Assume, the non-financial counterparty, in effect of, for example, modifications of the ancillary activity exemption, finds itself above the respective activity thresholds and, consequently, is driven under the financial regulation. Among MiFID II unexpected impacts is the fact, the legitimate hedging needs of the above entity may, potentially, by constrained by position limits. Why? Hedging exemption - in general foreseen when calculating the group's position limit - is not available to financial counterparties.


It appears, such conglomerate, currently being beyond financial regulation, will face the risk of its hedging transactions being cut by the position limit after 3 January 2017.



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.



In order to establish whether given physical forward is a financial instrument under MiFID II counterparties will have to implement the process for ongoing comparison of their trading conditions with on-venue contracts (and, moreover, not only with contracts traded on regulated markets, MTFs and OTFs, but also with those traded on third-country trading venues).


Is it really the intention? Consequences may be severe... Take for example the term for reporting the OTC derivative contract to the trade repository under EMIR - one working day only. Is this enough time for such complex analyses?





Systematic internalisers are lacking the necessary data sources. To carry out thresholds' calculations under the new MiFID II business' formula information about the total volume of trading or total number of transactions in the same financial instrument in the European Union will be needed.


This data is currently not available. The European financial regulator - ESMA - did also not receive any empowerment to publish the relevant trading figures (see Final Report ESMA's Technical Advice to the Commission on MiFID II and MiFIR of 19 December 2014 (ESMA /2014/1569) p. 223).


Hence, such services will need to be developed within the MiFID II implementation phase (i.e. till 2017) - maybe a business opportunity worth considering?


Read more on the systematic internalisers' legal framework under MiFID II Directive...



It is not possible for the person exempted under the MiFID II ancillary activity exemption to trade, for example, in IRS through the medium of direct, electronic access to a trading venue. Am I wrong?





Have you already made the preliminary assumptions for the gross notional value of your planned derivatives' speculative trades in the EU market for 2016 to establish whether you can still remain beyond the scope of the financial sector oversight under MiFID II?





It looks like a repo transaction with the use of emission allowances will no longer be available for EU ETS operators beyond 2016 (MiFID II entry into force).





The firm making use of the MiFID II ancillary activity exemption (Article 2(1)(j)) in parallel with dealing on own account exemption (Article 2(1)(d)) is allowed to be a member of or a participant in a regulated market or MTF. True of false?


Read more on this thread...



Those, who have expected recent ESMA draft Guidelines on the application of C6 and C7 of Annex I of MiFID bring some discoveries to their day-to-day trading practice must feel somewhat disappointed.



Are you sure your commodity derivatives trading does not exceed the allowable position limit?





When I first heard an opinion:  "MiFID II - regulatory monster" I used to think of it as a simple affectation.

I used to... Till the moment I came across the ESMA's interpretation of position limits aggregation within the groupings of undertakings. 



As appears from the latest ESMA recommendations, trading obligation for derivatives under MiFIR regulatory technical standards will be shaped to closely resemble EMIR clearing requirement.


Broadly, the same prerequisites, entities covered, cross-border rules - all this indicates both measures represent  only subsequent stages of the same process, having at its end sistemically important OTC derivatives subjected to the rules of authorised trading venues and cleared.