On 5 February 2025, the Financial Conduct Authority (FCA) published a policy statement, PS25/1, on reforming the commodity derivatives regulatory framework.

Background

The FCA published its proposals in consultation paper CP23/27, published in December 2023, which covered the key pillars of the commodity derivatives regulatory regime, i.e. position limits, exemptions from those limits, position management controls, the position reporting regime and the ancillary activities test.

For more details on CP23/27, please see our briefing.

Final rules and guidance

As well as summarising feedback received to CP23/27, PS25/1 sets out the FCA’s response and final position on the rules and guidance to be included in the FCA Handbook.

The FCA explains that its final rules and guidance remain focused on strengthening the resilience of UK commodity derivatives markets under a variety of market conditions so that they can continue to serve their users, in the UK and globally. This includes measures aimed at enhancing trading venue surveillance requirements and providing a framework that gives trading venues a clearer picture of market risks from relevant over-the-counter (OTC) positions depending on the distinct features of the market.

In response to feedback, the final rules differ in some ways to the proposals set out in CP23/27, including:

  • Giving trading venue operators greater discretion, in certain areas, to determine the arrangements necessary to safeguard the orderliness of their market (in recognition of the fact that markets in contracts the FCA deemed critical have distinct characteristics and present different risks, meaning that they may need different arrangements). For example, the FCA has amended its proposed rules on the reporting of positions held OTC by trading venues’ members and their clients – the final rules require trading venues to have the power to collect data on OTC positions, but also set out how that power can be exercised differently depending on the risks and characteristics of the specific market.
  • Targeted changes to other parts of the rules consulted on to incorporate technical feedback received, with the aim of improving the practical implementation of the rules while maintaining the intended standards of market integrity. For example, the rules on the scope of position limits have been revised in relation to the definition of related contracts for which members and clients will need to aggregate their positions with those in the relevant critical contract. In addition, trading venues are provided with discretion to establish accountability thresholds in contracts other than the spot months, although position limits will continue to apply to both spot and other months for critical contracts.
  • Following the FCA’s update on the ancillary activities exemption (AAE) in May 2024, PS25/1 confirms that the FCA will not implement its proposals relating to the AAE and that RTS 20 will remain in place while a permanent solution is considered. The FCA plans to work with HM Treasury and market participants with the aim of developing an approach that takes into consideration the concerns raised by industry.

Technical changes to bond and derivatives transparency rules

PS25/1 also sets out some technical changes to the bond and derivatives transparency rules (which were published in PS24/14), to provide clarity on how the transitional provisions in that paper are intended to operate.

Next steps

The FCA sets out the following timeframe for next steps:

  • The final rules made as part of PS25/1 will come into force on 6 July 2026.
  • Rules enabling trading venues to receive and process applications for exemptions from position limits will commence from 3 March 2025. 
  • Exemptions granted under the current regime will continue to apply until 5 July 2026.
  • Transitional provisions relating to trading venues will also commence on 3 March 2025, to allow notification to the FCA of various arrangements prior to implementation, such as the methodology for and setting of position limits and accountability thresholds and policies and procedures.