A regulation passed by the EU that implements the G-20 2009 Pittsburgh Agreement to introduce regulations to reduce systemic risk in the banking system, in a similar fashion to Dodd-Frank. The European Securities and Markets Authority (ESMA) will be the implementing authority. The regulation includes four ‘pillars’:
1) Transparency via trade reporting.
All over-the-counter (OTC) and exchange-traded derivatives (ETD) deals to be reported to registered trade repositories.
2) Clearing. As many standardised OTC derivatives as possible to be cleared via central counterparties (CCPs) and moved to electronic trading.
3) Rules on the running of CCPs.
4) Risk management. Five measures to reduce risk:
a) timely confirmations
b) portfolio reconciliation
c) portfolio compression
d) dispute resolution
e) mark-to-market/model rules.
EMIR applies to financial counterparties (FCs) and non-financial counterparties (NFCs), such as energy traders, in different ways. All must report trades. Clearing is likely to only apply to NFCs that are over a ‘threshold’ (known as NFC+ participants). Each risk management measure differs depending on which type of market participant is being considered – FC, NFC or NFC+.
* see also central counterparty (CCP); Dodd-Frank; G-20 2009 Pittsburgh Agreement; Markets in Financial Instruments Directive (MiFID); Markets in Financial Instruments Directive II (MiFID II); portfolio compression; portfolio reconciliation; trade repository
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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