On 3 June 2022, the European Securities and Markets Authority (ESMA) issued a final report presenting draft regulatory technical standards (RTS) that change the clearing threshold (CT) for commodity derivatives.
The final report follows a discussion paper on the CTs that the ESMA published on 21 November 2021. The discussion paper included a section on one important and time sensitive issue facing non-financial counter-parties (NFCs) entering into commodity derivatives, in particular energy firms. Following Brexit, EU NFCs have drawn attention to being constrained by the CTs since their derivatives executed on UK markets now count towards the CTs. This issue has become more important with the rise in energy prices this past winter and has since become even more acute following Russia’s invasion of Ukraine.
In order to alleviate temporarily the impact of the current energy prices on NFCs, the ESMA’s final report sets out proposed RTS which increase the CT for commodity derivatives by EUR 1 billion.
The ESMA has sent the proposal to the European Commission. Additionally, the ESMA will continue to periodically review the CTs to ensure they are fit for purpose and well-calibrated, in particular in the case of material changes in market circumstances. Once the EMIR framework review is finalised, the ESMA will re-assess the CTs based on the new methodology, including the applicable CT for commodity derivatives.