|The eligibility to apply for admission to bid in the auction pursuant to the Auctioning Regulation|
|Thursday, 13 January 2011 23:30|
(a) an operator or an aircraft operator having an operator holding account, bidding on its own account, including any parent undertaking, subsidiary undertaking or affiliate undertaking forming part of the same group of undertakings as the operator or the aircraft operator;
(b) investment firms authorised under Directive 2004/39/EC bidding on their own account or on behalf of their clients;
(c) credit institutions authorised under Directive 2006/48/EC bidding on their own account or on behalf of their clients;
(d) business groupings of persons listed in point (a) bidding on their own account and acting as an agent on behalf of their members;
(e) public bodies or state-owned entities of the Member States that control any of the persons listed in point (a).
In the recital 22 to the Regulation the Commission remarked that open access is required to encourage participation and, thereby, ensure a competitive auction outcome. However, it also stated that to ensure the integrity of the auctions, access to the auctions should be subject to minimum requirements for adequate customer due diligence checks. To ensure the cost-effectiveness of such checks, eligibility to apply for admission to the auctions should be given to easily identifiable, well-defined categories of participants, notably operators of stationary installations and aircraft operators covered by the emissions trading scheme, as well as regulated financial entities such as investment firms and credit institutions. Also business groupings of operators or aircraft operators, such as partnerships, joint ventures and consortia acting as an agent on behalf of their members, should be eligible to apply for admission to bid in the auctions.
In the “COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Towards an enhanced market oversight framework for the EU Emissions Trading Scheme Under the new Auctioning Regulation” the Commission stated that access to this primary market will initially be restricted to certain categories of participants. However, it is not excluded that the list of persons eligible to apply for participation in the auctions may be extended to include further categories of participants as more evidence will be gathered with the auctions in the third trading period.
As a corollary of a narrowly delineated eligibility to apply for admission to bid in the auction, specifically when taking into account practically unrestricted access to the emission trading in the EUETS, the ambiguity may arise as to possible other entities than listed in the Article 18 paragraph 1(a) of the Regulation, such as for instance energy and emissions traders and brokers, not being investment firms authorised under Directive 2004/39/EC. Will they be admitted directly to the auctions on the auction platform?
Article 18 paragraph 2 of the Regulation reads:
“2. Without prejudice to the exemption in Article 2(1)(i) of Directive 2004/39/EC, persons covered by this exemption and authorised pursuant to Article 59 of this Regulation shall be eligible to apply for admission to bid directly in the auctions either on their own account or on behalf of clients of their main business provided that a Member State where they are established has enacted legislation enabling the relevant competent national authority in that Member State to authorise them to bid on their own account or on behalf of clients of their main business.”
Let’s remind that mentioned above Article 2(1)(i) of Directive 2004/39/EC exempts from applying this Directive “persons dealing on own account in financial instruments, or providing investment services in commodity derivatives or derivative contracts included in Annex I, Section C 10 to the clients of their main business, provided this is an ancillary activity to their main business, when considered on a group basis, and that main business is not the provision of investment services within the meaning of this Directive or banking services under Directive 2000/12/EC”.
Article 18 paragraph 2 of the Regulation along with Article 2(1)(i) of Directive 2004/39/EC are worded in the way that may lead to some uncertainties. It is indispensable to recall in the first place the recitals 24 and 25 to the Regulation, which read:
“(24) This Regulation should provide participants with the choice of accessing the auctions directly via either the internet or dedicated connections, through authorised and supervised financial intermediaries or other persons authorised by the Member States to bid on their own account or on behalf of clients of their main business, where their main business is not the provision of investment or banking services, subject to such other persons complying with investor protection measures and customer due diligence measures equivalent to those applicable to investment firms.
(25) The addition of other persons authorised by the Member States to the list of persons eligible to apply for admission to bid is intended to give indirect access to operators and aviation operators not only through financial intermediaries but also through other intermediaries with whom they have an existing client relationship such as their power or fuel supplier who are exempt from Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC(2) OJ L 145, 30.4.2004, p. 1. pursuant to Article 2(1)(i) of that Directive”.
It can be seen that recital 24 enumerates, apart from authorised and supervised financial intermediaries, “other persons authorised by the Member States to bid on their own account or on behalf of clients of their main business, where their main business is not the provision of investment or banking services” and recital 25 mentions, as instances of such persons, power and fuel suppliers exempt from Directive 2004/39/EC pursuant to Article 2(1)(i) of that Directive.
In response to the question “12. Who can bid for allowances?” MEMO/10/338 Emissions trading: Questions and Answers on the EU ETS Auctioning Regulation of 16 July 2010 reads:
“... the Regulation provides for an additional category, namely intermediaries that benefit from an exemption from the authorisation requirements in EU law, but that have been authorised under rules laid down in the Auctioning Regulation. This is particularly relevant for intermediaries such as fuel traders, so these could easily add allowances to the products they offer to ETS operators”.
Pursuant to the above cited Article 18 paragraph 2 of the Regulation the precondition for such power and fuel suppliers to be admitted directly to bid in the auction is that Member State where they are established has enacted legislation enabling the relevant competent national authority in that Member State to authorise them to bid on their own account or on behalf of clients of their main business.
What kind of national legislation is required by the above cited Article 18 paragraph 2? How should be shaped the authorisation by the relevant competent national authorities for these persons to bid on their own account or on behalf of clients of their main business? Will some sort of general legislation be sufficient for this purpose or should it be specifically tailored and explicitly mention the Auctioning Regulation? There may be some ambiguity in that regard.
And, as a result of such potential differentiation across the EU, is there a risk that hypothetical power and fuel suppliers from one Member State will be entitled to bid directly in the auction and the same from another Member State won’t? To conclude, the answer to such a question seems to be yes.