The European Securities and Markets Authority (ESMA) has issued a statement to clarify its supervisory approach to position limits for commodity derivatives.
It hopes this will highlight the application of position limits and coordinate the supervisory actions of National Competent Authorities (NCAs), pending the legislative change introduced by the MiFID II Recovery Package for commodity derivatives. This change will apply from early 2022.
The position limits will continue to apply to agricultural commodity derivatives and critical or significant commodity derivatives.
Furthermore, positions objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue will be exempted from position limits.
ESMA stated that position limits, which the co-legislators have deleted to support recovery from the Covid-19 pandemic, might restrain the development of commodity derivative markets in the European Union; however, ESMA cannot disapply law.
The regulator does state that it expects NCAs will not prioritise supervisory actions towards entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots.
It also expects NCAs to not prioritise supervisory actions towards positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as per MiFID II.
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