OTF's discretionary order execution - a cause of concern?
- Category: MiFID
Lower costs of collateral, direct access to the settlement system - all this due to the so-called "REMIT carve-out" - make the OTF (Organised Trading Facility) particularly interesting trading opportunity in the EU energy wholesale market under MiFID II (starting as from 3 January 2018).
The underlying fact is that physically-settled instruments covered by REMIT (wholesale energy products within the REMIT terminology - mainly electricity and gas) traded on an OTF do not qualify as MiFID II financial instruments and are consequently outside the scope of MiFID, EMIR and the CRD IV package.
However, while regulated markets and MTFs have non-discretionary rules for the execution of transactions, the operator of an OTF carries out order execution on a discretionary basis subject, where applicable, to the pre-transparency requirements and best execution obligations.
The way the discretion will be exercised by the OTFs operators is the most troublesome element, the regulators, market participants and the OTFs themselves currently intensively consider.
Why is this so important?
Firmness of allocated cross-zonal capacity - who will earn €9 million per hour?
- Category: Energy market
MiFID II position limits - exposures in contracts traded outside of Europe do not qualify for netting
- Category: MiFID
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