coffee, you and mifid 2 - simmons & simmons march/coffee.pdf · coffee, you and mifid 2 impact...

Coffee, you and MiFID 2 Impact of MiFID 2/MiFIR on derivatives and commodity business

Dr. Harald Glander Norman Mayr Jonathan Melrose

Frankfurt, 19 February 2015

2 / L_LIVE_EMEA2:11170274v4 © Simmons & Simmons 2008

Agenda

Impact of MiFID 2/MiFIR on derivatives

Impact of MiFID 2 on commodity business


MiFID 2: we’re almost there!

2014 2015 2016 2017

14 Jan 2014: Political

agreement reached

15 April 2014: Ratification of

Level1 text

13 May 2014: adopted by

Council

22 May 2014: ESMA’s first CP and DP

12 June 2014: Publication

1 August 2014: Deadline for CP &

DP responses

19 Dec 2014: CP and final report

issued to Commission;

Second CP issued by ESMA

June & Dec 2015: ESMA to submit RTS and ITS to

Commission

Dec 2015: Commission to

accept proposed

Level2 text

3 July 2016: Entry into

national force

3 January 2017:

Compliance deadline


• Dealing on own account (e.g. narrowing of exemption) • Senior management and internal controls (e.g. governance,

composition of board) • Electronic trading (e.g. DMA, algotrading) • Conduct of business (e.g. inducements, best execution) • Product governance and intervention (e.g. extension of

complex product definition to embedded derivatives, intervention powers national regulators and ESMA)

extended and new rules on

financial instruments

and investment firms

Key impacts (1)

MiFID 2/MiFIR impacts derivatives business in general…


• market structure

• commodity derivatives

2 key impacts

Key impacts (2)

…however


Topic MiFID 2/MiFIR

FR CP

Pre-trade transparency on trading venues 8 MiFIR 3.6

Post-trade transparency on trading venues

10/21 MiFIR 3.7

Transparency for systematic internalisers 14-18 MiFIR 3.3

Trading obligation 28 MiFIR 3.11

Organised trading facilities (OTFs) 4(1)(23) and 20 MiFID

6.3

Key impacts (3)

Key impacts on derivatives market structure


Risks of market disorder

Systemic risk

Efficiency of financial

markets

Key impacts (4)

Main objectives


Pre-trade transparency for non-equity instruments

Overview pre-trade transparency rules for derivatives

Venue/IF

RM

MTF

OTF

IF=SI IF≠SI

Now MiFID 2

Now MiFID 2

Now MiFID 2

Now MiFID 2

Now MiFID 2

No Yes No Yes N/A Yes No Yes No No

© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

9 /


Art. 8 MiFIR

Publication by RM, MTF or OTF of current bid and offer prices and depth of trading interests

Extended to e.g. derivatives admitted to trading on a trading venue (i.e. RM, MTF or OTF), or which are clearing-eligible under EMIR

Art. 9(5)(b) MiFIR, 3.6 CP No. 12: Proposal to use the approach for calibrating the content of the pre-trade transparency requirements for shares (according to Table 1 in Annex 2 of MiFID-Regulation 1287/2006) also for non-equities FIs and to add: request-for-quote and voice systems


10 /


Exemptions (Art. 9 MiFIR)

Exemption for portfolio compression (Art. 31(1), 2 no. 47 MiFIR, no. 8 FR)

Regulator can give waivers of pre-trade transparency for e.g. illiquid derivatives (Art. 9(5)(d) MiFIR, 3.6 no. 38 CP, Annex B of CP contains draft regulation (RTS 9), Annex 3)

Regulator can suspend pre-trade transparency for max. 3 months if liquidity falls below certain threshold

Large orders (Art. 9(5)(c) MiFIR, 3.6 no. 16-21 CP)


11 /

Post-trade transparency for non-equity instruments

Overview post-trade transparency rules for derivatives

Venue/IF

RM

MTF

OTF

IF=SI IF≠SI

Now MiFID 2

Now MiFID 2

Now MiFID 2

Now MiFID 2

Now MiFID 2

No Yes No Yes N/A Yes No Yes No Yes


12 /


Art. 10 MiFIR

Publication by RM, MTF or OTF of price, volume, time an details of transactions as close to real-time as is technically possible (3.7 no. 20 CP, ESMA suggests max. delays of 15 minutes for the first 3 years and 5 minutes thereafter)

Extended to of e.g. derivatives admitted to trading on a trading venue, or which are clearing-eligible under EMIR

Transaction information: (Art. 11(4)(a) MiFIR, 3.7 no. 15 CP, Table 2 of RTS 9 list of flags amended as suggested by ESMA)


13 /


Exemptions

Exemption for portfolio compression

Regulator can authorise deferred publication for e.g. illiquid derivatives, large volumes, untypical trades (Art. 11(1) MiFIR)

Regulator can suspend post-trade transparency for max. 3 months if liquidity falls below certain threshold (Art. 11(2) MiFIR)


14 /

Trading obligation (1)

Art. 28-34 MiFIR

In line with G20 Pittsburgh commitments, FCs and NFC+s must trade derivatives of an EC designated class with FC and NFC+s on

RM

MTF

OTF

Exemptions for intragroup transactions (Art. 28(1) MiFIR) and portfolio compression (Art. 31(1) MiFIR)


15 /


Designated class of derivatives

Eligible for trading obligation only if – subject to EMIR clearing obligation

(Art. 32(1)(a) MiFIR)

– admitted to one or more trading venues (Art. 32(2)(a) MiFIR)

– sufficiently liquid (Art. 32(2)(b) MiFIR)


16 /

Trading obligation – sufficiently liquid

Art. 32(3) MiFIR, 3.11 no. 26-37 CP, main criteria amongst others:

No. 29: average frequency of trades (both trading days and minimum number of trades)

No. 31: average size of trades (total turnover divided by number of trading days is preferred option but division by number of trades also possible)

No. 33: number and type of active market participants (members doing at least one transaction or is contractually committed to provide liquidity)

No. 34: average size of spreads (ESMA proposes to use the average size of weighted spreads over different periods of time)


17 /


Designated class of derivatives (cont’d)

ESMA proposes trading obligation to EC 6 months after EC approval of EMIR clearing obligation (Art. 32(1) sub-para. 2 MiFIR)

ESMA register of classes of derivatives subject to trading obligation (Art. 34 MiFIR)


18 /


Extraterritoriality

Third country venue with MiFIR equivalence eligible for trading obligation upon recognition by EC (Art. 31(1)(d), (4) MiFIR)

Trading obligation also applicable to derivatives transactions:

between FC/NFC+ and third-country FC/NFC+ equivalent parties under EMIR

having a direct, substantial and foreseeable effect within the EU (Art. 28(2) MiFIR, 3.11 no. 38 CP)


19 /

OTFs (1)

What is it?

Newly regulated multi-lateral system which is not a regulated market (RM) or a multi-lateral trading facility (MTF) and in which multiple parties buying and selling e.g. derivatives are able to interact in a way that results in a contract

Wide definition to capture all forms of trading venues in non-equities currently outside of scope (e.g. swap execution facilities)


20 /

OTFs (2)

Rationale for introduction

Greater transparency

Level playing field between trading venues

Capture trading on order books outside RM or MTF


21 /

OTFs (3)

Key features

OTFs will be subject to the same pre- and post-trade transparency rules as RMs and MTFs

Unlike RMs and MTFs, execution on, and access to, OTFs will be discretionary

OTFs will be subject to the conduct of business rules, best execution and client order handling obligations


22 /

OTFs (4)

Key features (cont’d)

An OTF will not be able execute against its own proprietary capital or that from any entity that is part of the same group or legal person

An OTF will be restricted from linking up with another OTF for the purpose of allowing orders from the different venues to interact with each other


23 /

Agenda

Impact of MiFID 2/MiFIR on derivatives

Impact of MiFID 2 on commodity business


24 /

Commodity derivatives – background to the changes under MiFID 2

Policy developments since MiFID 1

Communique of G20 finance ministers and central bank governors 15 April 2011 – commodity derivatives markets should be subject to appropriate regulation and supervision: therefore certain exemptions to be modified (MiFID 2, Recital (19))

G20 summit in Pittsburgh on 25 September 2009 agreed to improve the regulation, functioning and transparency of financial and commodity markets to address excessive commodity price volatility.

Note also the Commission Communications of 28 October 2009 on ‘A Better Functioning Food Supply Chain in Europe’, and of 2 February 2011 on ‘Tackling the Challenges in Commodity Markets and Raw Materials’.


25 /

Commodity derivatives – background to the changes under MiFID 2 (cont’d)

IOSCO Principles for the Regulation and Supervision of Commodity Derivatives Markets, endorsed by the G20 summit in Cannes on 4 November 2011 which called for market regulators to have formal position management powers, including the power to set ex ante position limits as appropriate. (MiFID 2, Recital (125))

Concerns relating to the spot secondary markets in emission allowances (MiFID 2, Recital (11))


26 /

Key changes

Scope - additional commodity derivatives within MiFID 2

Exemptions - reduction in the number of exemptions available to commodity dealers

Introduction of position limits for commodity derivatives

Position reporting for commodity derivatives

Position management

…and other provisions applying to derivatives generally


27 /

Level 2 timeline – where are we now? Delegated Acts

– Consultation Paper May 2014, draft Technical Advice; Final Report December 2014 ESMA Technical Advice

Issues covered – Financial Instruments definition – C6, 7 and 10 Annex 1 – Position Reporting Thresholds

RTS/ITS

Discussion Paper May 2014; Consultation Paper December 2014


28 /

Level 2 timeline – where are we now? (cont’d)

Issues covered – Ancillary Activity – Art 2.1(j) exemption (Draft RTS 28) – Methodology for calculating Position Limits (Draft RTS 29) – Application of Position Limits (Draft RTS 30) – Position Reporting (Draft RTS 30)


29 /

Key changes

Scope - additional commodity derivatives within MiFID II




Position management



30 /

Scope of financial instruments – commodities

Extended scope

Who is affected/what are the impacts?

Both regulated and unregulated entities – for example: – Impact on authorisation requirements – Impact on EMIR/EMIR reporting obligations – Impact on Transaction Reporting


31 /

Scope of financial instruments – commodities (cont’d)

In relation to commodities MiFID 2 scope will cover broadly: – Cash settled commodity derivatives (i.e. must be cash settled or may be

cash settled at the option of one of the parties) – Physically settled commodity derivatives (i.e. that can be physically settled)

traded on an RM, MTF or OTF, subject to exceptions – Other physically settled commodity contracts not being for commercial

purposes and having the characteristics of other derivative financial instruments

– Exotic derivatives – cash settled (as above) or otherwise having the characteristics of other derivative financial instruments

– Emission allowances


32 /

MiFID 2 revised definitions – changes from MiFID 1

(5) Options, futures, swaps, forward rate agreements forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

(6) Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, and/or an MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled;

(7) Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this Section and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls;


33 /

MiFID 2 revised definitions – changes from MiFID 1 (10) Options, futures, swaps, forward rate agreements and any other derivative

contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (other than by reason of default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls;

(11) Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme).

Note “Commodity derivatives” is also defined to include … transferable securities giving rise to a cash settlement determined by reference to a commodity or an underlying referred to in C10


34 /

Commodity definitions – transitionals

Certain transitional relief (to July 2020) relating to EMIR for “C6 Energy Derivative Contracts” relating to coal or oil that are traded on an OTF and must be physically settled

The clearing obligation and risk mitigation techniques will not apply to C6 energy derivative contracts entered into by an NFC+ or by non-financial counterparties authorised for the first time as investment firms as from 3 January 2017

Will not be considered to be OTC derivative contracts for the purposes of the clearing threshold

“C6 Energy Derivative Contracts” – options, futures, swaps, and any other derivative contracts mentioned in Section C.6 of Annex I relating to coal or oil that are traded on an OTF and must be physically settled


35 /

Commodity definitions – what is currently happening …

Interim measures under MiFID 1 – Consultation on Guidelines on the application of C6 and C7 of Annex 1, MiFID 1 (Sept 2014)

Reason for Guidelines – Commission Letter to ESMA 26.02.2014 – Inconsistent Interpretations – impact on EMIR


36 /

Interim measures – MiFID 1 guidelines (cont’d)

Key Issues – C6 (stipulated commodity derivatives which can

be physically settled, traded on an RM/MTF) does not refer to “forwards”

– ESMA view – included under “any other derivatives”

– Clarification of which contracts fall within C5, 6 and 7 according to settlement type

– Guidelines on physically settled non exhaustive list of delivery methods

…subject to consultation


37 /

Status of Level 2 – final report ESMA technical advice C6 Derivatives

Covers criteria for determining when wholesale energy contracts “must be physically settled” – New, and contentious, proposal that the contract must contain provisions

ensuring that the parties have “proportionate arrangements” in place to be able to make or take delivery of the underlying commodity

– Must establish unconditional, unrestricted and enforceable obligations to deliver and take delivery of the underlying commodity

– Must not be possible to replace physical delivery with cash settlement – The obligations under the contract cannot be offset against obligations from

other contracts between the parties (subject to payment netting)


38 /

ESMA technical advice (cont’d)

Clarifications relating to: – Operational netting in the power and

gas markets; – Force majeure; – Bona fide inability to settle; and – Default clauses.

Non exhaustive examples of methods of physical settlement


39 /

ESMA technical advice (cont’d)

C7 Derivatives

Largely follows the current MiFID 1 Level 2 concepts (Art 38), apart from the clearing criterion

Extends the trading criteria to extend to third country equivalents of OTFs and contracts expressly stated to be subject to the rules of an OTF (as well as, in both cases, regulated markets/MTFs)

The concept of contracts being “equivalent to” (rather than “expressly stated” to be equivalent to a contract traded on an a regulated market, MTF or OTF or third country trading venues has been added. This has given rise to concerns within the industry.

The “commercial purpose” carve out remains limited (applying to certain energy infrastructure providers), although ESMA remain open to extend this to other specific cases.


40 /

Key changes

Scope – additional commodity derivatives within MiFID 2




Position management



41 /

Exemptions for commodity dealers narrowed Narrowing of exemptions

Who is affected/what are the impacts − Unregulated commodity market participants − Impacts include authorisation requirements, knock on impact on EMIR and

ability to use hedge exemption for position limits, amongst other things.

The own account dealing exemption in Article 2.1(d) now excludes from its scope own account dealing in commodities derivatives or emission allowances.

The general own account dealing exemption incidentally also now excludes from its scope market makers, dealing using a high frequency algorithmic trading technique and members of/participants in a regulated market or multilateral trading facility (MTF) /having direct electronic access to a trading venue, as well as clarification that dealing on own account when executing client orders is also out of scope.


42 /

Comparison of article 2(1)(i) MiFID 1 to article 2(1)(j) of MiFID 2 This Directive shall not apply to:

(i)(j) persons:

(i) dealing on own account in financial instruments, including market makers, in commodity derivatives or emission allowances or derivatives thereof, excluding persons who deal on own account when executing client orders; or

(ii) providing investment services, other than dealing on own account, in commodity derivatives or derivative contracts or emission allowances or derivatives thereof included in Annex I, Section C 10 to the clients customers or suppliers of their main business;


43 /

Comparison of article 2(1)(i) MiFID 1 to article 2(1)(j) of MiFID 2 (cont’d) provided that:

— for each of those cases individually and on an aggregate basis this is an ancillary activity to their main business, when considered on a group basis, and that main business is not the provision of investment services within the meaning of this Directive or banking services activities under Directive 2000/12/EC 2013/36/EU, or acting as a market-maker in relation to commodity derivatives,

— those persons do not apply a high-frequency algorithmic trading technique; and

— those persons notify annually the relevant competent authority that they make use of this exemption and upon request report to the competent authority the basis on which they consider that their activity under points (i) and (ii) is ancillary to their main business;


44 /

What is happening at Level 2 …

Consultation and draft RTS on meaning of “ancillary activities”

For the exemption to apply, necessary to fall below the thresholds for both the minority of activities test/ancillary activities test and the trading activities test – minority of activities test/ancillary activities test relates to the proportion of

relevant activities carried on in the EU – the trading activities test is a broader test and relates to the percentage of

overall trading in the relevant market

Also proposed that a de minimis test of 0.25% of the overall market trading activity in each of the relevant asset classes – would not be required to undertake the minority of activities test in these circumstances

Annual notification required if fall within the exemption


45 /

Minority of activities test

Capital employed by group for carrying out eligible activity in the EU must account for less than 5% of the capital employed for carrying out the main business of the group in the EU and third countries

Deduct the capital employed in Privileged Transactions by the group in the EU from the capital employed by group for carrying out eligible activity in the EU

Deduct from capital employed in trading activity by a MiFID licensed group entity from the capital employed for the eligible activity

Eligible activity – broadly, own account dealing and other services in commodity derivatives/emission allowances /derivatives to customers/suppliers of main business of the group


46 /

Minority of activities test (cont’d)

Privileged Transactions are broadly: – Intragroup transactions that serve group wide liquidity or management

purposes; – Hedging transactions (transactions objectively measurable as reducing risks

directly relating to commercial activity or treasury financing activity, including non OTC derivatives - EMIR tests to be applied; and

– Transactions in commodity derivatives/emission allowances to fulfil obligations to provide liquidity on a trading venue where required by regulatory authorities or trading venue.

Capital is proposed to be capital encompassing total equity, current debt and non current debt as calculated from balance sheets and financial statements.


47 /

Trading activity test

Trading activity in commodity derivatives of the group in the EU must be less than 0.5% of the overall market trading activity in the EU in the relevant asset classes

Deduct Privileged Transactions and trading activity by MiFID licensed entities within the group from the group‘s overall trading activity in the EU

Data from Trade Repositories to be used in calculating overall trading activity

Exceeding threshold in any one asset class will result in the exemption not being available


48 /

Ancillary activities consultation

Key issues and industry reaction

For example: – size of thresholds – definition of capital – geographical scope


49 /

Other exemptions …

Article 2.1(n) transmission system operators as defined in Article 2(4) of Directive 2009/72/EC or Article 2(4) of Directive 2009/73/EC when carrying out their tasks under those Directives, under Regulation (EC) No 714/2009, under Regulation (EC) No 715/2009 or under network codes or guidelines adopted pursuant to those Regulations, any persons acting as service providers on their behalf to carry out their task under those legislative acts or under network codes or guidelines adopted pursuant to those Regulations, and any operator or administrator of an energy balancing mechanism, pipeline network or system to keep in balance the supplies and uses of energy when carrying out such tasks

Only applies where persons perform investment activities or provide investment services relating to commodity derivatives in order to carry out the relevant activities

Does not apply with regard to the operation of a secondary market, including a platform for secondary trading in financial transmission rights


50 /

Other exemptions (cont’d) …

Article 2.1(e) operators with compliance obligations under Directive 2003/87/EC who, when dealing in emission allowances, do not execute client orders and who do not provide any investment services or perform any investment activities other than dealing on own account, provided that those persons do not apply a high-frequency algorithmic trading technique


51 /

Other optional exemptions …

Firms which:

Article 3(d) provide investment services exclusively in commodities, emission allowances and/or derivatives thereof for the sole purpose of hedging the commercial risks of their clients, where those clients are exclusively local electricity undertakings and/or natural gas undertakings; or

Article 3(e) provide investment services exclusively in emission allowances and/or derivatives thereof for the sole purpose of hedging the commercial risks of their clients, where those clients are exclusively relevant operators

In both cases the clients must jointly hold 100 % of the capital or voting rights of those persons, exercise joint control and are exempt under point (j) of Article 2(1) of MiFID 2 if they carry out those investment services themselves

Certain analogous regulatory requirements must nonetheless be imposed


52 /

Key changes

Scope - additional commodity derivatives within MiFID 2




Position management



53 /

Issues – position limits; position management and position reporting MiFID 2 introduces a new regime of position limits, position management and

position reporting.

Purpose – To prevent market abuse; to support orderly pricing and settlement

conditions, including preventing market distorting positions, and ensuring, in particular, convergence between prices of derivatives in the delivery month and spot prices for the underlying commodity, without prejudice to price discovery on the market for the underlying commodity.

Who is affected/what are the impacts – Persons holding relevant positions and OTC economically equivalent

contracts – intended to go through to the level of the ultimate client – Applies to all persons whether or not authorised, although note the “hedging

exemption” only applies to non financial entities


54 /

Position limits

The new position limit regime requires competent authorities to establish and apply:

Position limits on the size of a net position which a person can hold at all times in commodity derivatives that are traded on regulated markets, MTF, OFTs and OTC economically equivalent contracts.

Limits will be set on the basis of all positions held by a person and those held on its behalf at an aggregate group level.

Position limits will not apply to positions held by or on behalf of a non-financial entity and which are effectively measurable as reducing risks directly relating to the commercial activity of than non-financial entity.

Proposals Baseline figure of 25% of deliverable supply for both spot and forward months NCAs may increase/decrease by up to 15% (so maximum will be 40% and

minimum 10%)


55 /

Position limits – methodology…

ESMA has consulted on/drafted regulatory technical standards to determine the methodology for calculation that competent authorities are to apply in establishing the spot month position limits and other months’ position limits for physically settled and cash settled commodity derivatives based on the characteristics of the relevant derivative.

The methodology for calculation addresses: – The maturity of the commodity derivative

contracts – The deliverable supply in the underlying

commodity


56 /

Position Limits – methodology (cont’d) – The overall open interest in that contract and the overall open interest in

other financial instruments with the same underlying commodity – The volatility of the relevant markets – The number and size of the market participants – The characteristics of the underlying commodity market, including patterns

of production, consumption and transportation to market – The development of new contracts

ESMA is also required to take into account experience regarding the position limits of investment firms or market operators operating a trading venue and of other jurisdictions


57 /

Position limits – application

Consultation and draft RTS

Risk reducing positions – similar approach as EMIR – Non financial entity - any entity that is not a financial entity; proposals

relating to third country equivalents

Definition of group - “person” and its subsidiaries but not sister companies – “whole position” basis where partially owned subsidiaries

Jurisdictional coverage – Suggestion that Article 57 limited to the EU


58 /

Position limits – application (cont’d)

Narrow definition of OTCEE OTC – A contract which explicitly refers to a commodity derivative that is traded on a trading

venue; or is valued on the basis of the same or equivalent grade that is deliverable

at the same location, or another equivalent location so long as the other delivery location has similar economic characteristics, and is deliverable on the same date as that of a commodity derivative that is traded on a trading venue

Industry reaction


59 /

Position reporting Commitment of trader report and position reports to regulators

Trading venues which trades commodity derivatives or emission allowances/ derivatives are required to: – Publish a weekly Commitment of Trader Report with the aggregate

positions held by the different categories of persons for the different commodity derivatives or emission allowances /derivatives / traded on the/trading venue and communicate that report to the relevant competent authority and to ESMA; and

– Provide the relevant competent authority with a daily Position Report for Regulators i.e. a complete breakdown of the positions held by all persons, including the members or participants and their clients, on that trading venue, at least on a daily basis


60 /

Position reporting (cont‘d)

Commitment of trader report and position reports to regulators

Commitment of Trader Reports are to specify the number of long and short positions by category of persons, any changes since the previous report, percent of total open interest represented by each category, and the number of persons in each category

The obligation only applies when both the number of persons and their open positions exceed minimum thresholds

Commitment of Trader Reports and Position Report for Regulators are to differentiate between: – Positions identified as positions which in an objectively measurable way

reduce risks directly relating to commercial activities; and – Other positions Members or participants of regulated markets, MTFs and clients of OTFs are to be required to provide this information


61 /

Position reporting (cont’d) Direct position reports

Investment firms trading in commodity derivatives or emission allowances/ derivatives outside a trading venue are to be required to provide the relevant competent authority of the trading venue at least on a daily basis with a complete breakdown of their positions taken in commodity derivatives or emission allowances/derivatives traded on a trading venue and economically equivalent OTC contracts, as well as of those of their clients and the clients of those clients until the end client is reached


62 /

Position management Position management

Operators of trading venues required to apply position management controls

Role of national competent authorities

Role of ESMA

ESMA may: – Request from any person all relevant information regarding the size and

purpose of a position or exposure entered into via a derivative; – Require any such person to reduce the size of or to eliminate the position or

exposure; and – As a last resort, limit the ability of a person from entering into a commodity

derivative


63 /

Position management (cont‘d)

Safeguards

These steps may only be taken where: – The measures address a threat to the orderly functioning and integrity of

financial markets, including commodity derivative markets and including in relation to delivery arrangements for physical commodities, or to the stability of the whole or part of the financial system in the EU; and

– A competent authority or competent authorities have not taken measures to address the threat or the measures taken do not sufficiently address the threat

ESMA must ensure that the measure: – Significantly addresses the threat to the orderly functioning and integrity of

financial markets, including commodity derivative markets and including in relation to delivery arrangements for physical commodities, or to the stability of the whole or part of the financial system in the EU or significantly improve the ability of competent authorities to monitor the threat


64 /

Position management (cont’d)

– Does not create a risk of regulatory arbitrage – Does not have any of the following detrimental effects on the efficiency of

financial markets that is disproportionate to the benefits of the measure: reducing liquidity in those markets, restraining the conditions for reducing risks directly related to the commercial activity of a non-financial counterparty, or creating uncertainty for market participants

– ESMA is also required where relevant to consult the Agency for the Cooperation of Energy Regulators or the public bodies competent for the oversight, administration and regulation of physical agricultural markets before taking any measures; and

– ESMA is required to give not less than 24 hours notice to relevant competent authorities before the measure is intended to take effect or to be renewed other than in exceptional circumstances

Elaboration in Technical Advice


65 /

Further information from Simmons & Simmons – Legal Headwinds http://www.elexica.com/en/Resources/Newsletter-Listing/Legal-

Headwinds-NL – MiFID 2 Tracker http://www.elexica.com/en/Resources/Microsite/MiFID-2-Tracker – Commodity Derivatives Regulation Tracker http://www.elexica.com/en/Resources/Microsite/Commodity-Derivatives

http://www.elexica.com/en/Resources/Newsletter-Listing/Legal-Headwinds-NL

http://www.elexica.com/en/Resources/Newsletter-Listing/Legal-Headwinds-NL

http://www.elexica.com/en/Resources/Microsite/MiFID-2-Tracker

http://www.elexica.com/en/Resources/Microsite/Commodity-Derivatives





66 /

Simmons & Simmons contact persons in Germany

Dr. Harald Glander, Partner

+49 (0)69 907454 81 [email protected]

Harald Glander is involved in transactional, advisory and regulatory work for financial institutions, asset managers and other businesses operating in the financial services sector.

Harald is a capital markets, financial services and investment funds specialist advising on the establishment and distribution of open-ended and closed-ended funds, Master-KVG structures, hedge fund regulation and ETF. He also advises on all other aspects of capital markets and financial services regulation, for instance on derivatives and structured financial instruments, cross-border licenses, the registration of EU branches, compliance issues, brokerage and securities trading. Harald has extensive experience in advising on the regulatory aspects of international M&A and outsourcing transactions as well as in advising on emission trading regulation.

Harald is based in the Frankfurt office. He studied law at Freie Universität Berlin and holds a Master of Laws (LL.M.) from the University of Cape Town and a PhD from Rheinische Friedrich-Wilhelms-Universität Bonn.


67 /

Simmons & Simmons contact persons in Germany

Norman Mayr, Supervising Associate

+49 (0)69 907454 25 [email protected]

Norman Mayr works in the area of financial services and investment funds. He has broad experience in the establishment and distribution of open-ended and closed-ended funds, Master-KVG structures, the regulation of hedge funds as well as the registration of EU branches and compliance. He also has experience in advising German and international clients on the regulatory aspects of international M&A and outsourcing transactions.

Norman is based in the financial services department of the Frankfurt office. He studied business administration and law at the Universities of Passau and Frankfurt am Main. He also holds a Master of Laws (LL.M.) from the University of Applied Sciences in Frankfurt.

Before joining Simmons & Simmons in 2011, Norman worked in the financial services department of another international law firm in Frankfurt. Prior to this he worked in the litigation/ corporate department in Frankfurt and New York of another leading international law firm.


68 /

Simmons & Simmons contact person in London

Jonathan Melrose, Partner

+44 20 7825 4514 [email protected] Jonathan qualified as a solicitor with the firm in 1985 and became a partner in 1991. He is based in London and is a member of the financial services group that is part of our financial markets department. Jonathan sits on the Commodities Committee of The Futures and Options Association (FOA). He has been consistently recognised as a leading expert by both "Chambers Guide to the Legal Profession" and "The Legal 500“. Jonathan has recently spoken at seminars on Developments in the Investment Services Directive; Outsourcing in the Financial Services Sector; and Senior Management Arrangements under the FSA Regime. Jonathan has also contributed a chapter on Consumer Relations: Complaints and Compensation in the recent edition of A Practitioners' Guide to the FSA Handbook, published by City and Financial.


69 /

Disclaimer

Please note that the materials in this pack contain information confidential to Simmons & Simmons. Copyright in the materials is owned and retained by Simmons & Simmons and the materials should not be copied or disclosed to any other person without the express authorisation of Simmons & Simmons.

These materials have been prepared for training purposes only and not to give legal advice and, accordingly, they should not be relied upon. They are intended only to provide a general outline of the material covered. They should not be regarded as a comprehensive statement of the law and practice relating to this area. Readers should take specific legal advice on any particular matter which concerns them. If you require any advice or information, please speak to your usual contact at Simmons & Simmons.


70 /

coffee, you and mifid 2 - simmons & simmons march/coffee.pdf · coffee, you and mifid 2 impact...

Documents