The MIFID Directive does not regulate, in general, the legal requirements for spot markets in  CO2 emissions allowances. The legal base for such a view is the Article 38 of the Commission Regulation No 1287/2006 of 10 August 2006 (subject to conditions described in detail in the said provision).


On the other hand, taking into account the economic side of the issue, it is often pointed out, that spot trading of EUA, CER and ERU serves, in principle, commercial purposes (and not the speculative ones).


So, in general, in most cases, the commodities spot markets have different, in relation to markets in financial instruments, national legal schemes.


It applies also to Poland, where the Commodity Exchanges Act of 24 October 2000 sets particular requirements as regards CO2 brokers wishing to trade in spot CO2 markets on the Polish Power Exchange.


Article 32 para 2 subpara. 2 and 4 of Commodity Exchanges Act of 24 October 2000 (consolidated version: O.J. 2005, No 121, item 1019 as amended) points out the categories  of activities on commodity exchanges requiring the authorisation of the Polish Financial Supervision Authority (KNF). In relation to CO2 spot trading it inter alia lists:


- acquisition or disposal of CO2 allowances on account of a third party (which is described in more detail in Article 38b of the said bill),

- giving advice as regards commodities exchange trading.


The Community legal acts:


1) Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC and
2) Commission Regulation No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards recordkeeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive,


leave the matters of spot trading in commodities to the Member States’ competence. Thus legal scheme for CO2 spot trading on national exchanges may vary, depending on which individual Member State we take into account.


There is a large group of CO2 spot trading brokers not having an authorisation for performance of investment services or activities as a regular occupation or business on a professional basis (see: Article 5 of a MIFID Directive). They are also not in the possession of the Polish KNF authorisation.


As a consequence of above mentioned settings, it is, in general, possible a situation, in which Polish EU ETS compliance entities can engage the said brokers as an intermediary in spot CO2 trading, for instance, on BlueNext Exchange in France, but not on the Polish Power Exchange.


It seems to be unjustified disturbance of the European common market. EU ETS compliance entities have in such manner uneven conditions for competition, which should be considered also from the EUETS coherence point of view.


It follows from the above considerations, that as the legal schemes for European markets in financial instruments were harmonized through the MIFID Directive, there should also legal schemes for commodity spot markets be, in some basic features, standardized. Unification of current differences in that matter between individual Member States’ legal schemes would thus contribute to the better functioning of EUETS.





The authorization for brokers dealing in CO2 spot markets?

Copyright ©Michał Głowacki



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