MiFID II ancillary activity exemption - market share test




Along with the main business testthe market share test is used for the determination whether the entity qualifies for the MiFID II ancillary activity exemption.


The purpose of the market share test is to determine whether the persons within the group are large participants relative to the size of the financial market in that asset class and as a consequence should be required to obtain authorisation as an investment firm.


The test compares the size of a person's trading activity against the overall trading activity in the European Union on an asset class basis to determine that person's market share (Recitals 2 and 3 of the Commission Delegated Regulation (EU) of 1.12.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the criteria to establish when an activity is considered to be ancillary to the main business).






The size of the trading activities undertaken in the European Union by a person within a group in each of the asset classes is to be calculated by aggregating the gross notional value of all contracts within the relevant asset class to which that person is a party (aggregation must cover all contracts in commodity derivatives, emission allowances and derivatives thereof on the basis of a rolling average of the preceding three annual periods).


The following items should be deducted from the volume of the overall trading activity undertaken by the person:


1. intra-group transactions as referred to in Article 3 of EMIR Regulation, serving group-wide liquidity and/or risk management purposes;

2. transactions in derivatives which are objectively measurable as reducing risks directly related to the commercial activity or treasury financing activity (i.e. hedging);

3. transactions in commodity derivatives and emission allowances entered into to fulfil obligations to provide liquidity on a trading venue ("where such obligations are required by regulatory authorities in accordance with Union or national laws, regulations and administrative provisions or by trading venues");

jointly: "privileged transactions" (Article 2(4) of MiFID II).


Trading activities conducted by a MiFID authorised firm within the group are also excluded from the said aggregation.






The overall market trading activity in each of the asset classes is to be calculated by aggregating, during the relevant annual accounting period, the gross notional value of:

1. all contracts that are not traded on a trading venue within the relevant asset class to which any person located in the European Union is a party, and

2. any other contract within that asset class that is traded on a trading venue located in the European Union.


Recital 4 of the Regulation stipulates: "the overall market size should be determined on the basis of trading activity undertaken in the Union in relation to each asset class for which the exemption is sought, including contracts which are traded on and outside trading venues in the Union".



Market share thresholds



The relevant thresholds of the market share are differentiated on a per-asset-class basis and take into account the trading activity of the persons within the group - as in the table below (the table reflects the so-called "backstop mechanism").


Proportion of non-priviledged

commodity derivatives trading

versus total EU commodity

derivatives trading at group

level (gross notional value)

Oil   Gas  Power  Coal Metals Emissions

Derivatives on other commodities, 

including freight and "exotic" 

(Section C 10 of Annex I to MiFID II)

 Under 10%  3%  3%  6%  10% 4% 20%  15%
 10% - 49,9% 1.50%   1.50%  3%  5% 2% 10%  7.50%
 50% or greater  0.60%  0.65%  1.20% 2% 0.80% 4%  3%



Other issues



When defining the size of the trading activity it should be noted that derivatives on wholesale energy products defined under Article 2(4) REMIT are not financial instruments in accordance with Article 4(1)(15) and Annex I C 6 MiFID II provided that they are traded on an OTF and "must be physically settled".


The aggregate values are to be denominated in EUR.



Last Updated on Thursday, 20 April 2017 12:41


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