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EU ETS Allowances as Financial Instruments

EU ETS allowances as "financial instruments" MIFIR/MIFID II and Emission Allowances Emission allowance (EA) derivative and spot markets fully covered What changes compared to MIFID I? The vast majority of transactions in the EU ETS are derivative instruments. The new rules cover both derivatives and spot contracts (EUA's, EUAA's, CER's and ERU's). MIFIDI (in effect since November 2007) covered all derivative instruments of EU ETS allowances – in theory. However there were a number of exemptions (particularly for physically settled contracts), although there was some uncertainty concerning such exemptions. MIFIDII eliminates this uncertainty and includes the entire EU derivative and spot markets within its scope. EA derivative market EA spot market Exemptions MIFIDII recognises two distinct exemptions which can apply to those trading in emission allowances Specific exemption for operators with compliance obligations under the EU ETS Directive The general "own account exemption" Those who conduct financial transactions on their own account or provide other investment services are also Compliance operators are exempt unless they fall in either of the following three categories: Exempted exempt, as long as these are done on an "ancillary basis". •if the operator provides an investment service unless dealing on their own account •if the operator applies a high frequency algorithmic trading technique • if the operator executes client orders (so-called "matched- principal trading") This general exemption does not apply in the following cases: • if their main business is investment or banking services •if operators make use of high frequency algorithmic trading techniques •if they are executing client orders (so-called "matched-principal trading") There are other specific exemptions for REMIT commodities (natural gas and electricity contracts), which do not apply to emission allowance transactions Position limits Position reporting Position limits apply only to commodity derivatives rather than emission allowances. However, position reporting is applicable to emission allowances (see right) MIFID II imposes an obligation to publish weekly reports on obligation affects investment firms and participants in trading venues, if they trade emission allowances or derivatives the aggregate positions held. This Next Steps MİFID II and MIFIR were published in the Official Journal of the EU on 12 June. The package enters into force on the 20th day following_its publication - i.e. on 2 July 2014. Member States have 24 months to transpose the directives. The new rules will apply 3o months after entry into force of the package. the European Commission requested ESMA (European Securities and Markets Authority) to provide technical advice on delegated acts and implementing acts in MIFID II and MIFIR The delegated acts referred to in MİFID II and MIFIR need to be transposed by European Member States in their national legislation within 24 months of MİFID II entering into force (ie. by June 2016). ESMA has 6 months to complete this task (i.e. by December 2014) The new rules will apply 30 months after MIFID II enters into force (i.e. by early 2017) IETA - Climate Challenges, Market Solutions IETA Boite 27 Rue de la Loi 235 Brussels, 1040, Belgium INTERNATIONAL EMISSIONS TRADING ASSOCIATION For further info, please contact Stefan Feuchtinger ([email protected])

EU ETS Allowances as Financial Instruments

shared by thegoodquestion on Jun 30
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Markets in Financial Instruments Directive (MIFID) and Regulation (MIFIR) impact on trading in emission allowances

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