Nowadays we have MiFID Europe-wide passport encompassing trading in financial instruments and – possibly, if CEER proposals materialize – Europe-wide passport for wholesale trading in electricity and gas. What about all cross-border issues relating to the other remaining commodities (in particular other fuels and EUAs) taking part in the production of electricity?



CEER Draft Advice of 5 April 2011 on the introduction of a Europe-wide Energy Wholesale Trading Passport - A CEER Public Consultation Document (Ref: C11-WMS-15-04) proposes the introduction of a Europe-wide Energy Wholesale Trading Passport applicable to the electricity and gas. CEER believes that Europe-wide passport is the most appropriate way to implement the necessary requirements and administrative standards, and in such a way burdens for entering the energy trading market would be significantly reduced. Trading firms would not need to apply several times for access permission. This would ensure a level playing field for market participants and lower bureaucratic costs at the same time.


According to the said proposal (available on the CEER website) such a passport should be issued at Member State level by national regulatory authorities. Each trading company would need to apply for such a passport only once and could then use this passport on all European wholesale energy markets. The ACER could compile a comprehensive database with all trading companies active at European level. National regulatory authorities would deliver the respective information to the ACER.


CEER concludes that although there are different options for implementing the trading passport into law, the preferable one should be a Regulation to ensure harmonised requirements. A fast option would be to include such a trading passport as an additional article of the currently discussed Regulation on Energy Market Integrity and Transparency (REMIT).


An interesting issue as regards this legislative concept could be the relation thereof with already functioning MiFID passport. This problem is analysed in more detail in “Wholesale Energy Trading Licenses in the EU” of 21 October 2010 prepared by the Brattle Group Dan Harris, Carlos Lapuerta, Jack Stirzaker, Skadden, Arps, Slate, Meagher, & Flom UK LLP and Edward Swan (analysis which supports CEER’s recommendations). The said document proposes that:


“... investment firms that are currently authorized by any EEA authority to trade energy-related derivatives, and energy contracts on regulated markets, would not require the EU trading license to trade those same products. MiFID already covers physically settled energy contracts that are traded on a regulated market or a multilateral trading facility ("MTF"). However, MiFID licensed traders would require our recommended EU passport to undertake transactions not covered by MiFID, principally physical OTC trades. Firms with a MiFID exemption would also require the EU trading license to trade energy-related derivatives.”


The question is further explained in the following manner:


“As can be seen from the above, the one category of wholesale gas and electricity trading that will not be subject to regulation by financial services regulators is the OTC trading of physical gas and electricity which requires the physical delivery of the actual energy commodity to conclude the transaction, where neither party has the "option" to conclude the contract by other means (such as cash payment) and where physical delivery actually occurs at the conclusion of the transactions in question. Of course, the energy commodities delivered in settlement of these transactions can be subject to regulation by energy regulators where the commodities are used to supply energy networks. This is also the category of energy transactions that cannot benefit from the MiFID passport.”


The idea seems interesting, but it follows from the above considerations that a fragmentary perception still dominates among regulators responsible for a specific pieces of a entire production chain that results in electricity being delivered to the grid.



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