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Mifid

LME offers compression to help prepare for MiFID II

In a move that anticipates the MiFID II rules coming in, the LME have announced that they will offer compression services for members to help reduce capital requirements, according to this article on the Reuters website.

MiFID II is likely to see many commodity and energy traders being required to comply with tougher capital requirements, a subject of much on going debate. The service allows members to “compress” several positions into one, reducing total notional and hence capital requirements.

Energy and commodity companies are likely to see increased capital requirements over the coming years. Those that lose their MiFID exemption will need to comply with a version of CRD IV, which contains rules on the capitalisation of financial businesses. In addition, MiFID II will turn many companies into “Financial Counterparties” under EMIR, triggering mandatory clear, and also a requirement to comply with the upcoming uncleared margin rules. Those who manage to keep their exemption  status are still likely to see an increase in clearing, due to pressure from counterparties and also a move of liquidity to cleared products.

As a result, we are likely to see an increase in product offerings that help to reduce capital consumption.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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