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European Securities and Markets Authority Publishes Regulatory Technical Standards on Revised Commodity Derivative Clearing Threshold | Shearman & Sterling LLP

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The European Securities and Markets Authority has published a final report and Regulatory Technical Standards on its proposed increase to the commodity derivative clearing threshold under the European Market Infrastructure Regulation. ESMA published a discussion paper on the EMIR clearing thresholds in November 2021. Following feedback, ESMA’s proposed RTS will increase the clearing threshold for commodity derivatives from €3bn to €4bn.

The increase has been prompted by concerns raised by energy firms’ associations about the clearing thresholds. Following Brexit, exposures to U.K. clearing houses became treated as uncleared exposures under EMIR, creating unintended consequences for the thresholds. Respondents to ESMA’s discussion paper also noted the recent rise in energy prices and the impact of Russia’s invasion of Ukraine, which have constricted their ability to operate without breaching the existing clearing thresholds. ESMA agreed with their proposal to raise the existing threshold by €1bn. ESMA has submitted its proposed RTS amendment to the European Commission for endorsement, after which they will be subject to non-objection by the European Parliament and Council.

In their response to ESMA’s discussion paper, energy firm associations also noted the absence of an equivalence decision for U.K. markets (specifically the Intercontinental Exchange and London Metal Exchange, which are the most liquid pools for some instruments), which means these markets have qualified as over-the-counter since January 2021. This in turn means that contracts and exposures to U.K. clearing houses must typically be included in clearing threshold calculations, as uncleared trades. The associations also noted the relative stringency of the EU framework, which they perceived as being stricter than other third-country frameworks. ESMA has proposed measures to further amend the EMIR clearing threshold framework, which were put to the European Commission via a high-level response to its targeted consultation on the review of the central clearing framework in the EU and will help to deal with these concerns. However, the Commission’s review of EMIR will take some time to be adopted, so ESMA’s proposed increase to the commodity derivatives threshold is intended to alleviate some of the issues raised in the meantime.

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