On April 9, ISDA, the Commodity Markets Council Europe (CMCE), Energy Traders Europe (ETE) and FIA jointly responded to Chapter 7 of the UK Financial Conduct Authority’s (FCA) Quarterly Consultation CP26/8 on increasing the clearing threshold for commodity derivatives under the UK European Market Infrastructure Regulation (EMIR).

The response supports the FCA’s intention to increase the clearing threshold for commodity derivatives from its current level of €3 billion, but argues that the proposed level of €5 billion is not sufficient, and that the threshold should instead be increased to €6 billion. Changes to market structure dynamics since this threshold was first set more than a decade ago, such as significantly increased commodity prices and market volatility, mean that the current threshold has shrunk considerably in real terms. A significant increase is necessary to avoid the threshold acting as a drag on UK commodity derivatives markets, and to enhance UK competitiveness.

The proposed increase is a temporary measure while the UK Treasury reviews Title II of UK EMIR, which is expected to include a comprehensive assessment of clearing thresholds and the methodology by which they are determined. It is essential that review continues to take account of the unique characteristics of commodity derivatives markets and does not result in a reduction below €6 billion.