ESMA today launched a consultation on the application of MiFID Annex I sections C6 and C7.

This is a very important question for the energy and commodities industry, as the interpretation of these clauses (and the rest of section C) determines whether trades are in MiFID (and therefore EMIR).

A trade being “in” has many consequences: it determines if a trade is to be considered as part of the clearing threshold or reported at all under EMIR,as well as many other things.

It will also determine whether a gas and power trade falls under MAR or REMIT. This last question has interesting consequences: In the UK (from next year) a breach of REMIT will incur criminal sanctions, as will breaking MAR. But the maximum jail sentences under MAR are longer than under REMIT.

The questions around the clauses revolve around several issues including:

• The meaning of the word “physical”
• The meanings of “must be” and “can be” physically settled
• Where a trade is executed

The eventual outcome of this consultation  is going to have far reaching consequences.