Strengthening EU energy derivatives markets through enhanced supervisory coordination, not overregulation

The EU Action Plan for Affordable Energy rightly recognises the importance of keeping energy affordable, while ensuring security of supply and accelerating the energy transition. Efficient and well-functioning energy markets are essential to this goal. Only if markets operate efficiently, they send clear price signals that attract new entrants, stimulate innovation and drive down costs over time. Derivative markets in particular allow energy producers and consumers to hedge risks and undertake the long-term investments the EU urgently requires.

Following the energy crisis, evaluations by ACER1, ESMA2 and the ECB3 confirmed that European derivatives markets delivered on their purpose and contained adequate safeguards. They provided transparency on prices, allowed participants to manage risk, and helped firms weather the crisis during the highest price peaks. Nevertheless, policy discussions have floated the possibility of narrowing the exemption that allows energy firms to act in the market without being subject to banking-type regulation (the Ancillary Activity Exemption), imposing stricter position limits, and reintroducing price limits despite no clear evidence that such interventions are needed, nor clarity on what benefits they would deliver. Such measures will not lower energy prices. Instead, they would significantly raise trading costs that are ultimately passed on to the consumer.

Instead of introducing unfounded restrictions, the EU should focus on strengthening its energy derivative markets through enhanced supervision. With the revisions of REMIT, MiFID II/R, MAR and EMIR establishing an extensive regulatory framework, the time has come to take the next step on supervisory coordination. Enhanced data sharing and cooperation between regulatory authorities will help those authorities gain a broader and more integrated view of the market, benefitting both market surveillance and future policy-making.

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