The European Securities and Markets Authority (ESMA) has issues today further clarifications regarding the position limits regime under the Market in Financial Instruments Directive (MiFID II).
ESMA issues an opinion and Questions and Answers (Q&As) which define under which circumstances non-EU commodity derivative contracts, which are economically equivalent to contracts traded on an EU trading venue, can be consider economically equivalent over-the-counter (OTC) contracts.
MiFID II requires national competent authorities (NCAs) to establish position limits on the net positions a person can hold in certain commodity derivatives and economically equivalent OTC contracts (EEOTC). ESMA’s clarification helps to better identify those contracts, which have, or not to be included in the position limit regime.
The ESMA opinion sets out three criteria for third-country venues in order for their trading not to be considered OTC. The non-EU trading venue must:
- operate a multilateral system venue;
- be authorised in its home country; and
- be supervised by a competent authority that is a full signatory of the IOSCO Multilateral Memorandum of Understanding concerning Consultation and Cooperation and the Exchange of Information (MMoU).
Should a third-country venue meet these three criteria, economically equivalent commodity contracts traded on that venue will not be considered EEOTC and therefore not fall within MiFID II’s position limits regime.
Providing further clarity helps to prevent inconsistent supervisory practices across EU Member States and thereby contributes to supervisory convergence and strengthening legal certainty in the application of MiFID II. Therefore, ESMA is also publishing a list of trading venues that meet the criteria set out above. That list is published in an Annex to this Opinion and will be updated on an on-going basis.
Where a third-country trading venue appears in the annex to the ESMA Opinion, economically equivalent contracts traded on that venue will not be considered EEOTC for position limit and position reporting purposes. Economically equivalent contracts traded on any other third-country trading venue which does not appear in the Annex to the Opinion will be considered EEOTC.
