Presentation on theme: "Jan HaizmannBerlin, 15 May 2013 European Federation of Energy Traders Axpo European Energy Workshop 2013 After EMIR-REMIT-MiFID 2: What may energy trading."— Presentation transcript:
Jan HaizmannBerlin, 15 May 2013 European Federation of Energy Traders Axpo European Energy Workshop 2013 After EMIR-REMIT-MiFID 2: What may energy trading be like? Berlin, 15 th May 2013 Dr. Jan Haizmann LL.M. EFET Legal Committee Chairman
2 Jan HaizmannBerlin, 15 May 2013 Background Information JAN D. HAIZMANN Since 2013: Commodity Compliance Solutions (CCS), Founding Partner and Managing Director Since 2006: Correggio Consulting, Managing Director Since 2006: EFET, various executive functions Board memberships in various industry bodies (EFETnet, EEX) Since 1999: in the Energy Trading Industry 1994: Admission to the German Bar (Rechtsanwalt)
3 Jan HaizmannBerlin, 15 May 2013 Agenda Introduction Current developments in the energy sector Interaction between financial and energy regulation Regulatory Overview : REMIT – EMIR - MiFID II Key regulatory issues Legislative timeline Implementation process and uncertainties Conclusions Impact on Trading Energy trader in regulatory flash-point Self Assesment and Risk Mitigation
6 Jan HaizmannBerlin, 15 May 2013 Energy Trading after EMIR, REMIT, MIFID II: Scenarios for Market-Impact?
7 Jan HaizmannBerlin, 15 May 2013 Introduction General Trends Continued consolidation among market participants, increasing number of cross-border mergers New energy supply channels / grid upgrade is slow Increasing compliance requirements for OTC Business Higher capital requirements through financial market regulations Increasing leverage of RES integration with sharp impact on wholesale electricity prices Price deflation in the CO2 market Risk of regulatory foreclosure
8 Jan HaizmannBerlin, 15 May 2013 Introduction Interaction between Financial and Energy Regulation *MTL: market transparency legislation
9 Jan HaizmannBerlin, 15 May 2013 EMIR Main Issues Central clearing of eligible (standardised) OTC derivative contracts (applicable to all financial parties & parties above the clearing threshold) Risk management requirements for non- cleared trades Transaction reporting on all derivative transactions Level of the clearing threshold and calculation Definition of hedging Risk mitigations requirements Types of collateral allowed for margining at exchanges Transaction reporting requirements Level of the clearing threshold and calculation Definition of hedging Risk mitigations requirements Types of collateral allowed for margining at exchanges Transaction reporting requirements
10 Jan HaizmannBerlin, 15 May 2013 EMIR Where are the uncertainties? Types of derivatives covered under EMIR Debate around how test applies to current broker-based trading activity Within scope, additional obligations on EU established entities requiring changes to: systems, operations and documentation Exact meaning of some key EMIR terminology (confirmation) Extra-territoriality/ anti- avoidance Collateral for un-cleared trades Application to intra-group trades Regulatory approach to enforcement/ penalties for non-compliance
11 Jan HaizmannBerlin, 15 May 2013 Notifications for Non-Financials: calculating whether the group wide gross notional position in OTC derivatives exceed any one of the clearing thresholds; the rolling average position over 30 working days; classifying the hedging activity - determining/measuring risk reducing activities from a portfolio perspective or trade-by-trade? which current OTC derivatives activity would count? which group entities are affected? EMIR Implementation issues: Non-Financials
12 Jan HaizmannBerlin, 15 May 2013 EMIR Implementation issues: NFCs (cont.) Risk mitigation rules: Confirmations: Need for processes to ensure EMIR confirmation deadlines can be met Execution of a confirmation as soon as possible and where available by electronic means Portfolio reconciliation/compression Dispute resolution Reporting requirement: wider in scope than MiFID 1 transaction reporting; covers all derivative transactions irrespective of asset class and trading venue (OTC and exchange traded) Intra-group exemption
13 Jan HaizmannBerlin, 15 May 2013 EMIR Calculation of the Clearing Threshold Clearing Threshold: sum of notional value of OTC derivatives that do not qualify as a hedge
14 Jan HaizmannBerlin, 15 May 2013 EMIR Implementation issues: NFCs (cont.) ObligationApplies toDealing withProduct Clearing obligationFC, NFC +FC, NFC +, TCEOTC derivatives TR reportingFC, all NFCsAnyOTC derivatives + exchange traded derivatives NFC+ notificationNFC +AnyOTC derivatives ConfirmationsFC, all NFCsAnyUncleared OTC derivatives Portfolio reconciliationFC, all NFCsAnyUncleared OTC derivatives Portfolio compressionFC, all NFCsAnyUncleared OTC derivatives Dispute resolutionFC, all NFCsAnyUncleared OTC derivatives Daily valuationFC, NFC +AnyOutstanding contracts FrontloadingFC, NFC +FC, NFC +, TCEOTC derivatives Clearing member obligationsCCP clearing members n/aCleared transactions
15 Jan HaizmannBerlin, 15 May 2013 EMIR Timeline Q2/ ESMA to report on specific implementation issues 31 Dec 2012 First set of RTS approved by the EC July 2013 Credit- and interest rate derivatives to be reported first Commission Proposal: The obligation for non-financial firms to clear will be phased-in over an appropriate period of time. Commission Proposal: The obligation for non-financial firms to clear will be phased-in over an appropriate period of time Q1/ Risk mitigation standards take effect Jan 2014 Remaining assets to be reported Feb 2013 First set of RTS approved by the EP 15 March 2013 RTS enter into force Use of own collateral rules Feb 2014 Clearing derivatives (for financial C ies ) Depending on CCP authorisation 2016 April 2016 Clearing all derivatives (for NFCs) Mid-May 2013 Notification of the clearing obligation
16 Jan HaizmannBerlin, 15 May 2013 REMIT Implementation issues ACER 2nd Non-binding Guidance Update Focus areas : Wholesale energy products – inclusion of intra - group transactions Market Participant scope clarifications Application of the definition of Inside information Own plans and strategies Inside Information thresholds Obligation to publish Inside Information - standard format for publication Hedging exemption language Market Participant Registration – process issues and clarifications added Includes specific reference to physical forwards – helpful in the context of excluding from MiFID
17 Jan HaizmannBerlin, 15 May 2013 REMIT Data reporting & Insider messaging (A)Publication of insider information (Art. 4, 1) Market participants shall publicly disclose in an effective and timely manner inside information which they possess... Such disclosure shall include information relevant to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities. Fundamental data (B)Submission of transactional and fundamental data (Art. 8, 1, 5) Market participants, or a person or authority listed in points (b) to (f) of paragraph 4 on their behalf, shall provide the Agency with a record of wholesale energy market transactions, including orders to trade. … Market participants shall provide the Agency and national regulatory authorities with information related to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities, for the purpose of monitoring trading in wholesale energy markets. The reporting obligations on market participants shall be minimised by collecting the required information or parts thereof from existing sources where possible. Fundamental & transactional data
18 Jan HaizmannBerlin, 15 May 2013 REMIT ACER 2013 work plans and timeline Commission Implementing acts expected to be adopted end 2013 ACER Third guidance expected mid 2013 Registration as a Market Participant driven by National Implementation (Article 9(1)) Market surveillance: REMIT transaction reporting and provision of fundamental data by market participants to ACER (Art. 8) Public consultation on sharing information with NRAs, ESMA, and others expected Q Format for coordinating NRA investigations expected Q ACER Annual Report 2013 : focus on implementation OJASND IA Proposal Implementation 2 nd Guidance 3 rd Guidance Reporting Starts F JMAOMJJASND Registration Deadline * * * * ACER Transaction Recommendations 2014 F JMAMJJAS * = Expert group Meetings * Adopted Draft IA Expected (Stakeholder review) Comitology?
19 Jan HaizmannBerlin, 15 May 2013 MiFID/ MiFIR Key points Key regulatory issues - Extension of MiFID II scope - Financial instruments definition - Position reporting, management and limits for commodity derivatives for all firms - Trading obligation on certain type of platforms Open ends - Final exemption framework (to be further detailed by ESMA) - Practical applicability of the definition of financial instrument - Capital cost resulting from CRD & Basel Framework
21 Jan HaizmannBerlin, 15 May 2013 MiFID II/MiFIR Timeline 10 May 2012 Deadline for amendments in ECON 08 Dec 2010 Start of EC consultation 20 Oct 2011 Adoption of Draft Revision by EC Sept 2012 Vote in ECON Adoption of Ferber reports June 2012 Opinion ITRE: 2/4 Opinion DEVE: 20/ Feb 2011 End of EC consultation EP Committees & Council WGs start discussions Negotiation on compromise amendments in EP March 2012 Presentation of Draft Report MiFID II (16.03) & MiFIR (13.03) by MEP Markus Ferber in ECON 2 years for transposition into national law May 2013 (est.) Trialogues starting bt. EC, EP, Council 26 Oct 2012 Adoption in plenary 2014 Summer 2014 (est.) Adoption of level 2 Technical Standards based on implementing and delegated acts Autumn 2014 (est.) Transposition of MiFID II into national law
22 Jan HaizmannBerlin, 15 May 2013 Energy Trading Challenges Prohibition of market abuse Reporting requirements Capital adequacy Volatile supply (renewables) Contractual constraints Obligatory clearing Regulatory compliance
23 Jan HaizmannBerlin, 15 May 2013 Conclusions Impact of Regulation 1. The energy trading market has proven to be resilient to market changes; 2. Liquidity may suffer to mix of higher capital cost, smaller margins and regulatory incentive not to trade; 3. Smaller traders may quit the business, or merge activities.
24 Jan HaizmannBerlin, 15 May 2013 Conclusions II Trading Companies should engage in self- assessment in light of upcoming regulation, EMIR requires self-classification in 2013! Evaluate Potential to mitigate regulatory impact on current business model, but equally evaluate change of business model, Verify cost implications of potential Mifid Relevance -> Get prepared!
25 Jan HaizmannBerlin, 15 May 2013 The Unlikely Scenario
26 Jan HaizmannBerlin, 15 May 2013 Thank you for your attention! Jan Haizmann European Federation of Energy Traders Legal Committee Rue Le Corrège 93 B-1000 Brussels, Belgium *** Tel: +32 (0)