|The requirements for financial intermediaries bidding in the auctions of emission allowances of the third trading period|
|Wednesday, 22 February 2012 07:31|
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In the article ‘The eligibility to apply for admission to bid in the auction pursuant to the Auctioning Regulation’ there were set out the basic principles for delineating the personal scope of entities granted the right to bid directly in the auctions (see Article 18 of the Auctioning Regulation). It follows that operators of installations and aircraft operators may only bid in the auctions on their own account, and, with some exceptions particularly for business groupings of operators (bidding on their own account and acting as an agent on behalf of their members), the only categories of potential intermediaries in the auctions are investment firms authorised under Directive 2004/39/EC and credit institutions authorised under Directive 2006/48/EC.
Besides, it is noteworthy to remind that another significant exception to the said rule represent commodity firms covered by exemption provided for in Article 2(1)(i) of Directive 2004/39/EC bidding on behalf of clients of their main business but the specific position of these firms in the auctioning context is referred to in greater detail in the above cited post.
Considering the procedure for making common auction platform operational are advanced (the UK opt-out auction platform as well) it is time to look into practical requirements flowing from the Auctioning Regulation as regards the financial institutions participation in the auctions, especially when the financials intermediate for account of their clients.
Further remarks are restricted only to investment firms authorised under Directive 2004/39/EC and credit institutions authorised under Directive 2006/48/EC (hereinafter referred to as ‘financials’) as intermediaries in the auctions. Referrals to ‘Articles’ mean the articles of the Auctioning Regulation (Commission Regulation No 1031/2010 of 12 November 2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowances trading within the Community, OJ L 302, 18.11.2010, p. 1 as amended).
1. TWO-DAYS SPOT – NOT FOR ALL?
It should be reserved at the beginning that as regards auctioned products that are not financial instruments (that is - according to the current state of the MiFID Directive - two-days spot) Article 18(3) provides that financials are eligible to apply for admission to bid directly in the auctions on behalf of their clients provided that a Member State in which they are established has enacted legislation enabling the relevant competent national authority in that Member State to authorise them to bid on behalf of their clients.
The state of the compliance of Member States with this requirement is now unknown. It is probable however that not all Member States at present met the condition (it is theoretically also possible that in certain cases the condition is fulfilled but the data is lacking).
What does it potentially mean? The effect may be that the financials established in Member States not complying with the requirement concerned will not be eligible to apply for admission to bid directly in the auctions in two-days spot products on behalf of their clients. This will place the said financials at a competitive disadvantage with respect to their competitors established in Member States acting more far-sightedly and carefully.
To conclude this thread - financials established in Member States not displayed as complying with the Article 18(3) have reasons to be on the alert and should carefully monitor the situation.
The threat discussed here relates only to two-days spot products – and not five-days futures. If, thus in the procedure for choosing common auction platform (currently underway) wins the regulated market which does not offer two-days spot product, the said risk will not materialise. There are however potentially three other tenders for opt-out platforms: German, Polish, and UK...