On 22 November 2021, the European Securities and Markets Authority (ESMA) published its final report, ‘Technical standards for commodity derivatives’.
Under the MiFID II Recovery Package, position limits will only continue to apply to agricultural commodity derivatives and to critical or significant commodity derivatives defined in Level 1 as commodity derivatives with a net open interest above 300,000 lots over a one-year period. As part of the implementation measures of the new framework, the ESMA and Member State competent authorities have also separately agreed on a procedure to ensure convergence in the calculation of the open interest and the determination of whether a commodity derivative qualifies as critical or significant.
The final report has three parts:
- Part I – the ESMA sets out its final proposal for a draft regulatory technical standard (RTS) on the application of position limits to commodity derivatives (RTS 21a). Draft RTS 21a includes proposals arising from the ESMA’s empowerments to develop draft RTS to determine procedures for financial entities undertaking hedging activities and for liquidity providers to apply for an exemption from position limits. Draft RTS 21a, which will be repealing RTS 21 (Commission Delegated Regulation (EU) 2017/591), also retains the provisions of RTS 21 that are not impacted by the changes made to the position limit regime and contains additional proposals by the ESMA to improve the functioning of the position limits regime based on experiences following the application of MiFID II in January 2018.
- Part II – ESMA explains the amendment it considers necessary to implementing technical standard 4 (ITS 4) (Commission Implementing Regulation (EU) 2017/1093) as a consequence of the exclusion of securitised derivatives from the scope of position limits.
- Part III – ESMA presents the draft RTS on position management controls.
The ESMA has submitted the final report to the European Commission. The Commission has three months to decide whether to endorse the draft technical standards.