Statement on supervision of commodity derivatives position limits

In December 2020, we published a Supervisory Statement setting out our approach to operating the MiFID markets regime after the end of the EU withdrawal transition period.

This approach included a change to our supervisory and enforcement actions for commodity derivative position limits in the light of evidence of potential constraints on market functioning highlighted during the coronavirus (Covid-19) crisis. Liquidity providers’ ability to take on positions was impaired because of position limits, at a time when liquidity provision was most critical for the market.

We said that, until 1 January 2022, we 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. So far, we have found no evidence of adverse effects from this relief.

The Economic Secretary to the Treasury, John Glen MP, gave a speech on 23 November 2021, which supported the continued use of our supervisory approach on the position limits regime.

We confirm that we will extend this approach while the scope of the regime is being considered under the HM Treasury’s Wholesale Market Review. We will review and reconsider our approach if there are indications of market abuse.

We expect firms to make their own assessment of whether the positions they take are positions resulting from their actions as a liquidity provider. Firms do not need to notify us of these assessments. However, we may ask a firm to explain its assessment to us at any time, such as when it breaches a position limit. The position should not be any larger than necessary to enable the firm to fulfil its role as a liquidity provider. We will expect a firm to reduce its positions if it reports a breach and it is not able to show that it is engaged in genuine liquidity provision.

This statement does not affect the responsibilities that members or participants of a trading venue owe under the venue’s position management rules. It also does not affect our expectation that firms comply with market conduct obligations, and that entities operate adequate systems and controls to remain within position limits at all times, unless we have granted a waiver or a firm is able to rely on this statement.