Jan HaizmannBerlin, 15 May 2013 European Federation of Energy Traders Axpo European Energy Workshop...

Jan Haizmann Berlin, 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, 15th May 2013

Dr. Jan Haizmann LL.M.

EFET Legal Committee Chairman

2Jan Haizmann Berlin, 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)


Agenda

IntroductionCurrent developments in the energy sector

Interaction between financial and energy regulation

Regulatory Overview : REMIT – EMIR - MiFID IIKey regulatory issues

Legislative timeline

Implementation process and uncertainties

ConclusionsImpact on Trading

Energy trader in regulatory flash-point

Self Assesment and Risk Mitigation


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


IntroductionGeneral 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


IntroductionInteraction between Financial and Energy Regulation

*MTL: market transparency legislation


EMIRMain 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


EMIRWhere are the uncertainties?

Types of derivatives

covered under EMIRDebate 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


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?

EMIRImplementation issues: Non-Financials


EMIRImplementation 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


EMIRCalculation of the Clearing Threshold

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


EMIRImplementation 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 + Any OTC derivatives

Confirmations FC, all NFCs Any Uncleared OTC derivatives

Portfolio reconciliation FC, all NFCs Any Uncleared OTC derivatives

Portfolio compression FC, all NFCs Any Uncleared OTC derivatives

Dispute resolution FC, all NFCs Any Uncleared OTC derivatives

Daily valuation FC, NFC + Any Outstanding contracts

Frontloading FC, NFC + FC, NFC +, TCE OTC derivatives

Clearing member obligations CCP clearing members

n/a Cleared transactions


EMIR Timeline

Q2/3 2014 ESMA to report on specific implementation issues

31 Dec 2012First set of RTS approved by the EC

July 2013Credit- 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.

2013 2015

Q1/2 2014Risk mitigation standards take effect

Jan 2014Remaining assets to be reported

2014

9 Feb 2013First set of RTS approved by the EP

15 March 2013RTS enter into forceUse of own collateral rules

Feb 2014Clearing derivatives(for financial Cies)Depending on CCP authorisation

2016

April 2016Clearing all derivatives(for NFCs)

Mid-May 2013Notification of the clearing obligation


REMITImplementation 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


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.”

Fu

nd

amen

tal

dat

a

• (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.“ F

un

dam

enta

l &

tran

sact

ion

al

dat

a


REMITACER 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 NRA’s, ESMA, and others expected Q2 2013

• Format for coordinating NRA investigations expected Q4 2013

• ACER Annual Report 2013 : focus on implementation

20132012

OJ A S N D

IA Proposal

Implementation

2nd Guidance 3rd Guidance Reporting Starts

FJ M A OM J J A S N D

RegistrationDeadline

* ** *

ACER Transaction Recommendations

2014

FJ M A M J J A S

*

= Expert group Meetings*Adopted

Draft IA Expected

(Stakeholder review)

Comitology?


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


MiFID II/MiFIR Timeline

10 May 2012Deadline for amendments in ECON

08 Dec 2010Start of ECconsultation

20 Oct 2011Adoption of DraftRevision by EC

2011 2013

26 Sept 2012 Vote in ECONAdoption of Ferber reports

June 2012Opinion ITRE: 2/4Opinion DEVE: 20/06

2012

02 Feb 2011End of EC consultation

EP Committees & Council WGs start discussions

2015-2016

Negotiation on compromise amendments in EP

March 2012Presentation 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 2012Adoption 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


Energy Trading Challenges

Prohibition of market abuse

Reporting requirements

Capital adequacy

Volatile supply (renewables)

Contractual constraints

Obligatory clearing

Regulatory compliance


ConclusionsImpact 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.


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!


The Unlikely Scenario

http://davegranlund.com/cartoons/2010/05/07/wall-street-jitters/


Thank you for your attention!

Jan HaizmannEuropean Federation of Energy Traders

Legal CommitteeRue Le Corrège 93

B-1000 Brussels, Belgium***

Tel: +32 (0) 732.54.74E-mail: [email protected]

www.efet.org

Jan HaizmannBerlin, 15 May 2013 European Federation of Energy Traders Axpo European Energy Workshop...

Documents

Transcript of Jan HaizmannBerlin, 15 May 2013 European Federation of Energy Traders Axpo European Energy Workshop...