MiFID II ancillary activity exemption is sometimes perceived as a some sort of a safe harbour for commodity trading firms - for many not easy achievable, due to tight thresholds proposed in the draft level 2 legislation.
This harbour may, however, occur not so safe, and, equally, competitively disadvantageous.
Pursuant to Article 2(1)(j) MiFID II Directive does not apply to persons:
(i) who deal on own account, including market makers, in commodity derivatives, emission allowances or derivatives thereof, excluding persons who deal on own account by executing client orders; or
(ii) providing investment services, other than dealing on own account, in commodity derivatives or emission allowances or derivatives thereof to the customers or suppliers of their main business;
provided certain further conditions are fulfilled (the most prominent this must be an ancillary activity to the main business).
However, when a firm finds itself, happily, within the ancillary activity tight thresholds, it may face some unexpected constraints.
Among them is persons making use of ancillary activity exemption under MiFID II must not apply a high frequency algorithmic trading technique.
Given the increasing role of the HFT in the derivatives world this may be seen as a competitive disadvantage in comparison with the firms' counterparts covered by the financial sector's supervision.