Embed Size (px)
DESCRIPTION
3 Market Participant Eligibility Criteria Annual Management attestation –Annual certification by an appropriate Officer of Market Participant Due initially after date of approval of the exemption, and by April 30 th annually thereafter, in connection with issuance of annual financials Failure to provide would lead to exclusion from markets Required for all Counter-Parties Management attestation contents –Expertise in risk management and RTO/ISO markets Appropriate training –Ability to respond to ISO/RTO direction Internal controls and processes August 5 th 2011CWG/MCWG
Citation preview
Commodities Exchange Act Market Participant Criteria and Attestation
Mark RuaneERCOT Vice President of Credit and Enterprise Risk Management
CWG/MCWGAugust 5th 2011
ERCOT Public
2
Market Participant Eligibility Criteria
An expected condition for a Commodity Exchange Act exemption will be the institution of market participant eligibility criteria. ERCOT proposals will be broadly in line with those of put forward by other ISOs/RTOs.
Key Components:•Annual management attestation
– Expertise in risk management and ISO/RTO markets– Ability to respond to ISO/RTO direction
•Capitalization requirements•Risk management capability verification
August 5th 2011 CWG/MCWG
3
Market Participant Eligibility Criteria
• Annual Management attestation– Annual certification by an appropriate Officer of Market
Participant• Due initially after date of approval of the exemption, and by April
30th annually thereafter, in connection with issuance of annual financials
• Failure to provide would lead to exclusion from markets• Required for all Counter-Parties
• Management attestation contents– Expertise in risk management and RTO/ISO markets
• Appropriate training – Ability to respond to ISO/RTO direction
• Internal controls and processes
August 5th 2011 CWG/MCWG
4
Market Participant Eligibility Criteria
• Management attestation contents (cont.)– Sufficiency of risk management capabilities
• Demonstrate comprehensive risk management framework applicable to the markets in which Market Participant transacts.
• Evidenced by:– Risk policies– Procedures and internal controls– Delegations of Authority– Independent risk management function
• Other ISOs/RTOs have proposed requirements for weekly probabilistic assessment of CRR positions.
• Most require identification and documentation of the risks to which the Market Participant is exposed.
• FERC appears to favor submission of a narrative describing risk management capabilities.
August 5th 2011 CWG/MCWG
5
Market Participant Eligibility Criteria• Capitalization Requirements
– Asset and net worth tests– Limits originate in Commodity Exchange Act ‘Eligible Contract
Participant’ definition §1.a(18) – Other requirements
• Participation Collateral will be required if limits are not met– Participation Collateral will not be available for other purposes
(e.g. will not be available to cover TPE requirements)– Participation Collateral must be held by ERCOT and for ERCOT’s
sole benefit• Capitalization requirements may be met by an acceptable guarantor
August 5th 2011 CWG/MCWG
6
Market Participant Eligibility Criteria
• Draft Capitalization Requirements
August 5th 2011 CWG/MCWG
Counter-Party intends to satisfy the capitalization criteria of the minimum participation requirements applicable to the market(s) in which the Counter-Party transacts through provision of its most recent audited financial statements, or those of an acceptable guarantor, that show: For Counter-Parties seeking authorization to participate or participating in all ERCOT markets
$10 million in total assets OR $1 million in tangible net worth
For Counter-Parties seeking authorization to participate or participating in all ERCOT markets except for CRR markets
$5 million in total assets OR $500,000 in tangible net worth
In the event audited financial statements do not demonstrate sufficient Tangible Net Worth or Total Assets, Counter-Party or acceptable guarantor will provide Secured Collateral in the form and amount necessary to participate in markets as follows: For Counter-Parties seeking authorization to participate or participating in all ERCOT markets
$500,000 Participation Collateral
For Counter-Parties seeking authorization to participate in or participating in all ERCOT markets except for CRR markets
$200,000 Participation Collateral
7
Market Participant Eligibility Criteria
• ERCOT may require Participation Collateral to be posted in certain instances, such as:– Prospective Counter-Parties or Counter-Parties with six months or less experience in ERCOT markets– Qualified audit opinion– Material civil or criminal litigation– Credit watch with negative outlook– Material quarterly or annual losses– Bankruptcy, dissolution, merger or acquisition– Material adverse changes in market indicators of risk, eg CDS prices
August 5th 2011 CWG/MCWG
8
Market Participant Eligibility Criteria
• Risk Management Capability Verification– All CRR Market Participants will be asked to supply risk
management policies, procedures, controls, reports etc. for review and respond to requests for additional information, as needed.
– Mandatory verification of capabilities based on some level of position size and risk
– Discretionary verification of other participants– Materials due five business days after request– Verification may be contracted to a third party
• Potential fee– Participation in markets conditioned on notification of acceptance of
documentation supplied
August 5th 2011 CWG/MCWG
9
Questions
August 5th 2011 CWG/MCWG
