving energy prices, in particular on European gas and Asian LNG, is just...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more