EU strengthens supervision of energy trading
From 7 October, the Regulation on wholesale energy market integrity and transparency (REMIT) will require companies engaged on wholesale energy markets to be registered with a National Regulatory Authority (NRA) – for example Ofgem in the UK or CRE in France – and report a number of market operations to the Agency for the Cooperation of Energy Regulators (ACER).
This development follows a cascade of measures initiated back in 2012 when G20 Member States started to look into the roots of the financial crisis. In the same year, at the EU level, such discussions gave birth to the European Market Infrastructure Regulation (EMIR) to regulate over-the-counter (OTC) derivative markets as well as an extended Markets in Financial Instruments Directive (MiFID II) which, in particular, covers all spot and derivatives contracts for commodities, including carbon.
Despite broad acceptance of the necessity to regulate financial markets, energy traders are concerned about the consequences of overregulation. While REMIT - a Regulation specifically addressing energy traders - seems to find their favour as a way to tackle market manipulation and insider trading, they are looking more circumspectly at proposals emanating from ESMA, the EU’s financial markets watchdog, as additional administrative burdens and compliance costs could deter new firms from entering the market and therefore impair market liquidity.
However, ESMA's publication last week of final draft technical standards on the implementation of a number of financial regulations, including MiFID II, seems to have been favourably received by market operators involved in carbon trading. A number of them noted that, by raising the thresholds for exempting carbon trading firms from MiFID II provisions, non-financial companies would avoid costly compliance and market liquidity would remain sufficient. The coming months will be crucial for them as the MiFID II technical standards are now being reviewed by the Commission for a maximum three-month period. Should the Commission endorse ESMA's proposals, the European Parliament and the Council will still have an opportunity to object to it.
With its own sector-specific reporting framework in the form of REMIT, the experience of the energy sector will be increasingly valuable in making sure that upcoming costs and administrative burdens of MiFID II for non-financial firms remain in check.
Alexis is responsible for DeHavilland EU’s energy, climate and environment portfolios. A graduate of Sciences-Po Aix-en-Provence and Pace University, he joined DeHavilland EU in 2015.