- MiFID - Emissions are financial instruments:
For the EU and the UK, Emissions rights have a classification of their own ➡️they fall under Section C(11) of Annex I, in addition, any derivatives contracts (options, futures or swaps) relating to emissions allowances are caught under Section C(4)
However, both UK and EU regulations have an exemption for Emissions operators – those entities that are dealing on their own account in emissions rights (ie. Transferring or surrendering them) and that do not apply high frequency trading – NOTE: this only applies to emissions rights and DOES NOT apply to emissions derivatives trading.
Any transactions on emissions derivatives will need to be accounted for the Ancillary Exemption calculations.
OTC Derivatives: If you are transacting in emissions derivatives over-the-counter, remember that you are going to be subject to the EU EMIR and/or UK EMIR. This means reporting of transactions to trade repositories, risk mitigation techniques (timely confirmation, dispute resolution) and most crucially Clearing Threshold calculations, if you do not want to be automatically classified as NFC+ with all the enhanced risk mitigation to be applied.
- Market Abuse Regulation (MAR):
As with any financial trading, emissions trading is subject to the Market Abuse Regulation both in the EU and UK. An often overlooked aspect is training; make sure that you include Market Abuse in your annual training schedule!
- Registration with national registries:
To be able to receive and surrender emissions you will need to open an operator account with an Emissions registry. For EU-registered companies, we would recommend registering with the registry of your country of registration. For non-EU companies, the best option would be to register with your administering authority (see our previous post), be aware that some registries might require that you have a presence in their country to be able to open an account.
Need assistance or more information? Feel free to reach out to us at info@sybisuyconsulting.com.
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