On 22 September 2022, the European Securities and Markets Authority (ESMA) submitted its response to the European Commission regarding the current level of margins and of excessive volatility in energy derivatives markets. The letter comes in response to the formal request from the Commission that ESMA received on 13 September 2022.

ESMA’s letter covers:

  • Circuit breakers.
  • Margins and collateral.
  • Commodity clearing thresholds.
  • Improving regulatory reporting on commodity derivatives trading.
  • Regulating and supervising commodity traders acting like investment firms.

In terms of circuit breakers, ESMA states that it would appear useful to consider implementing on a temporary basis and for energy derivative market only a new type of trading halt mechanism. The parameters for such a mechanism would be set at EU level and apply to all venues offering trading in energy derivatives. ESMA envisages these mechanisms to trigger halts for a limited period of time only and in exceptional circumstances, for instance, in case of extreme volatility spikes that may lead to disorderly trading conditions. ESMA adds that this measure should be calibrated in a way that ensures that price discovery can still take place in order not to negatively affect the ability of all market participants to effectively manage their risks.