EEX and Powernext have announced new trading venues that will be ultimately classified as Organised Trading Facilities(OTF) under MiFID II. The announcement can be found here. The OTF is a new type of venue introduced by MiFID II which generally is different to a Multilateral Trading Facility (MTF) in that it encompasses an element of discretion, amongst other things. Until MiFID II enters into force the venue will simply be considered a “Non MTF”.
A product traded on an OTF, rather than an MTF is less likely to be considered to be a derivative as part of financial regulations such as EMIR and MiFID II. This has several knock on effects, such as the trade not contributing to the Ancillary Activity test under MiFID and the clearing threshold calculation under EMIR.
According to the press release, products traded on the new venues will hold the status of “can be physically settled”. MiFID defines a derivative in Annex I Section C. Paragraphs 6 and 7 generally define a trade that can be physically settled, but which is not traded on an MTF as not being caught, so long as certain conditions are met. These are also commented on under ESMA’s latest guidelines.
MiFID II alters this definition, bringing in trades that can be physically settled traded on an OTF, but adding the “REMIT Carve Out” that excludes “wholesale energy products traded on an OTF that must be physically settled”.
The definitions of “must” and “can”, as well as the rest of Section C are the topic of extensive discussions which will no doubt continue as MiFID II gets closer.