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1Logo(1.00”:3.33”)Font is Rotis Sans Serif however font may have to be embedded as it is important that this does not change on any presentationsSize 32 pointsYellow Line ( : 3.50)Yellow must follow EFETnet’s yellow pantone uncoated 108CWidth 6 pointsA EFETnet Company below line:5.00”This is a combination font “EFETnet’ and rotis sans serif. This as well can not change and may have to be embeddedLines-top (1.00”:5.00”)Black, thickness1/4”Lines –bottom (3.25”:5.00”)Black thicknesss3/4
2Background Information Since 2013: Commodity Compliance Solutions (CCS), Founding Partner and Managing DirectorSince 2006: Correggio Consulting, Managing DirectorSince 2006: EFET, various executive functionsBoard memberships in various industry bodies (EFETnet, EEX)Since 1999: in the Energy Trading Industry1994: Admission to the German Bar (Rechtsanwalt)JAN D. HAIZMANN
3Agenda Introduction Regulatory Overview : REMIT – EMIR - MiFID II Current developments in the energy sectorInteraction between financial and energy regulationRegulatory Overview : REMIT – EMIR - MiFID IIKey regulatory issuesLegislative timelineImplementation process and uncertaintiesConclusionsImpact on TradingEnergy trader in regulatory flash-pointSelf Assesment and Risk Mitigation
6Energy Trading after EMIR, REMIT, MIFID II: Scenarios for Market-Impact?
7Introduction General Trends Continued consolidation among market participants, increasing number of cross-border mergersNew energy supply channels / grid upgrade is slowIncreasing compliance requirements for OTC BusinessHigher capital requirements through financial market regulationsIncreasing leverage of RES integration with sharp impact on wholesale electricity pricesPrice deflation in the CO2 marketRisk of regulatory foreclosure
8Introduction Interaction between Financial and Energy Regulation *MTL: market transparency legislation
9EMIR Main IssuesCentral clearing of eligible (standardised) OTC derivative contracts (applicable to all financial parties & parties above the clearing threshold)Level of the clearing threshold and calculationDefinition of hedgingRisk mitigations requirementsTypes of collateral allowed for margining at exchangesTransaction reporting requirementsRisk management requirements for non-cleared tradesTransaction reporting on all derivative transactions
10EMIR Where are the uncertainties? Types of derivatives covered under EMIRDebate around how test applies to current broker-based trading activityWithin scope, additional obligations on EU established entities requiring changes to:systems,operations anddocumentationExact meaning of some key EMIR terminology (“confirmation”)Extra-territoriality/ anti-avoidanceCollateral for un-cleared tradesApplication to intra-group tradesRegulatory approach to enforcement/ penalties for non-compliance
11EMIR Implementation issues: Non-Financials 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?
12EMIR Implementation issues: NFCs (cont.) Risk mitigation rules: Confirmations:Need for processes to ensure EMIR confirmation deadlines can be metExecution of a confirmation “as soon as possible” and “where available by electronic means”Portfolio reconciliation/compressionDispute resolutionReporting 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
13EMIR Calculation of the Clearing Threshold Clearing Threshold: sum of notional value of OTC derivatives that do not qualify as a hedge
15EMIR Timeline Commission Proposal: 31 Dec 2012First setof RTS approvedby the EC15 March 2013RTS enter into forceUse of own collateral rulesJuly 2013Credit- and interest rate derivativesto be reported firstJan 2014Remaining assets to be reportedQ1/2 2014Risk mitigation standards take effect2013201420152016Q2/3 2014ESMA to report on specific implementation issues9 Feb 2013First set of RTS approved by the EPMid-May 2013Notification of the clearing obligationFeb 2014Clearing derivatives(for financial Cies)Depending on CCP authorisationApril 2016Clearing all derivatives(for NFCs)Commission Proposal:“The obligation for non-financial firms to clear will be phased-in over an appropriate period of time.15
16REMIT Implementation issues ACER 2nd Non-binding Guidance UpdateFocus areas :Wholesale energy products – inclusion of intra - group transactionsMarket Participant scope clarificationsApplication of the definition of Inside informationOwn plans and strategiesInside Information thresholdsObligation to publish Inside Information - standard format for publicationHedging exemption languageMarket Participant Registration – process issues and clarifications addedIncludes specific reference to physical forwards – helpful in the context of excluding from MiFID
17Fundamental & transactional data REMITData 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
18REMIT ACER 2013 work plans and timeline 2012OJASNDIAProposalImplementation2nd Guidance3rd GuidanceReporting StartsFMRegistrationDeadline*ACER Transaction Recommendations2014= Expert group MeetingsAdoptedDraft IA Expected(Stakeholder review)Comitology?Commission Implementing acts expected to be adopted end 2013ACER Third guidance expected mid 2013Registration 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 NRA’s, ESMA, and others expected QFormat for coordinating NRA investigations expected Q4 2013ACER Annual Report : focus on implementation
19MiFID/ MiFIR Key regulatory issues “Open ends” Key points Extension of MiFID II scopeFinancial instruments definitionPosition reporting, management and limits for commodity derivatives for all firmsTrading obligation on certain type of platforms“Open ends”Final exemption framework (to be further detailed by ESMA)Practical applicability of the definition of financial instrumentCapital cost resulting from CRD & Basel Framework
21MiFID II/MiFIR Timeline 02 Feb 2011End of EC consultation20 Oct 2011Adoption of DraftRevision by ECNegotiation on compromise amendments in EPMay 2013 (est.)Trialogues starting bt. EC, EP, Council10 May 2012Deadline for amendments in ECON2011201220132014EP Committees & Council WGs start discussions2 years for transposition into national lawJune 2012Opinion ITRE: 2/4Opinion DEVE: 20/0626 Sept 2012 Vote in ECONAdoption of Ferber reports08 Dec 2010Start of ECconsultationMarch 2012Presentation of Draft Report MiFID II (16.03) & MiFIR (13.03) by MEP Markus Ferber in ECONSummer 2014 (est.)Adoption of level 2Technical Standardsbased on implementingand delegated acts26 Oct 2012Adoption in plenaryAutumn 2014 (est.)Transposition of MiFID IIinto national law
23Conclusions 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.
24EMIR requires self-classification in 2013! Conclusions IITrading 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!