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ASIC Slack on issuers of electricity derivatives [May 2012]

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07 May 2012

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 prepared quarterly.

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 electricity.

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 derivatives?

ASIC is seeking comments on the proposals, including whether the relief should be limited to electricity derivatives, by 29 June 2012.


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Does this mean that the consumer's credit account with the electricity provider would be subject to securitisation?

Would the consumer be given a choice on this securitisation at the time of connecting supply and creating the consumer credit contract?

Have you ever signed a credit contract with an electricity or other utility provider?

Where are the advantages or disadvantages to the consumer in this arrangement?

What type of risk could these derivatives be creating for the consumer, if any?

As for betting on the weather ..... !!

I wonder if ASIC is revising its ideas on the risk and legal status of securities now?

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