Introduction
Industry is now starting to appreciate the significance of
ASIC's Consultation Paper 177 Electricity derivative market
participants: Financial Requirements (Consultation
Paper). For many licensed electricity derivative market
participants (Licensees), the Consultation Paper
will lead to a dramatic increase in the amount of liquid regulatory
capital required to be tied up on balance sheets.
The increase arises because ASIC is looking to introduce new
financial requirements that will apply to Licensees that enter into
electricity derivatives. The new financial requirements will
operate in tandem with financial requirements that apply to
derivatives over other commodities, in particular the need to have
adjusted surplus liquid funds of up to 5 per cent of liabilities.
Given that most Licensees will enter into derivatives over a range
of commodities, the effect is that most Licensees will need to meet
both sets of financial requirements.
