ECB Turns Down Energy Traders’ Request for Financial Support

(Bloomberg) -- The European Central Bank will not provide emergency funding to energy traders, despite pressure from the industry.

The European Federation of Energy Traders, a lobbying group representing companies including Uniper, Shell and Enel, had met with the Bank asking for a fund so that exchanges and clearing members would be backstopped in event of a default.

But the ECB said in a confidential memo, sent to members of a market infrastructure committee and seen by Bloomberg News, that its statutes prevent it from providing guarantees or mechanisms that would support the traders.

As commodity prices moved higher on concerns Russia's invasion of Ukraine will see supply dwindle, traders have been facing increasing cash requirements to back their trades in the form of margin calls.

These higher costs have forced some to cut exposure to commodities like natural gas, contributing to a sharp decline in market open interest and increased volatility.

“In bilateral discussion with EFET, it has been clarified that the ECB cannot grant direct loans or credit lines to energy market participants that are not credit institutions,” the memo said. “Emergency liquidity assistance from national central banks may be possible, depending on their national central bank mandate.”

Commodity markets have been thrust into the spotlight as the potential systemic risks associated with trader and exchange defaults emerged in recent weeks. This March saw several brokers at risk of default as a monster short squeeze saw nickel prices spike 250% in little more than 24 hours.

The Bank itself warned of the dangers price volatility poses following Russia's Ukraine invasion.

“The ECB sees a clear risk that the situation could deteriorate in case energy prices would be further impacted by the evolution of the geopolitical situation,” the memo said.

The EFET and ECB both declined to comment.