Energy crisis under the spotlight at FIA Forum Paris

FIA continued its forum series with industry and regulator gathering in Paris

18 October 2022


FIA continued its European forum series in Paris on 22 September, where the industry and regulators gathered to discuss the key issues and themes impacting the cleared and listed derivatives markets.

Hosted at Euronext, the forum kicked off with introductory remarks from Stéphane Boujnah, Euronext's CEO and chairman of the managing board, who discussed the market operator's aims to expand its clearing business and build what he called the "backbone of the capital markets in Europe".

"Our purpose is building a pan-EU based market infrastructure, that is strong enough to innovate, offer competitive solutions to clients but with a vision of what the EU taxonomy is all about," he told the conference.

In the derivatives markets, he said Euronext has further developed its equity futures and dividend futures franchise and will continue to invest to further establish itself as a pan-European venue.

In its MATIF commodities market, Euronext's share of open interest in the global wheat futures market has doubled in the last 10 years, taking market share away from the US, he said. Boujnah noted that 55% of the users of its wheat futures are hedgers and physical users, making it "a relevant and stable price formation market."

"Throughout this year of unprecedented volatility in the grain markets, MATIF's model has been a safe haven for [price formation] users and the best place to accurately price the core physical underlying market, especially on the wheat side," he said.

Euronext now fully owns its own capabilities in clearing through its 2021 acquisition of Borsa Italiana Group and its clearinghouse subsidiary, CC&G. Euronext aims to expand the business from Italian markets to all of its markets across Europe. It is also developing tools to help clients benefit from that internalisation of clearing.

Boujnah said that through the connection of Italy to the single liquidity pool, single order book and technology platform, the group is aiming for the Italian clearinghouse to become the default CCP for its cash equity markets by October 2023 and for its derivatives markets in 2024.

"A new situation will emerge to the benefit of our clients with a particular aspect related to commodities where we will have in Paris all the infrastructure for the clearing of commodities, which is important for our French communities," he added.

Boujnah's opening remarks were followed by a keynote address by Fabrizio Planta, head of the markets and data reporting department at the European Securities and Markets Authority.

Focusing on the energy crisis, Planta said that while energy derivatives markets play an essential role for price discovery, measures to contain excessive volatility could help in improving the overall functioning of the markets.

ESMA has been closely monitoring the markets and clearinghouses involved in energy trading, which have seen surging prices and ballooning margin calls since Russia's invasion of Ukraine.

Planta noted that MIFID II already provides for circuit breakers, which temporarily halt trading on markets in volatile periods, but they had been triggered only rarely on EU trading venues during the extreme circumstances that energy derivatives markets had experienced.

His comments came the day ESMA submitted a response to the European Commission, recommending it consider implementing, on a temporary basis, a new type of trading halt mechanism for energy derivative markets.

Planta noted that there was a need also to expand the pool of CCP eligible collateral, but for a time-limited period only. Commercial paper and EU government bonds already qualify as collateral, but he rejected suggestions that EU carbon emission allowances could also be used.

In terms of the commodity clearing threshold, Planta said ESMA had renewed its recommendation to the European Commission to increase the threshold by €1 billion to €4 billion. Currently, energy firms must begin exchanging variation margin on their OTC derivatives if their total exposure breaches the €3 billion threshold.

He added that while ESMA had not observed a strong trend for a move to over-the-counter markets on a consolidated EU level, the regulator had noted a shift to OTC in the Nordic markets.

In other areas, Planta discussed ESMA's technical advice to the European Commission regarding the classification of third-country financial entities in weekly position reports under MiFID II. He clarified that futures and options traded on third country non-equivalent markets should be reported in line with other exchange-traded contracts.

The panels that followed featured a line-up of speakers who discussed in detail the regulatory and macro-economic developments impacting the use of derivatives, as well as measures to address liquidity stress. Industry leaders also discussed the key issues affecting their organisations, from funding of margin to managing operational stresses. 

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