The European Commission proposed on Wednesday stricter rules on the EU commodity derivatives markets, after the spike in prices led to liquidity issues at some energy companies using the derivatives markets to hedge future sales.
The European Market Infrastructure Regulation (EMIR), which regulates derivatives transactions, needs to be enhanced, the Commission said in the proposal.
"Recent developments in energy markets, with several energy companies facing liquidity issues when using derivatives markets, have also illustrated that EMIR needs to be enhanced so that the risks to the EU's financial stability continue to be mitigated in light of new challenges," the Commission said in its reasoning for proposing stricter rules.
"This means building a safe, robust and competitive EU central clearing ecosystem, able to withstand economic shocks."
The capital markets regulation is expected to build a safe and resilient clearing system, for example, "by increasing the transparency of margin calls, so that market participants (including energy firms) are in a better position to predict them," the Commission said.
The new measures "also address issues that have emerged in the clearing of derivatives by energy companies in light of the current challenges they are facing," said Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union.
Europe's financial authorities are also strengthening the oversight of the energy derivative trades used by energy firms to hedge power and gas prices as policymakers look to avoid a spillover effect of the energy crisis into financial markets. In the energy derivative market, worth trillions of euros, energy firms faced more than a trillion euros in margin calls in September, a development that could have triggered a collapse of "Lehman Brothers" proportions in the energy industry.
Earlier this year, European energy companies were facing margin calls totaling $1.5 trillion in the derivatives market, and many would need policy support to cover them amid wild swings and skyrocketing gas and power prices, Helge Haugane, Equinor's senior vice president for gas and power, told Bloomberg in early September.
By Charles Kennedy for Oilprice.com
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