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Ancillary Activity test RTS 20 – ESMA responds with “open” draft

ESMA have released a new draft of MiFID II ‘s Regulatory Technical Standard (RTS) on the Ancillary Activity test, RTS 20, announcing it in this press release. This follows the “sending back” of the previous draft by the European Commission in March, with a request to re introduce a form of capital test. The test determines whether those in commodity and energy trading are required to set up a MiFID “regulated entity” which carries many costs and responsibilities with it.

The new draft (here) and accompanying opinion (here) do not re introduce a capital test. Instead the draft itself contains a few changes (in particular, clarifying the scope of some of the tests). However the opinion states that while ESMA’s view is that while the original “main business test”, which uses the level of trading in commodity derivatives activity as both numerator and denominator, conforms to the original mandate of the Level 1 text, the Commission should determine whether it is appropriate to introduce a capital test as an alternative. The opinion suggests some ways in which a capital test may be constructed, and urges the commission to keep a “level playing field” so all market participants are treated “fairly”. It is also suggested that the Commission consider revising the as yet unchanged market size tests if such an alternative is provided.

As a result of this response, the market will now still be “in suspense” as to the final form of the test, which will disappoint many. It will be hoped that the final version is issued by the Commission sooner, rather than later.

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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