Issuers of over-the-counter derivatives relating to the
wholesale price of electricity could have easier financial
requirements if the proposals in ASIC's new Consultation Paper
177 Electricity derivative market participants: Financial
requirements are adopted.
This new consultation paper, which is part of ASIC's
revisiting of financial requirements for the financial services
industry generally, proposes to simplify financial requirements of
AFS licensees by moving to a test of net tangible asset measure of
10% of revenue.
On the other hand, ASIC is proposing longer cash flow
projections for electricity derivative market participants
– these would be rolling 12-month cash flow projections
But the proposal only applies to AFS licensees who only trade
electricity derivatives. If you trade gas, weather or oil
derivatives as well as electricity, then the standard derivatives
financial obligations will still apply. As a result, this change
would be of benefit really only to traders who only do
ASIC says that this limitation is justified because
"Australian wholesale electricity markets are highly
regulated, and we are keen to limit the compliance burden applying
to these persons only undertaking financial services activities
relating to the wholesale electricity market by ensuring that our
financial requirements are as simple and clear as possible, and are
appropriate for the nature of this industry sector."
Is there a case to extend the simplified relief to other
energy-related derivatives such as gas, weather or oil
ASIC is seeking comments on the proposals, including whether the
relief should be limited to electricity derivatives, by 29 June
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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