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Lack of transparency in regulations creates uncertainty among energy commodity traders


Thomas Bo Christensen

16 July 2014 

A PA energy and regulations expert discusses PA’s report on EMIR regulations and forthcoming MiFID II in the energy trading business.

The report shows that 80 per cent of respondents don’t believe that the European Securities and Markets Authority has provided sufficiently clear information about the EMIR requirements. Even though these conditions have been effective for more than a year, energy commodity traders still do not have the information they need to meet all operational compliance requirements.

“Our report reveals that commodity traders don’t think the EMIR and other codes of practice are clear or implementable, instead are rather vague. One of the reasons for this is that authorities haven’t provided the necessary details on changes required, and in some case even tend to make changes to existing rules.”

A number of other interesting conclusions appear in the report. Firstly, 90 per cent of the largest energy commodity traders are worried about the falling liquidity in the market due to regulations. This concern has been partially confirmed by the exit of banks from energy commodity trading. Decision makers also feel insecure about the future operation model and strategy direction due to partial incomprehensibility of the EMIR regulations MiFID implications. This uncertainty entails a risk to overact and in doing so making suboptimal strategic decisions. Lastly, although traders have used substantial resources to implement the new EMIR rules, they are still unsure about whether they actually meet the demands on all operational requirements.

“Some large utility based energy trading companies have allocated over 40 staff members on a continuous basis to implement and meet these regulations, yet they still don’t know if they are doing the right thing in some areas. This brings us back to the question of uncertainty and trust.”



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