ESMA has announced that it will not further extend the existing three-year grace period for non-financial firms’ use of non-collateralised bank guarantees to cover transactions in energy derivatives cleared by EU central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR). From 15 March 2016 CCPs authorised under EMIR will need to fully collateralise commercial bank guarantees used to cover transactions in derivatives relating to electricity or natural gas produced. ESMA declined the extension on the following grounds:
- allowing fully uncollateralised commercial bank guarantees could mean an undue source of risk for CCPs;
- the existing grace period seems sufficient for the wholesale energy market to prepare for the incoming collateral obligations;
- some European CCPs already have implemented the EMIR requirements;
- EMIR requires that a CCP only accepts highly liquid collateral with minimal credit and market risk; and
- a new postponement would maintain a discrepancy with international standards such as the Committee on Payments and Market Infrastructures (CPMI)-IOSCO Principles for Financial Market Infrastructures.