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Europe-wide passport for wholesale trading in electricity and gas, MiFID passport or REMiT registration – a field for analysis for energy traders - Page 2
Saturday, 17 December 2011 20:43


The MiFID licence has the broader scope than the projected wholesale energy trading licence covering performance of investment services or activities through trading in financial instruments – also related to energy - without the need to care for variable and ambiguously delineated  MiFID exemptions.


Given the strict MiFID regulatory requirements and oversight regime, according to the CEER proposals MiFID licensed traders won’t have to apply for an additional wholesale energy trading licence. The opposite conversion will not be possible and the wholesale energy trading licence will not have the ability to substitute the MiFID authorisation.


The energy regulators associated with CEER acknowledge in the said document that there is currently no clear (legally defined) interface between financial and energy trading and there remains room for interpretation and uncertainty. This is partly caused by the fact that MiFID covers a number of energy wholesale products whereas it provides for exemptions from the licensing requirements benefiting particularly energy companies.


Mindful of the said benefits from the obtaining of the MiFID licence by the energy traders (being in particular the EU-wide passport as well as the reduction of the compliance risk and the regulatory uncertainty as regards the ambiguous division between the financial and commodity trading) it should not be forgotten that the MiFID Directive is designed for financial markets and the principal purposes thereof are consumer protection and the reduction of the systemic risk of the financial sector. Furthermore, MiFID regulated entities are mainly undertakings performing financial services with respect to financial instruments. Notwithstanding the fact that the said financial services and instruments often concern energy as an underlying, the CEER regulators are of the view that subjecting all wholesale energy traders to the MiFID licence regime would be overly restrictive and would cause the wholesale energy trading being dominated by the banks and investment firms, which, it turn, may occur detrimental to the wider market especially in its  part occupied by the small and medium firms.


It was also pointed out that energy companies, especially small and medium-sized ones, relied on the possibility to conduct hedging activities with physical underlying to cover prospective delivery commitments. MiFID-related requirements would be burdensome for such activities.

So, it is probable that in the near future the wholesale energy trading firms will face the difficult dilemma which of the two regulatory regimes to choose. They may obviously not to analyse this issue, however the developments on the wholesale energy markets, their pan-European character and the emerging new more and more complicated products will inevitably cause the majority of the participants present on the market will not escape the problems at issue.



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