The European Commission has today adopted technical rules to extend the Market Correction Mechanism (MCM) to derivatives linked to gas trading in all EU hubs. The measure was taken in order to provide an even broader shield from high and volatile gas prices. As foreseen in the MCM Regulation (2022/2578), which enacted rules focussing solely on the gas futures market linked to the Title Transfer Facility (TTF), the implementing regulation adopted today sets out the technical details regarding the application of the MCM to derivatives linked to other virtual trading points in the EU. This implementing act will apply as of 1 May 2023 to allow sufficient time for the affected companies, who operate the virtual trading hubs other than the TTF, to make the necessary adjustments.
Extending the MCM beyond the TTF enhances the protection of the single market by helping to avoid potential distortions to Europe’s energy and financial markets, which could occur as a result of arbitrage in a scenario where the MCM continued to apply solely to TTF derivatives. With this aim in mind, the same activation parameters are maintained and the rules envisage that if/when the market correction mechanism is activated for TTF, it should also be activated at the same moment for the derivatives linked to other hubs. It will also set the same bidding limit. This will ensure a more uniform response and avoid distortions in the internal market for gas.
Aimed at preventing excessively high prices and damaging market shocks in the future, the MCM regulation came into force on 15 February 2023. However, the original regulation only regulated orders placed for TTF derivatives, which account for more than 90% of natural gas derivatives traded on regulated markets in the EU. This was due to the urgent need to ensure the protection of EU citizens and businesses. Given the volatile and unpredictable landscape of the EU natural gas market at present, it is imperative that the MCM can now be applied to derivatives linked to the other virtual trading hubs.
EU Commissioner for Energy Kadri Simson said:
The comprehensive set of measures that the EU has put in place to fight the energy crisis are paying off. Gas markets have been calm since last December with much less volatility, and prices have fallen to their lowest levels since the war in Ukraine started. The Market Correction Mechanism plays a key role in the EU’s crisis response toolbox.
As an emergency measure agreed under Article 122, the MCM is a temporary mechanism which only applies until January 2024.
Earlier this month the Commission proposed to extend the emergency regulation for coordinated gas demand reduction. This was endorsed and adopted by the Council this week.
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Details
- Publication date
- 31 March 2023
- Author
- Directorate-General for Energy