Transcript Wholesale energy trading licenses in the EU

Wholesale energy trading licenses
in the EU
Johannes Kindler,
Vice-President Federal Network Agency Germany
Vice-President ERGEG
XVIII Madrid Forum
Madrid, 27-28 September 2010
Background
Important message of CESR/ERGEG's – Advise of 2008:
Trust in integrity and proper functioning of energy trading is
"conditio sine qua non" for the creation of a single European energy
market with high level of liquidity and high degree of competition.
=> Only achievable by an adequate regulatory oversight regime!
Therefore the European Commission mandated European energy
regulators to develop advise weather the implementation of a
trading license would have an important function within the regulatory
system.
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What is the problem?
Lack of harmonisation in the European Energy market
• Different national administrative requirements for traders when
operating on national wholesale energy markets.
• "no requirements" (Germany)  "serious requirements"
(e.g. Czech Republic requires to open a branch office)
• Existence of different requirements is an entry barrier and
thus an obstacle on the way towards a true pan-European
energy market (e.g. costs in Hungary for getting a license =
approx. € 16.000)
Need for a "Schengen Agreement" on energy trading
… for free trading from Palermo to Hammerfest
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What is the problem ?
Regulatory gaps in wholesale energy market
oversight regime
• Increase of energy trading creates massive "new" risks
for market integrity (market abuse, insider trading, VAT
fraud).
• Current regulatory framework, (e.g. MiFID or specific
rules of national "market places") only addresses partly
some of the existing risks.
• Single trading license is supposed to close regulatory
gaps
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Therefore …
… European energy regulators
commissioned external consultants
• to analyse the current situation in the Member
States and
• to give recommendations on harmonisation and
design of administrative requirements for trading.
 Based on the outcome of this study detailed
recommendations will be developed by
European energy regulators.
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Scope of the study
• To provide comprehensive advise on the legal,
physical and financial characteristics of the
administrative requirements as well as best practice
examples.
• To inform European energy regulators on the
appropriate level of harmonisation of trading
requirements and the potential benefits and costs.
• To analyse if in the context of existing financial
regulation (i.e. MiFID and MAD) there is a need for
implementing an energy sector licensing system
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Main findings of the study
• Differences between national regimes result in
(unjustified) barriers to market entry, e.g.
• High cost of obtaining a license for "small traders" in
some countries (e.g. Hungary)
• Differences in the length of the application procedure
• Regulatory gap regarding
• physical (OTC) trading of electricity and gas
• "non-MiFID firms" being active in the commodity and
commodity derivative markets (esp. trading branches
of energy companies)
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MiFID coverage (green) /noncoverage (red)
MiFID
general
rule
Own
account
exemption
Parents’ or
Subsidiaries’
exemption
Commodity
business
exemption
Hedging
and locals
exemption
Spot/
Physical
Physically
settled nonstandardized
derivative
Physically
settled
standardized
derivative
Cash settled
derivative
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Main findings of the study
Provisional conclusions:
• A single EU trading license both for electricity and gas
is recommended.
• "Extension" of MiFID inappropriate: requirements of
trading license go partly beyond MiFiD, e.g.
transaction reporting
• But: transactions already covered by MiFID should not
require the EU trading license.
• Every licensee should be licensed in its home country
– the trading license will then be valid in all EEA
countries.
• The license should cover gas and electricity wholesale
trading (not supply).
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Main findings of study on
licensing requirements
Licensing requirements (with respect to applicant), esp.
• "Fit and proper person test" ("quality control")
• Set up of effective risk management
Ongoing requirements (to supervise licensee), esp.
• Record keeping of all relevant transactions
• Record keeping of all personnel involved in the
business of Licensee relating to transactions
Administrative requirements, esp.
• Applicant's "home state" Energy Regulator is responsible
for issuing the license
• License fees: cost-based
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Next steps
• The preliminary findings of the study were
discussed with “practitioners” (EFET)
together with CESR representatives and
the consultants (in September)
• Based on the outcome of the discussion
the finalised study will be open for a public
consultation (in autumn)
• A public hearing is also foreseen
• ERGEG policy advise in 1st quarter 2011
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Thank you for your attention!
www.energy-regulators.eu
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