On 9 July 2021, the FCA issued a statement regarding its supervision of commodity position limits.

The FCA refers to its previous supervisory statement that it issued in December 2020 which set out its approach to the operation of the MiFID markets regime after the end of the Brexit transition period. In that statement the FCA set out its approach to commodity derivative position limits. Among other things the FCA said that it did not intend to take supervisory or enforcement action for positions that exceed limits where the position is held by a liquidity provider to fulfil its obligations on a trading venue. In this latest statement the FCA confirms that this remains its position.

The FCA also refers in this latest statement to the recent HM Treasury consultation on the wholesale markets review which includes proposals for reforming the MiFID commodity derivatives position limits regime. The FCA states that whilst the scope of the regime is being considered – and as an extension to its approach set out in the December 2020 supervisory statement – it will not take supervisory or enforcement action in relation to commodity derivative positions that exceed position limits on cash-settled commodity derivative contracts, unless the underlying is an agricultural commodity. The FCA will keep this position under review, and reconsider if there are indications of market abuse.

The FCA adds that this does not apply to physically deliverable or agricultural commodity derivative contracts – where final settlement can be in the form of physical settlement of the underlying commodity – or where the underlying is an agricultural commodity. The FCA’s existing supervisory and enforcement approach relating to position limits remains for these contracts.

The FCA’s position does not affect the responsibilities on members or participants of a trading venue under the position management rules of that venue. Further, it does not affect the FCA’s expectation that firms trading or arranging trades in commodity derivatives comply with their other market conduct obligations including requirements set out under the Market Abuse Regulation. Firms must also continue to have adequate systems and controls to do so.