22 November 2021
MIFID – SECONDARY MARKETS
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published its Final Report on draft Regulatory Technical Standards (RTS) for commodity derivatives under the MiFID II Recovery Package. The draft RTS include proposals on the application procedure for position limit exemptions, a methodology to determine position limits and position management tools for trading venues, which will contribute to stable and orderly commodity derivative markets at a time of heightened scrutiny.
Under the MiFID II Recovery Package, position limits will only continue to apply to agricultural commodity derivatives and to critical or significant commodity derivatives defined in Level 1 as commodity derivatives with a net open interest above 300,000 lots over a one-year period. As part of the implementation measures of the new framework, ESMA and the national competent authorities have also separately agreed on a procedure to ensure convergence in the calculation of the open interest and the determination of whether a commodity derivative qualifies as critical or significant.
The draft RTS on the application procedure for the new position limit exemptions and the methodology for position limits have been incorporated into a broad new draft technical standard, together with some amendments to the existing framework suggested by ESMA. The new draft RTS 21a will repeal the existing RTS 21.
The new draft RTS on position management controls provides additional tools for market monitoring by trading venues trading commodity derivatives. The establishment of accountability levels means that market monitoring is being improved at a time when the reliability and efficiency of commodity derivative markets is facing heightened scrutiny.
The European Commission has three months to decide whether to endorse the draft technical standards. The revised MiFID II regime for commodity derivatives will apply at the end of February 2022.