EU gas cost ceiling endangers health of market| MENAFN.COM

Saturday, 04 February 2023 01:35 GMT

EU gas cost ceiling endangers health of market

(MENAFN) The operation of the region's exchange-traded gas markets is expected to be impacted by the European Union's new gas market correction mechanism, the price cap, which goes into effect next month, according to a study released on Monday by the bloc's financial and energy market authorities.

Market players may alter their actions to prevent the activation of the mechanism or to adjust to it, according to the European Securities and Markets Authority (ESMA).

ESMA also mentioned that “by curbing the key price discovery function of regulated markets, the mechanism will not come without consequences on market participants' trading behavior and may have an effect on the ability of all market participants to effectively manage their risks.” Then, traders could be compelled to use contracts and markets that are unaffected by the price restriction.

The agency issued a cautionary, highlighting the possibility that this might reduce open interest and jeopardize liquidity on regulated markets for the European Union's benchmark TTF gas contracts, “such adaptations could be achieved by various means, notably by shifting trading to OTC (over the counter) or to non-EU venues… It could trigger significant and abrupt changes of the broader market environment, which could impact the orderly functioning of markets, and ultimately financial stability.”


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