On 11 September 2013, we issued the statement below, explaining that brokers offering trading services in physically settled gas and power forwards were reviewing the appropriate classification of their systems under the Markets in Financial Instruments Directive (MiFID). These reviews were focusing on the interpretation of the multilateral trading facility (MTF) category under MiFID.
In our statement, we said that we expected brokers to make the changes necessary to differentiate clearly between their MTF and non-MTF services, on an appropriate basis, by 16 December 2013.
We are continuing to discuss with brokers and their clients their proposals to achieve this further clarity. We note that progress towards implementing appropriate proposals has been made.
Based on the discussions we have been having, we believe that it is appropriate to provide some further time for final implementation of the changes required by the proposals. This will help maintain efficiency and liquidity in gas and power markets by facilitating an orderly transition to the new systems. Consequently, final implementation should take place no later than 12 February 2014.
While the ongoing review may also be relevant to how market participants using broker-operated systems characterise trading in gas and power forwards, we would not expect them to revisit their existing approach in light of the review, before its completion. As such, we will not expect market participants using broker-operated systems to characterise trading in gas and power forwards that takes place before 12 February 2014 differently to their existing interpretations.
Physically settled gas and power forwards that are traded on multilateral trading facilities (MTFs) are ‘financial instruments’ for the purposes of MiFID, and ‘OTC derivatives’ or ‘OTC derivative contracts’ for the purposes of EMIR.
There is currently no common view among market participants on the correct characterisation of trading taking place on broker-operated systems offering a market in these products. We are aware that greater clarity is necessary for market participants to consider the application of new regulatory obligations under EMIR.
We are in discussions with brokers offering a market in gas and power forwards about the appropriate classification of their systems. The brokers are currently reviewing the functionalities offered by their systems to ensure clear distinctions between the MTF and non-MTF services they provide.
This review and implementation of any changes must be finalised before 16 December 2013. By the end of this period, brokers must be able to satisfy the Financial Conduct Authority (FCA) that they have taken all necessary steps, including the implementation of any systems changes, to differentiate between their MTF and non-MTF services.
In light of this review, we will not expect market participants to characterise trading in gas and power forwards that takes place before 16 December 2013 in a way different to their existing interpretations.
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