“The European Securities and Markets Authority’s proposals may push up wholesale electricity prices by 1 percent, or 7 billion euros per year, because of the burdens they would place on energy-trading market makers. That’s because firms would be required to hold an extra 3 billion euros to 6 billion euros in extra capital under the ESMA guidelines, including against open positions”.
“Under the proposed rules, some companies would be treated as speculators when their main job is making sure markets trade smoothly and have sufficient liquidity. If market liquidity goes down, energy costs will go up”.
(Source: Bloomberg: Energy Traders Seen Needing Billions in Regulation Shakeup; Authors: Rebecca Christie and Michael Carr; Date: 01 October 2015)
"There's a real risk that these rules are going to force commodity firms to cut back on trading, and that's going to hurt liquidity and create wider bid-offer spreads in commodities markets. This will make trading more expensive and risk harder to manage."
"We estimate a typical larger player could be subject to additional capital and funding requirements of $3 billion to $6 billion as a result of needing a Mifid licence. This is capital that is then trapped in a trading entity rather than being able to be used elsewhere in the business."
(Source: Energy Risk: Energy firms blast new Mifid II rules on commodities; Author: Stella Farrington; Date: 01 October 2015)
"The top level concern is what is described as the ‘main business test’. It is “not unreasonable” to assume that the measure could lead to a doubling of bid-offer spreads on European energy markets, adding EUR 3bn to consumers’ power, gas, coal and oil costs."
(Source: Montel: New rules could double energy market spreads – Efet; Author: Robert Hodgson; Date 02 October 2015)
"ESMA sees wholesalers as speculators, when they should be seen as liquidity providers. Wholesalers help markets work efficiently."
"The regulation fails to reflect the legislation that ESMA are meant to be implementing, which says that wholesale buying and selling activity is fine if it's ancillary to your main business”.
"Every 10 percent increase in the spread will cost the European economy 270 million euros on an annual basis. It is not unlikely that the spread could double – which would cost the economy 2.7 billion euros".
"The impact of reduced market liquidity on hedging costs could translate into 11.7 billion euros in additional costs on an annual basis to industry due to the longer time needed to hedge consumption or production of energy."
(Source: Reuters: Volatility spikes may be unintended consequence of EU commodities rules; Author: Pratima Desai; Date: 02 October 2015)
Ministries of Finance: United Kingdom, France
“ the current test regarding the size of the trading activity seems not to take sufficiently into account the physical business of an entity , which is required by level 1. Therefore, the test should be revised to take into account the physical or commercial business of a group, where feasible”
“[..] the proposed thresholds for the market size test seem to need further recalibration to fulfill the requirements to include only such entities into the scope of MiFID’s authorisation requirements those which deal in financial instruments in a disproportionate manner”
(Source: Ministries of Finance: United Kingdom, France)
“ESMA’s proposals will narrow unduly the scope of the exemption agreed by the legislators in the primary MiFID II Regulation”. [This] “leads not only to an increased regulatory burden for energy traders but also to an increased cost burden, potentially reducing liquidity and undermining efforts to create a competitive Internal Energy Market”
(Source: Council of European Energy Regulators (CEER))
“It is clear that a reduction in market liquidity and a decrease of competition in Europe’s energy markets would ensue. That, in turn would increase the burden on the energy sector and corresponding costs and risks to business and residential energy consumers to the tune of tens of billions of Euros. It will also make markets, and energy supply, less secure”
MIFID II includes exemptions for companies whose energy trading activity is “ancillary” to their main industrial and commercial business. The exemption currently proposed by ESMA, however, renders the scale of a company's asset base and primary industrial and commercial business irrelevant. As a result the regulation’s original intent is severely undermined because energy and other real economy companies will be subject to requirements applicable to investment banks”
“There is no question that greater oversight of financial markets is needed. It should be borne in mind, however, that energy markets are already subject to rigorous oversight at the EU level and the full range of financial market rules”
“Failing to consider the industrial and commercial business and corresponding asset base in designing secondary legislation under MiFID II, will inadvertently damage the structure and liquidity of Europe’s energy markets”
“Adopting proposals that would inflict significant additional costs on the European economy and harm the EU’s competitiveness would be in stark contrast with some of the key policy objectives of the Commission”
“Imposing additional capital requirements on the energy sector under MiFID II, therefore, achieves very little other than adding superfluous layers of bureaucratic oversight as well as significant (for some of the smaller, medium-sized companies prohibitive) costs to the industry and to the wider economy”
(Source: EurActiv: Proposed EU financial rules could have dire consequences for energy companies and the European economy; Author: European Federation of Energy Traders; Date: 02 October 2015)