OPINION OF THE EUROPEAN CENTRAL BANK

of 2 December 2022

on a proposal for a Council regulation establishing a market correction mechanism to protect citizens and the economy against excessively high prices

(CON/2022/44)

(2023/C 41/03)

Introduction and legal basis

On 25 November 2022, the European Central Bank (ECB) received a request from the Council of the European Union for an opinion on a proposal for a Council regulation establishing a market correction mechanism to protect citizens and the economy against excessively high prices (1) (hereinafter ‘the proposed regulation’).

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union since the proposed regulation contains provisions affecting the ECB, and the European System of Central Banks’ contribution to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system, as referred to in Article 127(5) of the Treaty and Article 3.3 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

General observations

The ECB takes note of the proposed regulation and its objective of establishing a temporary market correction mechanism and acknowledges the serious challenges excessively high energy prices pose for EU citizens and the Union economy.

The proposed regulation establishes a market correction mechanism for natural gas transactions in the front-month TTF derivatives market, which is activated where two conditions are both met (‘market correction event’). The proposed regulation sets out that the Union’s Agency for the Cooperation of Energy Regulators (ACER) is responsible for monitoring whether these conditions are met, and, where it observes that a market correction event has occurred, must without delay publish a notice in the Official Journal of the European Union (‘market correction notice’) and inform the European Commission, the European Securities and Markets Authority (ESMA) and the ECB of the market correction event. The proposed regulation also provides for the suspension of the market correction mechanism at any time by the Commission, if unintended market disturbances or manifest risks of such disturbances occur, negatively affecting security of supply, intra-EU flows or financial stability (‘suspension decision’).

The ECB acknowledges that mechanisms aimed at moderating extreme price levels and volatility in wholesale gas markets may, in principle, alleviate a number of risks to financial stability, including the risks exposed during periods of elevated and volatile gas prices in 2022. However, the ECB considers that the current design of the proposed market correction mechanism may, in some circumstances, jeopardise financial stability in the euro area. The mechanism’s current design may increase volatility and related margin calls, challenge central counterparties’ ability to manage financial risks, and may also incentivise migration from trading venues to the non-centrally cleared over-the-counter (OTC) market. These considerations, relevant to the stability of the financial system, should be taken into account by the Council in its deliberations on the proposed regulation.

Specific observations

1. The role of the ECB

1.1. The proposed regulation foresees several instances where the ECB is required to, or may, play a role in providing opinions, reports, monitoring and assistance to the Commission in carrying out its tasks under the proposed regulation. First, in respect of the activation of the market correction mechanism, where, based on the results of ACER’s monitoring, there are concrete indications that a market correction event is imminent, the Commission, in order to be able to swiftly suspend the activation of the market correction mechanism, must request an opinion from the ECB, ESMA and, where appropriate, from the European Network of Transmission System Operators for Gas (ENTSOG) and from the Gas Coordination Group established pursuant to Regulation (EU) 2017/1938 of the European Parliament and of the Council (2) on the impact of a possible market correction event on security of supply, intra-EU flows and financial stability (3). Second, in case of a market correction event, the Commission must, without undue delay, ask the ECB for a report on the risk of unintended disturbances for the stability and orderly functioning of energy derivative markets (4). Third, in respect of the suspension of the market correction mechanism, the proposal requires ESMA, the ECB, ACER, the Gas Coordination Group and ENTSOG to constantly monitor the effects of the bidding limit on markets and security of supply (5). Fourth, when considering whether to adopt a suspension decision, the Commission must take into account if the continued activation of the market correction mechanism affects the stability and orderly functioning of energy derivative markets, inter alia, on the basis of a report on the impact of the activation of the market correction measure by ESMA and an opinion of the ECB requested by the Commission for that purpose. The ECB’s opinion must be issued no later than 48 hours, or within the same day in urgent cases, upon a request from the Commission (6). Fifth, ACER, the ECB, ESMA, the Gas Coordination Group and ENTSOG are required to assist the Commission in its tasks established by the proposed regulation (7). Finally, before submitting a proposal to the Council for review of the conditions for the activation of the mechanism, the Commission should consult the ECB (8).

1.2. The ECB recalls that, pursuant to Article 127(5) TFEU and Article 3.3 of the Statute of the ESCB, the ESCB is required to contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. Moreover, pursuant to Article 25.1 of the Statute of the ESCB, the ECB may offer advice to, and be consulted by, the Council, the Commission and the competent authorities of the Member States on the scope and implementation of Union legislation relating to the prudential supervision of credit institutions and to the stability of the financial system. In that context, and in accordance with the principle of mutual sincere cooperation pursuant to Article 13(2) TEU, the ECB stands ready, within the limits of the powers conferred on it in the Treaties, to support the Commission in the exercise of its tasks established by the proposed regulation. The ECB is also aware of the importance and difficulty of the subject matter of the proposed regulation and the potential effects on the financial markets.

1.3. First , such clarification is necessary to ensure that the proposed regulation, to be adopted with Article 122(1) TFEU as its legal basis, does not confer new tasks on the ECB. The conferral of new tasks or responsibilities on the ECB can only take place in those specific and limited instances enumerated under the Treaties, for example pursuant to Article 127(6) TFEU, and subject to the limits set out in those provisions Second , such clarification is necessary to reflect the roles prescribed for other authorities and bodies under Union law, which may be more relevant for the subject matter of the proposed regulation. For example, ESMA is responsible, inter alia, for contributing to the integrity, transparency, efficiency and orderly functioning of financial markets Third , clarifying the ECB’s role under the proposed regulation would avoid an overly formalistic involvement of the ECB and would better facilitate effective cooperation within tight timeframes. Finally, such clarification is more in line with the task conferred on the ESCB pursuant to Article 127(5) TFEU and Article 3.3 of the Statute of the ESCB to contribute to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system. However, the ECB considers that the references to the role of the ECB in providing opinions, reports, monitoring and assistance to the Commission in carrying out its tasks under the proposed regulation should be further clarified to accurately reflect the ECB’s tasks and independence under the Treaties and the clear allocation of technical expertise and responsibilities under Union law ( 9 ) , such clarification is necessary to ensure that the proposed regulation, to be adopted with Article 122(1) TFEU as its legal basis, does not confer new tasks on the ECB. The conferral of new tasks or responsibilities on the ECB can only take place in those specific and limited instances enumerated under the Treaties, for example pursuant to Article 127(6) TFEU, and subject to the limits set out in those provisions ( 10 ) , such clarification is necessary to reflect the roles prescribed for other authorities and bodies under Union law, which may be more relevant for the subject matter of the proposed regulation. For example, ESMA is responsible, inter alia, for contributing to the integrity, transparency, efficiency and orderly functioning of financial markets ( 11 ) , clarifying the ECB’s role under the proposed regulation would avoid an overly formalistic involvement of the ECB and would better facilitate effective cooperation within tight timeframes.such clarification is more in line with the task conferred on the ESCB pursuant to Article 127(5) TFEU and Article 3.3 of the Statute of the ESCB to contribute to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system. Where the ECB recommends that the proposed regulation is amended, specific drafting proposals are set out in a separate technical working document, accompanied by an explanatory text to this effect. The technical working document is available in English on EUR-Lex.

Done at Frankfurt am Main, 2 December 2022. The President of the ECB Christine LAGARDE

(1) COM (2022) 668 final.

(2) Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (OJ L 280, 28.10.2017, p. 1).

(3) Article 3(3) of the proposed regulation.

(4) Article 3(8) of the proposed regulation.

(5) Article 5(1) of the proposed regulation.

(6) Article 5(2)(d) and Article 5(4) of the proposed regulation.

(7) Article 5(4) of the proposed regulation.

(8) Article 5(6) of the proposed regulation.

(9) See paragraph 1 of Opinion CON/2018/20 of the European Central Bank of 11 April 2018 on a proposal for a regulation on the establishment of the European Monetary Fund (OJ C 220, 25.6.2018, p. 2). All ECB opinions are available on EUR-Lex.

(10) See paragraph 3.1 of Opinion CON/2016/11 of the European Central Bank of 11 March 2016 on (a) a proposal for a regulation laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation; and (b) a proposal for a regulation amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (OJ C 219, 17.6.2016, p. 2); see the general observations of Opinion CON/2017/39 of the European Central Bank of 4 October 2017 on a proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs (OJ C 385, 15.11.2017, p. 3); see paragraph 2 of Opinion CON/2020/22 of the European Central Bank of 23 September 2020 on proposals for regulations amending the Union securitisation framework in response to the COVID-19 pandemic (OJ C 377, 9.11.2020, p. 1); and Recommendation ECB/2017/18 for a Decision of the European Parliament and of the Council amending Article 22 of the Statute of the European System of Central Banks and of the European Central Bank (OJ C 212, 1.7.2017, p. 14).

(11) See Article 1(5)(b) of Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84).