Commodity derivatives: introduction of position limits and reporting regime

The position limits and reporting regime for commodity derivatives came into force on 3 January 2018 (Articles 57 and 58 of MiFID II). The regime aims to prevent market abuse and support orderly pricing and settlement conditions by improving transparency and oversight of financial markets.

The position limit exemptions application gateway is open and we have already informed a number of market participants of their exemption approvals. Position limit exemptions for risk-reducing positions will not be restricted to a fixed quantity, thereby allowing for future variation in commercial needs. However, if there is a significant change in the commercial and trading activities of an entity, a new application will need to be submitted. We are asking for a minimum amount of data for the purpose of understanding your business so that we can process applications efficiently, swiftly and accurately. 

Pre-trade transparency waivers and commodity position limits

On 28 September 2017, ESMA issued a public statement regarding the joint work plan of ESMA and NCAs for opinions on MiFID II pre-trade transparency waiver and commodity position limits. Read our statement.

Position limits

A position limit is the maximum size of a position held by a person in any commodity derivative traded on a European Economic Area (EEA) trading venue and economically equivalent over the counter (EEOTC) contracts.

The Markets in Financial Instruments Directive (Directive 2014/65/EU, MiFID II) requires competent authorities, in line with ESMA’s methodology, to establish and apply position limits on the size of a net position which a person can hold at all times in commodity derivatives traded on trading venues and EEOTC contracts.

Competent authorities are required to set position limits for a commodity derivative as per Commission Delegated Regulation (EU) 2017/591 ('RTS 21'). For certain new and illiquid contracts, a distinct approach will be taken, including the application of fixed position limits below certain liquidity thresholds.

Monitoring and Notifications

As of 3 January 2018, trading venues are required to notify us by email when the total open interest of any commodity derivative reaches any of the amounts of lots or number of securities in issue as required by Article 15(1) RTS 21, over a consecutive three month period.

From 1 August 2017, we expect the following notifications: 

  • multilateral trading facilities (MTFs) and applicants for organised trading facilities (OTFs) authorisation inform of any new commodity contracts prior to launch
  • regulated investment exchanges (RIEs) continuing notification of any new commodity contracts prior to their launch
  • all trading venues should share the contract specifications, specifically the commodity derivative name, market identifier code (MIC), venue product code (VPC) and the relevant unit of measurement

Notifications can be sent to: [email protected]

Position limit exemptions

Non-financial entities (NFEs), as defined in RTS 21 Article 2(1), can apply to us for a position limit exemption for one or more contracts. If you are such an entity and wish to have such an exemption you will need to show that your position in a particular commodity derivative is directly risk-reducing in relation to your commercial activity.

NFEs that have been granted exemptions will still have to report their positions to us but the exemption will be taken into account when the position limits are applied.

The position limit exemptions application is available for completion on Connect.

View the current format of the position limit exemption form (PDF)

Read our guide to completing the commodity position limit exemption application (PDF)

Position limit exemptions for risk-reducing positions will not be restricted to a fixed quantity of the specific contract, thus allowing for future variation in commercial needs. If, however, there is a significant change in the nature or value of the NFE’s commercial or trading activities the NFE will need to submit a new application.

Any position limit exemption will cover all risk-reducing positions held in the specific primary commodity derivative, and in any associated mini, Balmo (Balance of Month), mini-Balmo or other contracts such as those where the same commodity is traded in contracts denominated in different units where we have determined that the contracts should be aggregated. The aggregation will be identifiable in the table with the publication of the position limits. An exemption application should list each Venue Product Code on a trading venue that is to be included in the exemption. For example, the Ice Brent 1st Line Mini Future (VPC IMM) will be aggregated with the Brent 1st Line Future (VPC I). You will need to apply for an exemption on both VPCs (I and IMM) if you are applying for an exemption on this commodity. The second exemption may, however, refer to the previous one in sections 2.2-2.6 rather than repeat all information.

For any questions or support in completing the application please contact:

Tom Watson | +44 (0) 20 7066 4760 | [email protected]

James King | +44 (0) 20 7066 7374 | [email protected]

Reporting positions

Position reporting obligations apply to:

  • all trading venues in the UK that facilitate the trading of commodity derivatives, emission allowances and their derivatives
  • all investment firms trading EEOTC contracts on these financial instruments

Trading venues and investment firms can submit position reports through the ​​​​​​market data processor (MDP) system.

To start the MDP on-boarding process, you will need to fill in a confidentiality agreement form, receive our market interface specification and complete an on-boarding application form. You can download these forms on the links below:

MIS confidentiality agreement (DOCX)

MDP on-boarding application form (DOCX)

Trading venues and investment firms submitting position reports can find reporting instructions on the following links: 

Commodity position reports - reporting instructions (PDF)

XSD for commodity derivative position reports (XSD)

Firms that have a reporting obligation but have not yet started the MDP onboarding process should complete the relevant documentation as soon as possible.

Position management controls

Trading venues in the UK facilitating the trading of commodity derivatives are required to have appropriate position management controls. This allows them to monitor and access information about commodity derivative positions.

Our role in implementing Articles 57 and 58 MiFID II

Under the regime, we are responsible for:

  • calculating and setting spot month and other months’ position limits for commodity derivatives traded on trading venues in the UK based on ESMA methodology
  • daily receipt of position reports
  • applying position limits
  • reviewing position limits where there are significant changes
  • cooperating with other National Competent Authorities where a same commodity derivative is traded in more than one country to ensure a single position limit is set and applied
  • notifying ESMA of the proposed position limits as set in accordance with the methodology
  • monitoring compliance with the position limits, and taking supervisory or enforcement actions where appropriate
  • reviewing applications for position limit exemptions

Ancillary activity exemption

Under MiFID II, firms or individuals who trade in commodity derivatives, emission allowances and derivatives on emission allowances on a professional basis, may under article 2(1)(j) MiFID II be able to make use of an exemption from authorisation. This is through an assessment of their trading activities in accordance with tests in RTS 20.

Those firms or individuals, who rely on this exemption from authorisation, are required to notify us annually through Connect. You will find the notification form on the Connect landing page.

To assist you in completing the notification form, we have provided a user guide:

MIFID II Ancillary Activity Exemption – Notification Guide (PDF)

The notification lasts for twelve months. For notifications before 3 January 2018, these are valid for 12 months from 3 January 2018.

The notification must be renewed before the end of that period using Connect.

Contact us

For any questions or queries please email [email protected].