Joint Associations Letter - Call for an urgent expansion of the collateral requirements in energy markets
1. Executive Summary
The objective of this letter is to present the views of EACH, EFET, Eurelectric and Eurogas[1] on the proposals by the European Commission – the Delegated Regulation of 21/10/2022 amending the regulatory technical standards laid down in Delegated Regulation (EU) No 153/2013 as regards temporary emergency measures on collateral requirements[2] – and the European Securities and Markets Authority (ESMA) – the Draft Technical Standards amending Commission Delegated Regulation (RTS) 153/2013 [3] – (henceforth ‘the Authorities’) related to the emergency measures on collateral requirements and in particular their suggestions on bank guarantees and public guarantees.
We would like to highlight the following key points of this letter:
- Certain aspects of the Delegated Regulation adopted by the European Commission on temporary emergency measures on collateral requirements to alleviate the liquidity pressure on energy companies make it usable only by an estimated 15% of the energy market participants.
- Without a wider solution, and for a longer period of time, the liquidity pressure remains, leading to a decrease in the overall trading environment and prevents the market from gaining the full potential of bank guarantees by optimizing the procedural setup around this kind of collateral.
- We therefore kindly ask Authorities to reconsider certain aspects of the Delegated Regulation in order to efficiently address liquidity strains on non-financial counterparties.
2. Introduction
Bearing in mind the importance of all European economies to ensure the sound and safe operations of the energy markets under the current energy crisis, we recall the joint initiatives of EACH, EFET, Eurelectric, Eurogas and Europex when recommending the widening of collateral types acceptable by central counterparties (CCPs)[4].
While we welcome the intention of the Authorities to alleviate the liquidity pressure of non-financial clients, and we recall the urgency of implementing amendments to the current regulations, we respectfully consider that the proposals put forward by the European Commission and ESMA to expand the collateral accepted by CCPs for either bank guarantees or public entity guarantees should be accessible for the wider energy clearing industry rather than just for non-financial energy counterparties that are clearing members. The following sections substantiate this assertion, analyse the ESMA and European Commission proposals and suggest some remedies going forward.
In summary, we suggest revising the Authorities’ proposals to:
- Bank guarantees – Ensure that the proposals on bank guarantees can benefit 100% of the energy clearing industry and not just an estimated 15% of it as they currently do;
- Public entity guarantees – Ensure a level-playing field regarding the welcomed extension of eligible collateral to publicly backed guarantees and the extensive list of possible issuers;
- Further step – In addition to the temporary solution currently proposed, we call on the Commission to extend the list of eligible collaterals to non-fully collateralized bank guarantees and EU Emission Allowances, and ideally through the “emergency procedure” of EMIR Art. 49(1e)[5].
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[1] https://eachccp.eu/wp-content/uploads/2022/05/20220419_Joint-associations-position-on-support-for-well-functioning-energy-markets_Executed.pdf
[2] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R2099&from=EN
[3] EACH (European Association of CCP Clearing Houses), EFET (European Federation of Energy Traders), Eurelectric (Federation of the European Electricity Industry), and Eurogas (Association of companies in the gas value chain)
[4] https://ec.europa.eu/finance/docs/level-2-measures/emir-rts-2022-7536_en.pdf https://ec.europa.eu/finance/docs/level-2-measures/emir-rts-2022-7536_en.pdf
[5] https://www.esma.europa.eu/sites/default/files/library/esma91-372-2466_report_amended_rts_emergency_measures_on_collateral_requirements_article_463_emir.pdf