EU gas price cap risks curbing market liquidity – draft

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EU countries agreed in December to a gas price cap that would kick in if the Title Transfer Facility (TTF) gas hub prices rise to high levels that are also Significantly raised liquefied natural gas prices – a long-debated policy designed to avoid record highs. gas prices Europe experienced last year.

In a report to be published on Monday, a draft of which was seen by Reuters, the European Securities and Markets Authority said that if gas prices move towards the level leading to a ceiling, market participants are likely to change their behavior to avoid triggering the cap or prepare to apply the cap.

“While this behavior appears rational on an individual basis, it can lead to significant and sudden changes in the wider market environment, which can impact on the orderly functioning of markets, and ultimately finally on financial stability,” ESMA said.

ESMA said it appeared likely that market participants would switch to trading in contracts or venues where the gas price cap does not apply – either by moving to non-EU trading platforms or trading “over the counter”. This could deal a blow to liquidity in the regulated markets for TTF contracts, ESMA said.

The full impact of the price cap can only become clear when it is close to being activated, ESMA said.

ESMA and EU energy regulator ACER, have been tasked with producing an initial analysis by Monday, and a full report by March, on whether the gas price cap could have unintended negative consequences for financial and energy markets.

(Reporting by Anthony Deutsch; writing by Kate Abnett; editing by Huw Jones, Kirsten Donovan)

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