A few annoying facts from a financial lawyer's perspective...

 

 

 

Why Britons left - competing hypotheses are attacking us in every article. There is no use to object to dominant trends, hence I'll also try to present some propositions in that regard.

 

 

The ability test for "contracts which must be physically settled" (i.e. contracts falling under Sections C6 or C7 of the Annex I of the MiFID Directive, depending upon the place of execution) has taken its final - as it seems - shape.

  

 

Crafting the EU position limits legal framework seems to require an immense creativity along with an extreme caution on the part of European legislators.

 

Dealing with this unprecedented task reveals problems so far unknown, nevertheless of an utmost practical importance.

 

 

Commission Delegated Regulation of 25.4.2016 implementing MiFID II represents the coup de grâce for the hotly-debated topic of equivalency as the criterion for the differentiation of forward contracts being financial instruments from other physically settled OTC derivatives.

 

This step change from purely formal criterion based on the literal wording of the contract to the objective metric dependent only on verifiable trading data seems, however, as it stands, unworkable for legal practitioners.

 

 

As you certainly know emission allowances and emission derivatives are the asset classes for which - as from the MiFID II entry into force (3 January 2018) - the systematic internalisers' thresholds must be counted.

 

Numerical values of these thresholds became clear on 25 April 2016.

 

Men-with-box-on-the-head

 

Among multiple issues involved with applying MiFID II position limits the most prominent appears that there is no ex ante certainty on whether contracts are recognised as EEOTC before entering into transactions. 

 

Procedures-urgently-needed

 

Non-financial companies are required to include in their internal policies "measures to ensure" that the risk-reducing transactions serve no other purpose than covering risks directly related to the commercial activities of the non-financial entity, and that any transaction serving a different purpose can be clearly identified.

 

If they still want to remain non-financials, obviously…

 

 MiFID-2-alarm-clock

Overall, when it comes to transitory issues, it is useful to note that for an anciliary activity exemption the clock has started ticking as from July 2015 i.e. well before 2017, which is is the date when MiFID II will enter into force.

 

It follows, the trading activity executed as from July 2015 must be assessed  against the relevant thresholds.

 

 

The complicated character of the MiFID II ancillary exemption calculations (see the relevant equations for:

 

capital-employed test and

 

market-share test)

 

becomes even more complex when considering items involved with intra-group transactions.

 

 

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.

 

 

MiFID II interpretation undermines the EU Internal Electricity Market? The European energy regulators ACER and CEER unanimously argue this way and disagree with ESMA.

 

What sparked the fiercest discussion is whether the "REMIT carve-out" will be available to intermediaries without production, consumption or storage capabilities.