ESMA has published responses to its consultation on the clearing obligation for credit default swaps under the European Market Infrastructure Regulation or EMIR. For energy companies similar complaints have been written about the current proposal as with interest rate swaps.
Under EMIR, energy companies that have a net notional value of their outstanding position above €3bn would be obliged to clear. These companies would be known as a non-financial counterpart plus or NFC+ for short. The clearing obligation is being introduced on a product-by-product basis and interest rate swaps are up first, certain CDS products up second. Commodities are lower down the pecking order and it is still unclear when the obligation might be introduced for them.
But the likes of EFET and the Commodity Markets Council think if the same language is used for the technical standards for the commodities asset class as in the proposals for interest rate swaps and credit defaults swaps, energy companies obliged to clear would lose the three-year period to phase in clearing.
Under the proposed technical standards, any company that is a member of a central counterparty clearing house would be categorised in a way that means they need to start clearing six months after the obligation comes in.
This would be a problem for anyone trading electricity in the Nordic power markets. In those markets, most wholesale power contracts are traded through the NASDAQ OMX-owned platform. To trade on the platform, an energy company has to become a member of the clearing house too. If the current wording was used, then companies that breached the EMIR threshold would have to start clearing only six months after the obligation to start clearing commodities comes in.
Only companies with a large enough portfolio would have any chance of breaching the threshold. But a quick look of the list of clearing members of NASDAQ OMX includes entities such as Statoil, EDF Trading and Vattenfall. So as we continually see, while the energy companies might have thought they avoided the EMIR bullet with the caveat-laden exemption for power and gas trades, the devil is in the detail.