Regulatory jigsaw puzzle: one piece at a time, but now time is of essence
Article by Riccardo Rossi, Regulatory Affairs Manager at Gazprom Marketing & Trading
Final clarity is still pending one year after the publication of the draft secondary rules on the Markets in Financial Instruments Directive (MiFID II). The MiFID II implementation has been officially delayed, from January 2017 to January 2018, but most of the year passed has been spent in drafting secondary rules and talks.
The long-awaited rules on MiFID II will determine whether trading companies may continue trading as they are or if they must hold an authorisation released by financial regulators.
This authorisation would mean additional compliance costs, systems, processes, new governance. Most importantly the status of authorised firm implies bearing the costs of full collateralisation of trading and (to be defined) regulatory capital requirements.
Any limitation on derivatives trading deriving from the new regime would be at the expense of the level liquidity reached in European wholesale gas and electricity markets in recent years. In fact, gas trading volumes and liquidity continued to growth in 2015 and 2016. This is a sign that the reforms introduced with the Third Energy Package are producing positive effects.
Trading for hedging purposes will be excluded from MiFID II rules, so large producers and consumers groups are likely not to be affected directly, but independent traders providing hedging services may lack under the new framework and this will come at a cost for consumers and producers.
The energy industry, together with other producers and consumers of commodities, has spoken out loud against about the inappropriateness of some of the technical rules released in 2015. The European Commission understood these concerns and asked ESMA, the regulatory body draft the rules, to refine the proposals to avoid impacts beyond the original intentions. ESMA reacted positively to this request proposing some alternative solutions which are now under scrutiny and assessment by the Commission and the co-legislators.
The overall picture has been complicated and the timeline delayed also due to the exceptional event of the referendum on Brexit. The long-term impact of Brexit on MiFID implementation in the UK will have to be analysed once the type of future relationship between the UK and the EU will be defined. For the time being, UK regulators have clearly stated that the implementation timeline of MiFID II is not going to change. In the longer term, however, dealing with multiple regulatory regimes seems an inevitable effect.
Back to MiFID II, the coming weeks will be crucial for the finalisation of the rules. It is important that these rules are released in a timely fashion. The picture must be complete soon to allow sufficient time to understand and interpret the rules, to adapt to the new framework and to set out implementation plans avoiding regret costs.
This article is a follow-up from Regulatory jigsaw affecting energy trading in Europe.
At the European Autumn Gas Conference, 14-16 November 2016 in The Hague, Gazprom Marketing & Trading’s Alex Barnes, Head of Regulatory Affairs, will moderate a session about the European regulatory framework. In addition, the development of Russian gas supplies to Europe will be discussed by Alexander Medvedev, Deputy Chairman of the Management Committee at Gazprom, view the programme here .
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