Europex post-energy crisis policy recommendations for strengthening the integrity and resilience of commodity derivatives markets

There is strong and compelling evidence that some of the peaks in the price of European natural gas, which transpired in the summer of 2022, were exacerbated by unconventional buying in day-ahead gas markets, as a direct result of trading activity aimed to fulfill gas storage filling obligations under the EU Gas Storage Regulation. By the end of 2022, to address volatility and elevated price levels in European natural gas, EU emergency measures were agreed, including the Market Correction Mechanism (‘MCM’), an Intra-day Volatility Management Mechanism, and review clauses were introduced in the MiFID II commodities derivatives section, which aimed to address perceived inadequacies in the functioning of energy derivatives markets. However, the emergency measures and MiFID review clauses did not consider the principal cause of the price peaks, i.e., the need for certain companies to rapidly find new sources of gas after Gazprom stopped honouring its long-term contracts towards European customers, including entities which were mandated to fill European gas storages ahead of the upcoming winter.

In light of the upcoming review of the MiFID/R commodity derivatives section, Europex recommends that the European Commission adopt a broader perspective, taking into account the impacts of EU emergency legislation on energy derivatives markets. To this end, we invite the Commission to:

  • Put forward legislative proposals that ensure gas storage filling targets are met in a controlled and diversified manner;
  • Allow the MCM to lapse, as it poses serious risks to financial stability and security of supply and does not fit with the EU’s ambition to foster the CMU, improve its competitiveness and strengthen its strategic autonomy, and;
  • Refrain from revising the MiFID commodity derivatives section, including the position limits regime, the position management framework and the ancillary activity exemption, as no inadequacies were found in financial markets during the energy crisis following extensive reviews by ACER, ESMA and the ECB.

Please, find the full paper attached.