Efficient ESMA level 2 measures are needed to achieve EMIR 3.0 goals for resilient markets

Download the full paper here.

The Joint Energy Associations Group (BDEW, Energy Traders Europe, Eurelectric, Eurogas) welcomes the improvements endorsed by the EU legislators to the clearing thresholds calculation, the transparency and predictability of margin calls, and the extension of eligible collateral to (uncollateralised) commercial bank guarantees under the European Market Infrastructure Regulation (EMIR 3.0).

The European Securities and Markets Authority (ESMA) Level 2 measures need to give full effect to these EMIR 3.0 improvements. This is necessary to maintain liquid, competitive, independent and efficient EU energy markets which are key to ensure an affordable, secure and sustainable energy supply.

Key recommendations:

1. A holistic approach to the clearing threshold calculation in Art. 10 EMIR 3.0 is required to facilitate the EU energy transition. It is important to use all elements of the regulatory toolbox in the most appropriate manner to support the resilience, sustainability and competitiveness of the EU’s energy markets. Together with the entity level calculation adopted in EMIR 3.0, the clearing thresholds should be increased to € 12 billion, and the calculation period reviewed to support a dynamic regulatory approach. At the same time, a review of the definition of risk reducing OTC derivative contracts is required to account for the energy market participant’s (“EMPs”) contribution to the financial viability of renewable energy projects which are key to a successful energy transition.
2. The current approach of an aggregated commodity clearing threshold should be kept. More granular commodity clearing thresholds would hinder the proper risk warehousing activities of energy market participants and unnecessarily increase complexity including for national competent authorities.
3. More transparency of margin calls and availability of simulation tools will foster resilience of markets: It is critical for energy market participants to have a thorough understanding of ongoing margin requirements and margin calls by Central Counterparties (“CCPs”) and Clearing Members (“CMs”). Simulation tools should be promoted, to enable the anticipation of potential changes to margin requirements. These measures combined will improve the EMPs’ preparedness for higher and more frequent margin calls in times of market stress.
4. Extending eligible collateral to (uncollateralised) commercial bank guarantees will increase market liquidity and EU competitiveness: Allowing uncollateralised commercial bank guarantees as eligible collateral at CCPs adequately extends the pool of eligible collateral, contributes to the robustness of central clearing and increases EU competitiveness. We offer in the detailed comments below suggestions on how to design them for the best leverage of these tools.

Download the full paper below.