London, 19 February 2011

International energy price reporting agency Argus believes that it is inappropriate for the European Commission to propose the imposition of a regime of regulation designed for equity markets on the energy sector.

Argus disagrees with proposals to limit how much energy prices can vary in any given timeframe. This could lead to disruption in energy supplies, something that has not occurred for over 30 years because of the functioning of effective energy markets. Argus highlights its concerns in a response to the European Commission's public consultation on the "Review of the Markets in Financial Instruments Directive ( MiFID). In its response, Argus warns against unintended consequences such as damage to market liquidity and therefore transparency by ill-conceived regulatory intervention.

Argus believes that price reporting agencies (PRAs) provide efficient and effective post-trade price transparency to over-the-counter (OTC) energy markets. It urges the European Commission to take full account of PRAs as long-established and widely-endorsed vehicles providing post-trade price transparency. Argus urges that any proposals for new transparency requirements in OTC commodity markets should be based on evidence of a need for change from the existing structure. In addition, any new proposals should be subject to the results of a rigorous impact assessment to evaluate the effects on trading liquidity and the number of market participants, Argus says in its response to the MiFID review.

Argus urges against applying "the broad principles of the MiFID transparency regime for equities" to OTC energy markets. "Non-equity markets are significantly different from equities, and within non-equities there are significant differences between asset classes," Argus says. OTC energy derivatives are differentiated by underlying physical assets, lower levels of liquidity and a lack of retail investors, as energy markets are traded by specialist professional participants.

"Argus has worked to bring greater post-trade price transparency to the OTC energy markets for many decades through independent reporting of prevailing market prices," Argus chairman and chief executive Adrian Binks said. "Competition between PRAs ensures that standards are maintained, costs remain reasonable and PRAs continue to innovate."

Argus notes that there has been no evidence presented demonstrating a failure in the existing degree of post-trade price transparency in OTC energy derivatives. Some of the proposals in the MiFID review would treat physical forward contracts differently than under US regulations, which focus on OTC swaps to the exclusion of physical forwards in commodity markets. Argus also believes that emissions allowances should not be classified as financial instruments.

The company stresses that nothing in its comments would impact on a regulator's abilities to have unfettered access to a full dataset of transactions for regulatory oversight purposes.Ends --