Entering 2013, the US Dodd Frank regime starts to take hold -- real time reporting of swaps by swap dealers starts early in 2013 with swap data repository ("SDR") reporting for "other commodity swaps" -- meaning any swap on a commodity that could be physically delivered. The data and reporting requirements may seem onerous but let us examine the EU regime under something named "REMIT".
REMIT is the "Regulation for Energy Market Integrity and Transparency" being developed by the EU at this time. On October 23, 2012 the Agency for Coordination of Energy Regulators ("ACER") Recommendations on REMIT Records of Energy Transactions was issued. It purpose was to assist in the definition of the records to be reported to identify "the precise identification of the wholesale energy products bought and sold, the price and quantity agreed, the dates and times of execution, the parties to the transaction and the beneficiaries of the transaction and any other relevant information". This does not cover swaps markets -- this covers wholesale physical markets.
Understand, this is not just transaction data -- in the report it calls for "a mandatory reporting of nomination/scheduling information and records of transactions on balancing market through TSOs, with the possibility of third parties reporting on their behalf." The REMIT regime covers the entire wholesale energy market on a transaction level reporting basis. In addition, there is a requirement for the disclosure of inside information. As the report states:
The concept of "inside information" comprises on the one hand only those transparency information that is likely to have a significant effect on the prices of wholesale energy products, but on the other hand goes even beyond and also includes other information that a reasonable market participant would be likely to use as part of the basis of its decision to enter into a transaction relating to, or to issue an order to trade in, a wholesale energy product, insofar as this information is likely to have a significant effect on the prices of wholesale energy products.
The registration data required to be submitted from participants includes an item designated as "Publication Inside Information" which is defined as "place of publication of insider information if different from the website of the market participant". European wholesale market participants are required to publicly disclose on the market that they receive just in discussion with counter parties or that arises from their internal scheduling.
The swap market regulations of the EU fall under both the Market in Financial Instruments Directive ("MiFID" -- it comes in both MiFID 1 and MiFID 2) and the European Market Infrastructure Regulation ("EMIR") regulations. MiFID was targeted more directly are the pure financial markets -- interest rate swaps, credit default swaps, etc. -- while EMIR was directed at energy commodity swaps but there are overlaps. The combination has subtle differences from Dodd Frank in how they approach clearing and mandatory electronic execution. The important point to note is that Dodd Frank, REMIT, EMIR, and MiFID all have operational, control, data and reporting requirements that overlap without being completely consistent.
In Canada, the Canadian Securities Administrators are working on provincial level rules that would coordinate with the G-20 accord on reporting of swap data and the more specific US Dodd Frank rules. One of the more contentious points in the initial proposals was that there would be no de minimis threshold hold for requirements for swap dealer registration. As initially proposed, if a company did not act as a pure price taker, they would be classified as a swap dealer. The CSA proposals did not appear to affect the physical market the way that Dodd Frank and REMIT are likely to but they may have more impact on corporate activity in the market place if the de minimis levels are not addressed. The CSA's initial approach is also to coordinate with the US SDR regime and its attendant issues.
This overview will not serve as a primer on what is required of energy and utility firms but is intended to raise the following points:
- US energy and utilities firms operating in Canadian markets may find significant new compliance issues arising in the coming year;
- European energy and utility firms will soon face the challenge of addressing multiple data and control requirements that overlap but that are not identical;
- As regulators in different jurisdictions begin to create data requirements that exceed those in a company's parent jurisdiction, how does a firm avoid "contamination" from the more intrusive data requirements into the parent jurisdiction -- the "if you have the data over there, why can't you give it to me here?" problem.