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Presentation on theme: "Logo(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 presentations Size."— Presentation transcript:

1 Logo(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 presentations Size 32 points Yellow Line ( : 3.50) Yellow must follow EFETnet’s yellow pantone uncoated 108C Width 6 points A 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 embedded Lines-top (1.00”:5.00”) Black, thickness1/4” Lines –bottom (3.25”:5.00”) Black thicknesss3/4

2 Background Information
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) JAN D. HAIZMANN

3 Agenda Introduction Regulatory Overview : REMIT – EMIR - MiFID II
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

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6 Energy Trading after EMIR, REMIT, MIFID II: Scenarios for Market-Impact?

7 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 Introduction Interaction between Financial and Energy Regulation
*MTL: market transparency legislation

9 EMIR Main Issues Central clearing of eligible (standardised) OTC derivative contracts (applicable to all financial parties & parties above the clearing threshold) Level of the clearing threshold and calculation Definition of hedging Risk mitigations requirements Types of collateral allowed for margining at exchanges Transaction reporting requirements Risk management requirements for non-cleared trades Transaction reporting on all derivative transactions

10 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 EMIR 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?

12 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 EMIR Calculation of the Clearing Threshold
Clearing Threshold: sum of notional value of OTC derivatives that do not qualify as a hedge

14 EMIR Implementation issues: NFCs (cont.) Obligation Applies to
Dealing with Product Clearing obligation FC, NFC + FC, NFC +, TCE OTC derivatives TR reporting FC, all NFCs Any OTC derivatives + exchange traded derivatives NFC+ notification NFC + Confirmations Uncleared OTC derivatives Portfolio reconciliation Portfolio compression Dispute resolution Daily valuation Outstanding contracts Frontloading Clearing member obligations CCP clearing members n/a Cleared transactions

15 EMIR Timeline Commission Proposal:
31 Dec 2012 First set of RTS approved by the EC 15 March 2013 RTS enter into force Use of own collateral rules July 2013 Credit- and interest rate derivatives to be reported first Jan 2014 Remaining assets to be reported Q1/2 2014 Risk mitigation standards take effect 2013 2014 2015 2016 Q2/3 2014 ESMA to report on specific implementation issues 9 Feb 2013 First set of RTS approved by the EP Mid-May 2013 Notification of the clearing obligation Feb 2014 Clearing derivatives (for financial Cies) Depending on CCP authorisation April 2016 Clearing 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

16 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 Fundamental & transactional data
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 REMIT ACER 2013 work plans and timeline
2012 O J A S N D IA Proposal Implementation 2nd Guidance 3rd Guidance Reporting Starts F M Registration Deadline * ACER Transaction Recommendations 2014 = Expert group Meetings Adopted Draft IA Expected (Stakeholder review) Comitology? 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 NRA’s, ESMA, and others expected Q Format for coordinating NRA investigations expected Q4 2013 ACER Annual Report : focus on implementation

19 MiFID/ MiFIR Key regulatory issues “Open ends” Key points
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

20 MiFID/MiFIR Impact: Collateral for each Trade?
CO2 trading Gas trading Power tradingl © Gerd Altmann, pixelio.de

21 MiFID II/MiFIR Timeline
02 Feb 2011 End of EC consultation 20 Oct 2011 Adoption of Draft Revision by EC Negotiation on compromise amendments in EP May 2013 (est.) Trialogues starting bt. EC, EP, Council 10 May 2012 Deadline for amendments in ECON 2011 2012 2013 2014 EP Committees & Council WGs start discussions 2 years for transposition into national law June 2012 Opinion ITRE: 2/4 Opinion DEVE: 20/06 26 Sept 2012 Vote in ECON Adoption of Ferber reports 08 Dec 2010 Start of EC consultation March 2012 Presentation of Draft Report MiFID II (16.03) & MiFIR (13.03) by MEP Markus Ferber in ECON Summer 2014 (est.) Adoption of level 2 Technical Standards based on implementing and delegated acts 26 Oct 2012 Adoption in plenary Autumn 2014 (est.) Transposition of MiFID II into national law

22 Energy Trading Challenges
Prohibition of market abuse Regulatory compliance Reporting requirements Obligatory clearing Capital adequacy Contractual constraints Volatile supply (renewables)

23 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 EMIR requires self-classification in 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 The Unlikely Scenario

26 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)


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