MiFID AND MiFIR On Position Limits And Position Reporting For Commodities Derivatives And Emissions Trading

Author:Mr Doron Ezickson, Alix Prentice, Adam Topping, Ramona Simms and Nick Shiren
Profession:Cadwalader, Wickersham & Taft LLP

Introduction This is the first in a series of short briefings on radical changes proposed for the regulation and conduct of investment business set out in the European Commission's revised Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (MiFIR). Over the next two weeks, we will be sending you a daily briefing covering, variously, MiFID and MiFIR on circuit breakers, trading OTC derivatives on organised venues, pre-and post-trade transparency, transaction reporting, best execution, client categorisation and transactions with 'eligible counterparties', supervision of products (prohibitions and restrictions), data publication and consolidation and algorithmic and high frequency trading. Below, we outline the "highlights" of the Commission's proposals for the imposition of position limits and position reporting requirements for commodities derivatives and emissions trading. A. Position Limits Key Points exchanges to set position limits; regulators may impose limits; waiting for proposals for uniform regulatory technical standards to harmonise position limits; calibration by market, participant and contract is provided for, but the devil is in the (implementing) detail. Legislative Provisions 1. MiFID Article 59 (Position limits): Regulated markets, operators of MTFs1 and OTFs2 that trade in or admit to trading commodity derivatives, emissions allowances and their derivatives must apply "transparent and non-discriminatory" position limits or alternative equivalent methods designed to support liquidity, prevent market abuse or support orderly pricing and settlement conditions. Limits should take account of the nature and composition of market participants and the use they make of the specified contracts. The European Commission will introduce delegated legislation to determine position limits and the quantitative and qualitative effects of alternative arrangements and regulators in Member States may not impose more restrictive limits except in exceptional cases where there is an objective justification taking into account the liquidity and orderly functioning of that particular market. 2. MiFID Article 72 (Remedies to be made available to competent authorities): Article 72(1)(g) provides that Member State regulators shall have, as part of their panoply of supervisory remedies, powers to limit the ability of any person or class of persons to enter into a commodity derivative, including via...

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