Giovedì, 2 aprile, 2015
The new regulatory framework arising from the combined provisions of EMIR [1], MiFID II [2] and MiFIR [3], aimed to make financial markets more efficient, resilient and transparent and to strengthen the protection of investors, significantly widens the panoply of obligations that apply to energy commodities derivatives and to energy traders. In particular, MiFID II is marked by a prominent vis expansiva in the energy markets deriving, on one hand, from expanding the definition of “financial instrument” and, on the other hand, from restricting those exemptions used by energy traders. The consequences upon the latter are sensational and go well beyond the necessity for them to obtain an authorisation as investment firms (the only entities entitled to carry out investment services and activities).
With respect to the definition of financial instrument, under MiFID II (i) emission allowances (EUA) and (ii) commodities derivatives traded on an organised trading facility (OTF) unless “they must be physically settled” are now considered financial instruments. So far, there is no clarity on the category under (ii) and in particular on the exception related to the physical settlement, also because the approach of the various authorities involved (European Commission, ESMA, ACER) seems to go towards different directions [4]. We can but hope that, upon adopting the relevant delegated acts provided under MiFID II, the Commission and ESMA will shed more light on the issue but there is no doubt that some transactions which were considered in past as “physical trading” will be considered “financial activities”.
In addition to that, energy traders operating in commodities derivatives can currently benefit from a number of general exemptions. In particular, besides the general exemption for intra-group activities, traders have resort to one of the following three exemptions, as the case may be:
1. Dealing on own account exemption: with some exceptions, set forth in favour of entities that do not provide investment services or perform investment activities other than dealing on own account;
2. Ancillary exemption: set forth in favour of entities trading financial instruments on their own account or providing investment services in commodities derivatives or providing the so-called exotic derivatives to clients of their main business, provided that the former amounts to an ancillary activity to their main business as considered at the group level, and provided that such main business is not the provision of investment services or banking services which reserved activities;
3. Specialization exemption: set forth in favour of “persons whose main business consists of dealing on own account in commodities and/or commodity derivatives”, not applicable, however, if such entities belong to a group whose main business consists in the provision of other investment or banking services included in reserved activities. Such exemption is currently the most invoked by energy traders.
This situation is about to radically change with the advent of MiFID II, given that 1) the dealing on own account exemption will be no longer available, since the Directive expressly excludes dealing on own account of commodity derivatives (besides emission allowances and relevant derivatives); 2) the specialization exemption will be removed completely; 3) the ancillary exemption will be more strictly applied.
As a consequence, energy traders currently relying on MiFID exemptions should reconsider their prior assessment of the legitimacy of their activity without having obtained an authorisation as investment firms. In particular, the wording of the new ancillary exemption is such as to no longer enable regulated entities (in Italy, banks and investment firms) to trade in commodities derivatives by way of subsidiaries that are not authorised as investment firms. Vice-versa, the elimination of the specialization exemption will no longer allow utilities to continue to trade in commodities derivatives without being incorporated as an authorised investment firm, with all the relevant consequences in terms of organisation, equity, business rules of conduct and monitoring.
However, also for those entities that will continue to benefit from an exemption and, therefore, that do not need to be authorised as investment firms, the combined provisions of MiFID II, EMIR and MiFIR introduce onerous obligations such as new position limits and position reporting obligations (MiFID II), clearing and reporting of deals obligations (EMIR) and trading obligations (MiFIR).
The cost-benefit ratio of this regime is all to be discovered. If, on one hand, market opacity will surely decrease and the containment capacity of systemic risk will increase, on the other hand, hedging strategies will be deterred, there will be less contract versatility, more monitoring burdens (also upon trading venues operators) and complexity/onerousness on operators. This will also presumably lead to the exit from the market, and a consequent market concentration, of those small-mid players which will neither be able to set up investment firms nor to afford the increase in trading costs stemming from the new regulatory framework.
[1] Regulation 648/2012/EU.
[2] Directive 2014/65/EU.
[3] Regulation 2014/600/EU.
[4] See “Frequently Asked Questions” on MiFID II and the discussion paper published by ESMA on last 29 September and ACER Recommendation 1/2015.