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Brexit update – C6 carve out, NRA REMIT letters and more

The political side of Brexit still has not produced a concrete result (for example, see here on Sky News). With three weeks to go until the Brexit date of 29th March 2019, the majority of the market is preparing for a “no deal” scenario. Never the less, some thought is also being put into what happens if there is a deal. As the clock is counting down, there have been several relevant announcements since our last post here:

ESMA MiFID II and Benchmark Regulation statement
Yesterday ESMA released this statement around the application of MiFID II and the Benchmark Regulation in the event of a no deal Brexit. There are some features of interest to those in energy and commodities:

  • C6 Carve Out – The statement implies that where a contract refers to UK delivered energy, it no longer benefits from the carve out – However it does state that “where, for instance, UK natural gas would continue to be traded on a spot trading platform in the EU27 post-Brexit, derivatives on UK natural gas would continue to qualify as “wholesale energy products” under Article 2(4) of REMIT and could benefit from the C(6) carve-out in MiFID II.”  – Paragraph C6 of  MiFID II Annex I Section C defines when a physical forward traded on a venue is a “financial instrument”. The “carve out” excludes any wholesale energy product that must be physically settled traded on an Organised Trading Facility. The change of trade status has a knock on effect on the application of MiFID II and EMIR.
  • Position limits and post trade transparency reporting – There is a statement that the post trade requirements could apply to activity on UK trading venues, but that this is suspended pending assessment of the venues. Similarly, with position limits, the statement says that transaction on UK venues could ultimately be “Economically Equivalent OTC”, but that should the venues be appropriately assessed as “venues”, then the position will not be “OTC” (as other third country venues) and therefore there is no issue for an interim period.

NRA Brexit statements around REMIT
Earlier this week, Ofgem issued this open letter on the application of REMIT in the event of a no deal Brexit. It follows an open letter issued late last year (see here). It contains some important points, especially for GB market participants who trade wholesale energy products for delivery in the EU:

  • It is recommended that should a GB Market Participant be trading in the EU, they re-register for an EU ACER code via an EU NRA as soon as possible. It is stated on page 3 under “re registration” that an EU registration will be accepted by Ofgem for trading in GB for now using publicly available data. There is  “change NRA” functionality which should be used.
  • There is some mention of what could happen if the withdrawal agreement is signed: “During this time our working assumption is that current REMIT registration and data reporting channels will remain unchanged.”

Other news
The UK government has announced that they could eventually run a local emissions trading scheme. This article on the Reuters web site reports on a statement by energy minister Claire Perry, stating that in case of a “deal” brexit, the UK would remain in the ETS until the end of this phase in 2020 and then have a local but linked scheme. In the vent of a deal deal Brexit, a carbon tax would be temporarily introduced.

On the financial side, legislation around the UK version of EMIR and explanatory notes have been published here and here. Also on the financial side, several trade associations have written this letter to the European Commission asking the UK based Regulated Markets (exchanges) be given temporary equivalence. Failure do to so would cause issues for certain EU based Non Financial Counterparties in terms of the EMIR clearing threshold in a no deal scenario. There have also been Trade Repository based announcements: For example this announcement was made by ESMA that the DTTC’s EU TR has moved to Ireland.

The coming week will no doubt see several more pieces of news.



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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