The impact of MiFID II position limits on the commodity derivatives market remains uncertain. It is not only due to the ongoing process of establishing the regulatory technical standards, but equally depends on the market participants' behaviour in response to the MiFID II regulatory modifications.
Forwards in power or natural gas traded on an OTF that must be physically settled (so-called REMIT carve-out) - which are not covered by the MiFID II position limits' framework - may potentially represent the exemplary environment for testing the above hypothesis.
How many trading venues will reorganise their business models into the OTF formula - designating, in parallel, the perimeter of the above exemption? Good question for now. However, under certain circumstances quite a big portion of the physically settled power and gas forwards may be found beyond position limits' regime. The same products traded on MTFs or regulated markets will be captured, while those OTF-traded won't.
The reasons for this differentiation are not entirely clear. Another cause of concern is the fact the MiFID II position limits' framework can be avoided so easily.