EUROPEAN POWER
we need to be careful when politicians are making very public statements, for example. “Our energy bills have gone up
by over £200 in recent years and in the last few weeks prices have gone up again so these latest allegations (market manipulation) couldn’t have come at a worse time for people trying to heat their homes,” Caroline Flint, Shadow energy secretary in the UK.3
Price increases of energy are
Competition in Investment & Banking Services
Investment Protection CRD MiFID
Overarching framework for financial regulation
Regulation of financial firms Definition of financial instruments
now a very sensitive issue. When prices are passed on the response from utility firms is “its not us, it’s rising wholesale prices”. This explanation may not now stand the test of time. A proactive stance of finding the possible market and commodity consequences (that is the facts) and placing an optimal hedging strategy to mitigate these risks may prevent reputational risk in the medium term. While we understand that internal resources can be tight, our risk management discipline tells us to risk manage the very big risks first, because they have most impact on value, and in some cases, survival.
Rules and duties of exchanges and other platform operators
Exemptions from licensing requirements
Position limits and reporting
Capital requirements for financial firms
Prudential regulation for
Exemptions for commodity trading firms untill end 2014 EMIR
Regulation of OTC derivatives Focuses on credit risk Central clearing Reporting to regulators
Regulation of central clearing parties
REMIT
Market abuse rules for physical products
Regulatory oversight: energy regulators
Regulatory cooperation Reporting to regulators
MAD
Market abuse rules for financial products
Regulatory oversight: financial regulators
Cooperation between regulators Reporting to regulators
Dodd-Frank and EU regulations can best be described as labyrinthine. The figure shows a slight
over-simplification as these sets of legislation are interlinked, in that transgressing one can result in liabilities under one or more of the others (leading to cases of ‘double-regulation’).
Key European Legislative Packages
Whys, Damn Whys and Statistics How will the gas and power traders globally
respond to a European generators (or consumers) need for gas? They will possibly ignore it, or demand a very high price. Here are some key facts of the LNG industry in
2011. Do bear in mind, some of the facts are a consequence of Japan having to import gas as there was a steady closure of the country’s nuclear facilities. – There were 240.8 million tons imported – an increase of 9.4% on 2010;
– 61.2 million tons were imported on short term contracts (a 50% increase on 2010);
– 31% of imports were supplied from Qatar; – 63% of global demand for LNG was in Asia; – There are 89 regasification terminals in 25 countries with a capacity of 640 million tons;
– There are 24 facilities producing LNG in 18 countries with a capacity of 278 million tons.
– This means that the global LNG market has a capacity margin of 15% last year.
Therefore, the global LNG market is a well
organised Asian market which operates on long term contracts, which means if Europe wants to
– MiFID (I & II): (Markets in Financial Instruments Directive) covers investor protection, and affects commodity/energy companies who provide services to their large consumers like hedging programmes and (wholesale) trade execution;
– EMIR: (European Market Infrastructure Regulation) covers the mitigation of operational risk, and includes the ‘trade repositories’ mentioned by the G20;
– CRD: (Capital Requirement Directive) covers capital adequacy and the mitigation of credit risk;
– REMIT: (Regulation on Energy Market Integrity and Transparency) and MAD (Market Abuse Directive) cover market integrity and transparency, forbidding activities such as insider dealing and market abuse or manipulation.
attract gas to its markets it has to compete with Asia on a global scale for the commodity. It also means that with the ‘globalisation of gas’ it’s really important to anyone trading gas that they understand how this market (on the other side of the world) works and more importantly, how it develops.4 However – and crucially – if we are going into a
period of high and volatile energy prices, predicting asset cash flow and having enough cash to trade with, will be crucial. Why? Because (fact) there is new financial market regulation coming in early next year, making good risk management practice law.
December 2012 45
A Labyrinth of Regulations Regulation of Risk
Market Abuse
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