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Commodity Derivatives

Commodity Derivatives

MiFID II/MiFIR introduce new regulations for commodity derivatives with a view to ensure that participants in commodity derivatives markets are subject to appropriate regulation and supervision.

    To implement the new regulations, ESMA has developed two draft regulatory technical standards (RTS) and two draft implementing technical standards (ITS), all delivered in 2015/16.

    ESMA continues to adopt, where necessary, Level 3 measures (Q&As , opinions, etc.) to provide guidance to the different stakeholders and ensure consistent implementation across the Union.

    Ancillary Activity

    MiFID II establishes a number of numerical tests to determine whether investment activities in commodity derivatives are ancillary to the main business of an undertaking. The ancillary activity tests to be performed are further specified in Commission Delegated Regulation (EU) 2017/592 (RTS 20).  

    ESMA has issued an opinion that intends to help market participants in performing the test in relation to overall market size. 

    Position limits and position management controls

    MiFID II establishes a position limit regime for all commodity derivative contracts traded on trading venues and economically equivalent OTC contracts. The methodology to be followed by national competent authorities when setting position limits are further specified in Commission Delegated Regulation (EU) 2017/591 (RTS 21). Article 57(10) of MiFID II requires ESMA to publish and maintain a database with summaries of positon limits and position management controls on its website. Liquid contracts receive bespoke position limits set by the relevant NCAs. For illiquid contracts, the spot month and the other months' limits are set by default in Article 15 of RTS 21 and amount to 2,500 lots or 2,5 million securities issued in the case of securitised derivatives. ESMA has also published a list of liquid contracts that will receive a bespoke position limit which also provides information on the actual position limits established per contract and provides links to the opinions ESMA has issued in accordance with Article 57(5) of MiFID II. ESMA will continue issuing such opinions in the course of MiFID II implementation.

    Position reporting

    MiFID II also establishes position reporting obligations to enable monitoring of compliance with the position limit regime and it mandates the publication of weekly reports detailing aggregate positions held by different categories of market participants. The format and timing of those reports are specified in Commission Implementing Regulation (EU) 2017/1093 (ITS 4) and Commission Implementing Regulation (EU) 2017/953 (ITS 5). ESMA is required to centrally publish the weekly reports on its webpage.