Citing “current liquidity pressures” in EU energy markets and the need to provide market participants with “more options regarding the assets they provide to the Clearing House as margin cover,” ICE Clear Europe has proposed changes to its rules that would make EU emission allowances (EUAs) permitted margin collateral for net short EUA futures positions (that is, emissions futures contracts in respect of which EUAs are deliverable as settlement upon expiration). Valuation of EUA collateral will be subject to haircuts, as determined by ICE Clear EU in its discretion. Eligible clearing members will be able to use EUAs to collateralize both proprietary and customer positions in EUA futures.
Notably, the new collateral option will not be available to FCM clearing members of ICE Clear EU. ICE’s regulatory filing does not expand on the rationale for this exclusion. ICE Clear EU rules provide that margin collateral may be provided by FCM clearing members to the clearinghouse by way of security interest pursuant to the terms of a New York law security agreement; by contrast, non-FCM clearing members provide margin collateral by title transfer pursuant to English law title transfer terms. It is possible that ICE Clear EU deemed the legal uncertainty around the New York law analysis of a pledge of EUAs, and how a security interest created under such a pledge is perfected, too great to justify extension of the new functionality to FCM clearing members.