A relaxation of European derivatives clearing legislation as a consequence of the 2021–2023 energy crisis

Abstract

This article discusses the update of the European Market Infrastructures Regulation as a consequence of the 2021–2023 energy crisis. This article explains European law decisions being made to ensure the continued functioning of European derivatives markets. The article focuses on the modification of the margin requirements of central counterparties (ie the decision to accept unsecured commercial bank guarantees, emission allowances, and/or debt issued by public entities as collateral). A relaxation of the stringent collateral requirements could on the one hand ensure energy firms’ continuation to central clearing, but on the other hand lead to negative macroprudential spillover effects. Although central counterparties are most useful in stressed market circumstances and then have to be sufficiently sound, the European Commission still opted for a temporary relaxation, and this article details all the pros and cons that were taken into account in this final decision.