Riccardo Rossi, Regulatory Affairs Manager at Gazprom Marketing & Trading and speaker at the 2015 EAGC's Trader's Day on 17th November in Geneva, tells Gastech News what the impact of regulatory uncertainty on gas trading in Europe is. Here are his views:
"The uncertainties affecting European gas trading driven by regulation are common to other commodities. The calibration of the secondary legislation arising from MiFID II (Markets in Financial Instruments Directive) is the priority this year. The objective of MiFID II is investor protection, but with the review of the Directive also the framework to trade commodity derivatives trading has been remodelled.
In the primary legislation a balance has been struck between reducing unregulated areas and allowing commodity markets to continue developing. But, in the development of secondary legislation it seems that further restrictions are being introduced.
There are especially two main topics around which there is still uncertainty and they cover the ‘What’ and ‘Who’ of commodity trading.
The ‘What’: there is a tendency to enlarge the scope of financial regulation to cover physical commodities. There are exceptions for gas and electricity, because they are heavily regulated, but the technical rules are key to make this happen in practice.
The ‘Who’: activities in financial commodities beyond hedging will be allowed only to a very limited extent: the European Securities Markets Authority (ESMA) last December proposed such low levels that it would not be possible to offer hedging services to businesses which risk managing their commodity exposures without the need to have a license. Such businesses would have no other choice but to turn to banks.
The potential consequences include extra costs due to cash and capital requirements that would be passed through to consumers. Such rules are reasonable for banks, but when applied to commodities they will increase producers hedging costs and/or boost un-hedged risks and eventually energy bills would be more expensive.
It is important that the boundary between physical and financial markets is kept and the obligation for a financial license should be reserved to those market participants offering financial contracts disproportionately compared with their core business." [Article ends]
Do you agree with Riccardo? What should be done to address the impacts of regulatory uncertainty on Europe's gas market? Leave your comment below.
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