|Implications of the European Market Infrastructure Regulation (EMIR) for commodity firms trading on the emissions market - changes by the European Parliament on 5 July 2011 - Page 4|
|Monday, 26 September 2011 05:42|
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5. Other significant amendments and final remarks
5.1. From the point of view of legal certainty the fundamental rule was added to the draft EMIR Regulation that an infringement of the rules of the Title II (regarding clearing, reporting and risk mitigation of OTC Derivatives) not affect the validity of an OTC derivative contract or the possibility for the parties to enforce the provisions of an OTC derivative contract. There was introduced also clear statement that an infringement of the said rules shall not give rise to any right to compensation from a party to an OTC derivative contract. This addition was made to the Article on penalties applicable to infringements which should include at least administrative fines.
5.2. There should be noted important changes as regards collateral requirements. The catalogue of highly liquid collateral accepted by a CCP was specified, including cash, gold, government and highquality corporate bonds, with minimal credit and market risk to cover its initial and ongoing exposure to its clearing members. For non-financial counterparties, CCPs may accept bank guarantees taking into account such guarantees in exposure to a bank that is a clearing member.
5.3. It is unquestionable that the use of the OTC derivatives by the non-financial counterparties (among others firms trading in emissions market), so far mainly unregulated, as a result of the EMIR Regulation will become more complex and complicated. The difficulties may occur even as regards the definitions of financial instruments referred to in points (4) to (10) of Section C of Annex I to the MiFID Directive (is envisioned issuance by ESMA of draft regulatory technical standards for guidelines for the interpretation and application of the above-cited parts of MiFID for the purposes of the EMIR Regulation).
5.4. The weight of the risks involved in the use of non-financial counterparties of OTC derivatives is underlined in the preamble to the draft EMIR Regulation where the indication was added by the European Parliament in the first reading requiring the non-financial counterparties to explain the use of derivatives through their annual report or other appropriate means.
5.5. As regards some more far-reaching trends there could be inferred from certain provisions of the draft concerned that there could be expected issuance of further specific regulations addressing specific commodity markets. The bias towards such a attitude is visible for instance in provision requiring the European Commission to assess by 31 December 2013 the systemic importance of the transactions of non-financial firms in OTC derivatives in different sectors, including in the energy sector.
5.6. On the other hand also there could be perceived in the amendment made by the European Parliament the legislative trend supporting the use of OTC derivatives by non-financial counterparties, that is the provision was added that the Commission should ensure that the necessary and appropriate use of OTC derivatives by non-financial counterparties to hedge market risks arising from business operations is not undermined in terms of pricing or availability by future legislative proposals.