EU-reguleringer og implementering. Nye faktorer som påvirker ressursbruk og likviditet.22 April 2015 Heine Rønningen

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Regulatory Compliance

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EU reguleringer og implementering Revolusjonen spiser sine barn….

IEM markeds design fullt av gode intensjoner - velfungerende deregulert konkurranse marked.

Nordisk markeds design har vært blueprint for mange av reguleringene (NC CACM, Transparency).

Nordisk markeds design står i fare for å bli betydelig endret:

– Positiv tilnærming: På høy tid– Negativ tilnærming: Motstand mot

endring Nordisk markeds design mulige veier

å gå:– Påvirke utforming– Påvirke unntak– Adopter

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Nordi

c mark

et de

sign

EU Regulations

Commodities:- NC EB- NC CACM- NC FCA- Transparency- REMIT

Derivatives:- MiFID- EMIR- MAD

Klossen passer ikke helt og er det kanskje en giljotin på andre siden?

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EU reguleringer og implementering Faktorer som påvirker ressursbruk og likviditet….

MiFID II Annex I Section C6 Financial instruments– "Options, futures, swaps, and any other derivative contract relating to commodities that can be

physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products as defined in Article 2 paragraph 4 of Regulation (EU) No 1227/2011 traded on an OTF that must be physically settled”

NC FCA Article 35 1– “Transmission System Operators on a Bidding Zone Border shall issue Long-Term

Transmission Rights unless all National Regulatory Authorities of the concerned CapacityCalculation Region have issued a decision not to issue Long-Term Transmission Rights onsome Bidding Zone Border(s) of the Capacity Calculation Region.”

Short term solution:– Adopt MiFID (the lesser of two evils principle)– NC FCA “Fix” market efficiency

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MiFID II Transition to physical Financial capital pull out

NC FCA Change of Market design Undermining Systemprice

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EU reguleringer og implementering Faktorer som påvirker ressursbruk og likviditet….

MiFID II Annex I Section C6 Financial instruments– "Options, futures, swaps, and any other derivative contract relating to commodities that can be

physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products as defined in Article 2 paragraph 4 of Regulation (EU) No 1227/2011 traded on an OTF that must be physically settled”

NC FCA Article 35 1– “Transmission System Operators on a Bidding Zone Border shall issue Long-Term

Transmission Rights unless all National Regulatory Authorities of the concerned CapacityCalculation Region have issued a decision not to issue Long-Term Transmission Rights onsome Bidding Zone Border(s) of the Capacity Calculation Region.”

Short term solution:– Adopt MiFID (the lesser of two evils principle)– NC FCA “Fix” market efficiency

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MiFID II Transition to physical Financial capital pull out

NC FCA Change of Market design Undermining Systemprice

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Derivative regulationsMiFID: Investor protection, MP classification (fin, non fin +/-)Contract definition and exemptions

EMIR: Central Counterparties (CCP)Contract definition from MiFIDMAD: Market abuse & inside tradingContract definition from MiFID

REMIT: Market abuse & inside tradingOwn contract definition, Transparency data = inside information (certain criteria)

Transparency regulation:Mandatory disclosure of data.Definition of data and data owner.

MAD and REMIT => Complimentary regulation with the same intention => Prohibition of market abuse and inside trading

Commodity regulationsCross border: EC 714/2009

NC EB: Electricity BalancingNC CACM: Capacity & CongestionNC FCA: FWD Capacity

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Derivative regulationsMiFID: Investor protection, MP classification (fin, non fin +/-)Contract definition and exemptions

Commodity regulations

Exemption - Must be physically settled- Traded on OTF not RM- Regulated by REMIT

Nordic design European design

European market design exemption from derivatives?Nordic market design «cannot escape».

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Derivative regulationsMiFID: Investor protection, MP classification (fin, non fin +/-)Contract definition and exemptions

Commodity regulations

Bilateral leakage- Must be physically settled- Traded on OTF not RM- Regulated by REMIT

Nordic design European design

• Increased cost under EMIR could possible increase bilateral trading.• Nordic market design «cannot escape».• Physical EFET FEMA with operational netting may be exempted• If Transition to physical => Financial capital may pull out (inc. cost, complexity)

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EU reguleringer og implementering Faktorer som påvirker ressursbruk og likviditet….

MiFID II Annex I Section C6 Financial instruments– "Options, futures, swaps, and any other derivative contract relating to commodities that can be

physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products as defined in Article 2 paragraph 4 of Regulation (EU) No 1227/2011 traded on an OTF that must be physically settled”

NC FCA Article 35 1– “Transmission System Operators on a Bidding Zone Border shall issue Long-Term

Transmission Rights unless all National Regulatory Authorities of the concerned CapacityCalculation Region have issued a decision not to issue Long-Term Transmission Rights onsome Bidding Zone Border(s) of the Capacity Calculation Region”.

Short term solution:– Adopt MiFID (the lesser of two evils principle)– NC FCA “Fix” market efficiency

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MiFID II Transition to physical Financial capital pull out

NC FCA Change of Market design Undermining Systemprice

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NC FCA OJECTIVE 1. mål og 1. middel Målet med NC FCA er å gi markeds aktører

hedgings muligheter Middelet er Transmisjonsretter (LTTR)

Vanskelig å nå målet hvis midlene ikke er tilpasset eksisterende marked

Er LTTR stein eller olje i maskineriet?• Non firm kontrakter• Passer dårlig med Systempris + EPAD design• Kanskje unødvendig å intervenere hvis effisiensen

er god nok• Regningen for upassende intervenering må betales

av aktørene over tariff• Redusert forventet flaskehals inntekt => færre

utenlands kabler

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TRANSMISSION RIGHTS VS. EPAD Nordisk markeds design har Systempris som hub Transmissionsretter er BZ to BZ, når ikke inn til hub’en

• Kan fjerne likviditet fra både FWD og DAM Transmissjonsretter er heller ikke «firm»

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HEDGED ITEM VS. HEDGING INSTRUMENT, HEDGING COST Nordiske regulatorer har gjort en formidabel jobb for unntak:

• NC FCA Article 35 4a: Underlying instrument , hedge efficiency based on IAS 39• NC FCA Article 35 4b: Hedging cost, spread based on implicit spread model

Actual spread < Implicit spreadLinear regression Y=aX + b + ra >= 0,8 and a <= 1,25R-squared >= 0,8

2*SQRT(ABS(COV(Short ch: Long ch)))

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EPAD STATUS Nordiske regulatorer har gjort en formidabel jobb for unntak:

• NC FCA Article 35 4a: Underlying instrument , hedge efficiency based on IAS 39• NC FCA Article 35 4b: Hedging cost, spread based on implicit spread model

Aktørene (særlig de norske) gjør lite, mange BZ har ikke engang EPADs Dette er en meget sterk søknad om endring av markeds design

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SIZE MATTERS Mange og dynamiske Bidding Zones

vanskeliggjør en god hedginginstrument struktur.

Er større VWAP baserte BZ indexer som underliggende for EPADs veien å gå for å redusere basis risk og øke konkurranse?

Vil eventuelt fordre forpliktelser fra TSO om noen faste grenser

Aktørene bør bestemme dette, men gjøre ingenting er et dårlig alternativ

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EU reguleringer og implementering Faktorer som påvirker ressursbruk og likviditet….

MiFID II og NC FCA: To svært viktige forhold av betydning– Bilateral fysisk handel kan sette markedet 15-20 år tilbake i tid og vil kunne gi kapital flukt. Er

det det dere vil ha?– Potensiell avvikling av dagens markedsdesign er ment som en hjelp til hedging fra regulator

hold. Trenger dere dette? …men selvfølgelig ikke de eneste

– MiFID: kvantifisering av Ancillary Services– EMIR: ABS Asset-Backed Securities– NC FCA: SAP => En TSO eiet monopol plattform I konkurranse med andre børser– NC CACM: Konkurranse mellom børser omfatter ikke Systempris– REMIT og Transparensforordningen

– Forsinket info (produksjon, magasin) = potensiell innside Informasjon?– Price > SRMC = potensiell market abuse?

EU reguleringer er en del av Pöyry Enterprise Risk Management Audit produkt…16

MiFID II Transition to physical Financial capital pull out

NC FCA Change of Market design Undermining Systemprice

12

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Regulatory Compliance

Contact:Name: Heine RønningenMail: heine.ronningen@poyry.comPhone: +47 90 60 87 74