ENERGY MANAGEMENT 2010 2011
Implementation Timeline 2012
2013
2014
G20 Mandate Deadline for clearing of standardised trades & reporting to trade respositories
REMIT EMIR
Commission proposal published
Final text agreed by EU expected
– Commission consultation period on implementing acts
– Market participant implementation period
Reporting to ACER begins
Commission proposal published
Earliest likely EU agreement
Reporting to TR required
Implementation period
MiFID 2
Commission proposal expected
CRD IV
concept of an Organised Trading Facility (OTF). OTFs, which effectively fall under a new regulatory regime, are defined as markets which that are not Regulated Markets (RM) or Multilateral Trading Facilities (MTF) and will include the voice/electronic wholesale broker markets. It’s also expected to include requirements around pre and post trade transparency and possibly require the use of an electronic confirmation system. A European Commission proposal for MiFID 2 is expected later this year, with ratification in 2012.
CRD IV The final part of the G-20 mandate
will be implemented by the Capital Requirements Directive (CRD IV) which has the broad purpose of implementing Basel 3 in Europe. Its objective is to revise and increase requirements around the amount of capital, and thus risk exposure, for banks. Under CRD IV additional capital
must be held against bilateral credit exposures. The intention is to make cleared contracts less capital intensive than bilateral. A commission proposal for CRD IV is expected in the autumn of 2011 with ratification at some point in 2012. When there is broad agreement on
the high-level principals for much of the coming regulation, as with many
76 September 2011
Commission proposal expected
Source: Trayport
things, the devil is in the detail. We will not know any further detail until the regulation has been more fully defined by the European Commission, but it is certainly something that deserves close monitoring by all participants.
The Appropriateness of Clearing The G-20 indicated that certain financial products be cleared,
where appropriate, if they satisfy certain levels of standardisation. To understand exactly what that means it is worth looking at the role of a clearinghouse in OTC commodities. If a counterparty agrees to sell a client an OTC commodity
product that is cleared through a clearinghouse, the clearinghouse becomes financially responsible for that obligation. Let’s say both parties have many trades going through the same clearinghouse and both have posted collateral to cover any single trade that fails. This is more efficient than each of the parties posting collateral privately for each trade. Moreover, and most importantly, the clearinghouse can be counted on to deliver the commodity product or pay up if a counterparty defaults.
Under CRD IV additional capital must be held against bilateral credit exposures
Multiplying that concept up to include potentially hundreds
of classes of commodity contracts, thousands of counterparties across dozens of venues, introduces risks to the system. It rapidly becomes evident that by concentrating financial risk in relatively few institutions and relying on the clearing houses’ governance that over the coming years the potential for another major international financial crises has merely been passed from one institution to another, i.e. from banks to the
clearinghouse.Arguably, the view that a clearinghouse provides a single answer to managing risk within a complex, global or even regional financial system seems to be somewhat hopeful. For many in financial circles, one of the biggest concerns is how
the G-20 mandate for financial reform should be interpreted. The fear is that should a clearing house suffer a default by a significant
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96