EU, regulators see no need for radical change in energy derivatives
LONDON — European Union officials and regulators on Thursday played down the need for radical intervention in gas markets after prices rocketed this year in the wake of Russia’s invasion of Ukraine.
Gas prices rose so high and fast that governments had to help energy firms meet higher collateral calls on their derivatives contracts, prompting some calls for change.
To make markets less attractive to speculators and day-traders, some members of the European Parliament’s economic affairs committee have proposed amending EU derivatives rules to require buyers of energy, agriculture and carbon derivatives to hold their positions for at least 30 days after purchase.
“Most people believe something did not function properly,” the committee’s chair Irene Tinagli said.
However, John Berrigan, head of the European Commission’s financial services unit, told a parliamentary hearing that markets remained orderly and prices primarily reflect fixed supply and rising demand, which was now being addressed by turning to alternative supplies and fixing bottlenecks,
“What has been the role of speculation? It’s important that I note that speculation is an essential feature of any market. Liquid markets require that participants with various trading motives can freely meet,” Berrigan said.
“We have to make sure that when we intervene, it makes the situation better, not worse,” he said, adding there are already controls on sizes of derivatives positions to stop manipulation.
The EU has proposed to capping gas prices, but only if they hit certain levels over many days.
Hanzo van Beusekom, executive board member at AFM, the Dutch body which regulates the gas derivatives market, said prices will only fall when the supply of alternative gas increases and demand eases.
A cap on prices, as currently proposed, will “not be helpful and might make matters worse,” van Beusekom said, adding that it could also push more trading away from transparent exchanges to more opaque bilateral deals.
Next week, the European Commission — the EU’s executive — could propose that clearing houses hold a separate default fund for commodity derivatives. (Reporting by Huw Jones; Editing by Alexander Smith)
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