On November 19, 2015, the European Securities and Markets Authority (“ESMA“) published a statement announcing that it will not further extend the existing three year grace period (expiring March 2016) for non-financial firms’ use of non-collateralized bank guarantees to cover transactions in energy derivatives cleared by EU central counterparties (“CCPs“) under EMIR (the Regulation on OTC derivative transactions, central counterparties and trade repositories) (Regulation 648/2012).

From March 15, 2016, CCPs authorized under EMIR will need to fully collateralize commercial bank guarantees used to cover transactions in derivatives relating to electricity or natural gas produced.

ESMA considered that an extension would not be appropriate for the following reasons:

• Allowing fully uncollateralized commercial bank guarantees could mean an undue source of risk for CCPs.
• The existing three year grace period seemed sufficient for the wholesale energy market to prepare for the incoming collateral obligations.
• Some EU CCPs already have implemented the EMIR requirements.
• EMIR requires that a CCP only accepts highly liquid collateral with minimal credit and market risk.
• A new postponement would maintain a discrepancy with international standards such as the CPMI-IOSCO principles for financial market infrastructures.
• ESMA expects parties to be ready to implement the collateral obligation relating to commercial bank guarantees by March 2016.