ESMA publishes its Preliminary Report on the EU carbon market
24 November 2021
The Report presents an overview of the financial regulatory environment for the carbon market under MAR, MiFID II and EMIR and the tools available to securities supervisors to fulfil their responsibilities.
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published its Preliminary Report on the EU carbon market. The report responds to the request made by the European Commission (EC) to ESMA in its Communication on energy prices for a preliminary analysis of European emission allowances (EUAs) and derivatives on EUAs.
The Report presents an overview of the financial regulatory environment for the carbon market under MAR, MiFID II and EMIR
and the tools available to securities supervisors to fulfil their
responsibilities. The Report, based on commercial data, also provides an
analysis of price evolution and volatility in EUAs and derivatives on
EUAs. Weekly position reports in respect of derivatives on EUAs were
used for the initial assessment of active counterparties.
ESMA, in its preliminary analysis, has identified the following:
- The number of counterparties holding a position on EUA futures has
tended to increase since 2018 in all categories of counterparties, in
relatively homogeneous proportions in line with the observed expansion
of the EU Emissions Trading System market;
- Open positions are to a large extent, and almost evenly, held by
investment firms and credit institutions on the one hand and by
non-financial counterparties on the other hand, while the remaining
percentage of open positions, held by investment funds and other
financial counterparties, remains relatively low; and
- The breakdown of open positions between the various categories of
counterparties does not appear to have significantly changed since 2018
and is broadly in line with the expected functioning of the market,
where non-financial entities buy EUA futures to hedge their carbon price
exposure, while financial counterparties act as intermediaries to
facilitate trading and provide liquidity to the market.
Next steps
ESMA will conduct an in-depth analysis of the EU carbon market based
on data sources available to securities regulators under European
legislation. ESMA will deliver its final report to the EC in early 2022.
The EC, taking into account ESMA’s Final Report, will assess whether
there is a need for targeted actions in the EU carbon market.
ESMA
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