Brussels (Platts)--25Sep2012/1232 pm EDT/1632 GMT
Oil and gas major Royal Dutch Shell fears draft EU financial trading rules could force it to divert nearly $1 billion of additional capital through clearing, its chief financial officer Simon Henry said Tuesday. The EU's 2012 European markets infrastructure regulation, known as EMIR, requires all companies breaching set trading thresholds to clear their transactions. The European Securities and Markets Authority is to define these thresholds in draft technical standards that must be submitted to the European Commission by the end of September. The EC is to adopt binding technical standards based on ESMA's draft by the end of the year. In a draft published by ESMA for consultation over the summer it suggested thresholds of Eur3 billion ($3.7 billion) each in gross notional value for commodity derivative trades, interest rate derivative trades and foreign exchange derivative trades. "For a company like Shell, it's very easy to breach one of the thresholds proposed and then transactions will be sent through clearing," Henry told an industry event in Brussels. "This is a direct result of us having a considerable physical commodity trading business. It's what we do. We buy and sell oil, gas, carbon, shipping," he said. "Breaching one threshold breaches all thresholds, and that sends more transactions through clearing. And this ties up significant amounts of capital that could otherwise be used for investment," he said. "We're looking right now at nearly $1 billion of additional capital going through clearing," he said. Many energy companies agreed in their responses to ESMA's summer consultation that the proposed thresholds were too low and that breaching the threshold in one asset class should not force companies to clear trades in the other two. UK oil and gas major BP said in its response: "We anticipate that many physical commodities businesses, which are by no means significant market participants or centers of systemic risk, will exceed this threshold." BP added that the cost to companies to clear all asset class trades if they exceed the threshold of just one asset class would be "punitively expensive." EMIR is part of the EU's legislative response to meet its 2009 G20 commitments for all standardized over-the-counter trades to be cleared through central counterparties by end-2012. The commitments were themselves a response to the global financial crisis.--Siobhan Hall, siobhan_hall@platts.com--Edited by Alisdair Bowles, alisdair_bowles@platts.com