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ESMA issues new position limits and transparency RTS proposal

ESMA have issued a new draft of MiFID II RTS 21  on position limits, as well as RTS 2 on non equity transparency. This follows the sending back of three RTS’s for revision by the European Commission several weeks ago. RTS 20, outlining the ancillary activity test, has not yet been reissued; a new version has been promised for the end of the month. The new draft of RTS 21 can be found here, with the formal opinion here. The press release and links to all documents can be found here.

The new version of RTS 21, on position limits, has the following changes:

  • Lower limits for some agricultural underlyings – if the underlying of the commodity derivative is a “foodstuff” and the contract is sufficiently “liquid”, the National Competent Authority(NCA) may set the limit as low as 2.5% (as opposed to 5% for other contracts).
  • Higher limits for illiquid contracts – If a contract is deemed “illiquid”, the NCA may set a limit of up to 50% (as opposed to 35% for other contracts). Illiquid for this rule is defined using a combination of open interest and number of market participants
  • Divergence of deliverable supply and open interest – There is a new provision to ensure that the spot and other months limits do not diverge too much, by permitting adjustment. There is also a provision to include a wider range of deliverable supply in the measure.
  • Economically equivalent contracts – The definition of what constitutes an economically equivalent OTC contract has been widened to include different lots sizes and adjacent delivery dates.
  • Other guidance – some of the factors that NCAs should use in the determination of the limits has been adjusted.

The new draft has now been submitted back to the Commission for consideration. Some of the changes, such as the lower limit on foodstuffs, and higher limits for illiquid contracts will address concerns raised by many. Other concerns, such as the calculation of deliverable supply itself, are not yet elaborated.

It is now worthwhile for market participants to evaluate how the new limits, which apply to any market participant trading a covered commodity derivatives  contract, may affect their business. Questions on the new draft may be addressed to the author (see here).

Most market participants also eagerly await the new version of RTS 20 on the ancillary activity test, which for some will have a major impact on the business.




About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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