On 2 March 2020, the European Securities and Markets Authority (ESMA) issued a report on C6 energy derivatives and related obligations under the European Market Infrastructure Regulation (EMIR). In particular, the report looks into the impact, cost, adequacy and feasibility of C6 energy derivative contracts being made subject to: (i) the clearing obligation set out in Article 4 of EMIR; (ii) the risk mitigation techniques set out in Article 11(3); and (iii) their inclusion in calculating the clearing threshold pursuant to Article 10.

The report draws the following conclusions:

  • there does not seem to be an urgency to change the regulatory regime for C6 energy derivatives with regards to EMIR from a systemic risk perspective;
  • as the requirement to exchange collateral and the calculation towards the clearing thresholds is not expected to have an immediate major impact, this therefore questions the actual benefits of changing the regime now;
  • an important share of C6 energy derivatives contracts are either traded or cleared in the UK and there is some uncertainty on how the regulatory framework might evolve in light of Brexit, it is therefore prudent to wait before considering a change in the regime;
  • taking all things into account, ESMA does not see the need to change the regulatory framework now with regards to C6 energy derivative contracts and some of the EMIR requirements. Consequently, ESMA recommends extending the temporary regime for C6 energy derivative contracts as is foreseen in MiFID II.

The report has been submitted to the European Commission before its publication on ESMA’s website, as input for the Commission’s report under Article 90(4) of MiFID II.