On 19 March 2021, the European Securities and Markets Authority (ESMA) issued a public statement regarding its supervisory approach to position limits for commodity derivatives.
To help the recovery from the COVID-19 pandemic, Directive (EU) 2021/338 substantially reduces the scope of commodity derivatives subject to position limits. Position limits will only continue to apply to agricultural commodity derivatives and critical or significant commodity contracts. An exemption from position limits is also introduced for positions held by financial and non-financial counterparties for positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue. The new provisions will apply early in 2022.
The opinion notes that ESMA would see merit in already having in place a more favourable environment for the development of non-significant commodity derivatives that would no longer be subject to position limits but ESMA cannot dis-apply EU law. However, considering the upcoming legislative change and other potential impacts on existing position limits, ESMA expects Member State national competent authorities not to prioritise supervisory actions towards:
- Entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots.
- Positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as referred to in point (c) of the fourth subparagraph of Article 2(4) of MiFID II.