EACH – Impact Of Gas Price Cap On CCP Clearing

CCP Clearing Houses represent support infrastructures for the energy markets in Europe.  Energy exchanges ensure that producers and utility companies can rely on transparent and neutral prices formed in the exchanges to allow them to fund and hedge their activities in an effective manner. CCPs support that process by financially guaranteeing those transactions through collateral, as well as by providing transparency, safety and certainty to market participants that use these markets for funding and hedging activities.

We are well aware of the energy crisis that Europe finds itself in and understand the absolute necessity of finding solutions that further promote resilience and consumer protection. We welcome the steps already taken by authorities to address some of the issues identified during this crisis such as those aimed at alleviating the liquidity stress of energy market participants¹.

We are however deeply concerned about the proposed market correction mechanism as included in Article 23 of the draft Council Regulation² on enhancing solidarity through better coordination of gas purchases, exchanges of gas across borders and reliable price benchmarks. As indicated in our September statement on energy markets³, we would only support measures that do not distort the price formation process of the gas and electricity markets, such as incentives to reduce energy demand and subsidies to vulnerable consumers. We consider that a drastic intervention like a de facto cap such as what we believe is the proposed market correction mechanism, would generate a shock that could potentially lead to issues of security of energy supply, dry up of the futures market for hedging price risk by users and increase the risk of some market participants defaulting with possible contagion effects and therefore weakening financial stability.

In line with this EACH supports the arguments expressed by the Association of European Energy Exchanges (Europex) in their letter of 21^st November⁴. 

The robust risk management performed by CCPs to promote sound markets depends on predictable prices from the exchanges. If the de facto price cap proposed were to be implemented it would lower the prices set on the exchanges, likely leading to cascading effects that would unnecessarily increase margins requirements, stress liquidity further and put at risk the CCPs’ default management process leading to financial instability.

Therefore, while we understand the need to take some measures, we wish to ensure that policymakers understand the potential consequences of the de facto cap being proposed and reconsider whether other measures could be considered that do not lead to contagion to the wider financial markets and therefore threatening their stability.

For more information, please visit the EACHwebsite at www.eachccp.eu