On 27 May 2021, the European Commission (“the Commission”) published a draft delegated act on the ancillary activity exemption, which started a four-week public consultation period. By way of background, the Commission was mandated by the recent amendments to MiFID II – the so called MiFID Quick Fix – to adopt, by 31 July 2021, a delegated act setting out the criteria determining when an activity is to be considered to be ancillary to the main business at a group level. We discussed the revised European commodity derivatives regime in our recent MiFID Review Series article.

Once adopted, the draft delegated act will replace the currently applicable Commission Delegated Regulation (EU) 2017/592. The main changes proposed include a deletion of the overall market size test and an introduction of the de minimis threshold test. The other two tests, as established by Commission Delegated Regulation (EU) 2017/592, i.e. the trading test and the capital employed test, will remain unchanged.

According to the revised rules, activities of a person will be considered to be ancillary at the group level when they comply with any of the following conditions:

• The net outstanding notional exposure in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement traded in the Union, excluding commodity derivatives or emission allowances or derivatives thereof traded on a trading venue, is below an annual threshold of EUR 3 billion (de-minimis threshold test);
• The size of trading activities undertaken in the Union accounts for 50 % or less of the total size of the other trading activities of the group.
• The estimated capital employed accounts for not more than 50 % of the capital employed at group level for carrying out the main business.

Key elements of the new de minimis threshold test include:

• The net outstanding notional exposure must be calculated by averaging the aggregated month-end net outstanding notional values for the previous 12 months resulting from all contracts in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement entered into in the Union by a person within a group.
• The net outstanding notional values shall be calculated on the basis of all contracts in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement that are not traded on a trading venue to which any person located in the Union is a party during the relevant annual accounting period.
• The contracts in commodity derivatives or emission allowances derivatives for cash settlement must include all derivative contracts relating to commodities or emission allowances which must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event.
• The calculation must be determined by reference to three annual calculation periods that precede the date of calculation and the simple average of the resulting annual values must be compared with the EUR 3 billion threshold.

Stakeholders have until 24 June 2021 to submit comments.