The following article was written by Quinn Perrott, General Manager of regulatory and compliance solutions provider TRAction Fintech.
What is Commodity Position Reporting?
Quinn Perrott, TRAction Fintech
With the implementation of MiFID II on 3rd January 2018, limits will apply to the net position a person can hold in commodity derivative contracts. These limits will be set by the National Competent Authorities (“NCAs”) and the position reporting will allow the NCAs to issue liquidation orders when the limits are exceeded. For example, the FCA has published a list of commodity derivative contracts which will attract position limits from the MiFID II implementation date.
What instruments need to be reported?
Cash-settled and physically-settled commodity derivatives listed on European Economic Area (“EEA”) trading venues (a Regulated Market (“RM”), Multilateral Trading Facility (“MTF”) or an Organised Trading Facility (“OTF”)) (“Trading Venue”). These include:
- Energy derivatives, metal derivatives, agricultural derivatives and other food derivatives;
- Intangible derivatives e.g. climate derivatives;
- Flow-based delivery derivatives e.g. electricity and gas derivatives,
as well as OTC derivatives “economically equivalent” to the venue-traded instruments above.
What is meant by “economically equivalent” OTC contracts?
The definition of Economically Equivalent OTC Contracts (“EEOTC”) provided by ESMA is as follows:
An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements
Commission Delegated Regulation (EU) 2017/591 supplementing Directive 2014/65/EU (MiFID II)
When do the reports need to be submitted?
22:00 Central European Time (CET) T+1 to an NCA, probably earlier if submitted to a venue. Operationally, this most likely means you’ll need to plan to have this done by close of business T+1 CET.
Do I need to submit weekly ‘commitment of trade’ reports?
MiFID II Article 58-1(a) includes the obligation to “make public a weekly report with the aggregate positions held by the different categories of persons for the different commodity derivatives or emission allowances or derivatives thereof traded on their trading venue”. This requirement relates to an “investment firm or a market operator operating a trading venue which trades commodity derivatives or emission allowances or derivatives”. Accordingly, it is a requirement for Trading Venue operators rather than all investment firms and only when certain minimum thresholds have been exceeded.
Who do I need to submit position reports to?
For venue-traded commodity derivatives – report to the venue (who in turn will report to the NCA).
For EEOTC – report to the NCA of the venue where the corresponding venue-traded derivative is traded (this differs from MiFID transaction reporting where a firm reports to their home state NCA).
Is this in addition to my other MIFID II transaction reporting obligations? Do I report a commodity contract once or twice?
Potentially yes – in-scope venue-traded and economically equivalent OTC commodity contracts will need to be reported when they are executed (Transaction Reporting) and also reported daily as positions under MiFID II.
Can TRAction Fintech assist me with this reporting obligation?
Reporting of commodity position information should be undertaken by your firm or by a third-party specialising in commodity position reporting. TRAction Fintech can assist you in understanding your reporting requirements – contact us today on +44 20 8050 1317.