Esma proposes commodity clearing obligation delay

EU financial regulator Esma proposes delaying by two years, to 21 June 2019, the phase-in period of the clearing obligation of over-the-counter (OTC) derivatives for financial counterparties with limited derivatives activity. Esma said counterparties are finding it difficult to meet clearing obligations under the European Market Infrastructure Regulation (Emir).

The new compliance date is proposed in the draft Regulatory Technical Standards (RTS) on Emir clearing obligations for limited-activity counterparties that Esma has submitted to the European Commission.

To mitigate the risks associated with OTC derivatives, Emir sets a clearing obligation for financial counterparties whose OTC derivatives positions, including commodity derivatives, exceeds certain thresholds. Esma sets out these thresholds in the RTS and reviews them regularly. The clearing threshold for commodity derivatives is currently €3bn ($3.2bn) gross notional value, excluding any OTC derivatives used for hedging.

But Esma said the difficulties of limited-activity counterparties in establishing the necessary central clearing arrangements, as well as the limited systemic risk they constituted, justifies postponement. Energy trading and derivatives stakeholders have been lobbying Esma for a delay.

Power industry association Eurelectric has argued that energy companies' use of derivatives, principally for hedging, is not systemically relevant. European energy traders' association Efet agreed that access to central counterparty clearing is difficult for limited-activity counterparties and supported a postponement.

In a report on EU financial services published on 23 November, the commission said "several respondents suggested that some small financial counterparties subject to clearing requirements undertake such limited activity in OTC derivatives that it is not commercially viable for them to establish clearing solutions". The commission said action to address obstacles to clearing access for such clients should be considered.

The draft RTS are the outcome of a consultation organised by Esma in July 2016 and incorporate stakeholder feedback. The commission now has three months from the date of submission to decide whether to adopt the RTS. The European Parliament and EU Council have another three months from the date of adoption to decide whether to object to the RTS or to adopt them as well.