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EMIR, Uncategorized

No extension to EMIR bank guarantee carve out for energy derivatives

ESMA announced yesterday that they will not extend the carve out which allows non collateralised bank guarantees to be used to cover cleared energy derivatives. The announcement can be found here.

Allowing a smaller set of collateral types, for example cash, may make it harder for some to participate in certain markets. For example, the ability to use bank guarantees has been said to be responsible for a high clearing rate in the Nordic region, which has been reported previously.

It is likely that collateral requirements will increase over the next years. Those who lose their exemption under MiFID will become Financial Counterparties, and will be subject to mandatory clearing, as well as CRD IV. Those who remain outside of MiFID may still find themselves becoming “NFC+” under EMIR, if the hedge exemption is removed as proposed in ESMA’s response to the EMIR review.

It remains to be seen what impact this change will have on market liquidity. We can expect a higher focus on capital optimisation over the coming years as the new environment takes shape.

 

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on energy and commodity regulation. He has more than 20 years of experience in energy and commodity trading, credit, risk and financial technology. He has delivered a series of trading, credit and risk solutions to a wide variety of oil majors, power and gas companies and investment banks. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy 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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