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Mifid

EEX and Powernext’s non MTF platforms – ICIS articles

On 1st July EEX and Powernext  launched several “Non MTF” trading venues, including German and French power derivatives and several gas products. By  trading products on a non-MTF, rather than a Multilateral Trading Facility (MTF), certain physical forwards are no longer considered to be financial instruments, and are therefore not part of EMIR. This is because MiFID Annex I Section C6 states that:

Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF

are financial instruments.  There are several supporting pieces of legislation that further define C6. Section C7, regarding off venue trades, must also be respected.

Amongst the benefits of not being a financial instrument is that the trade does not contribute to the clearing threshold under EMIR, as well as several others. Whilst several broker platforms are non-MTF, exchanges have not been until this point.

However, the new non-MTFs will become “Organised Trading Facilities” (OTF) under MiFID II, which amends C6 to state that:

Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled

are financial instruments.The amendment brings in trades executed on an OTF, unless they are energy trades which “must be physically settled” and traded on an OTF. This exclusion is known as the “REMIT cave out and is further defined  found in the Delegated Regulation (here) which lays down the conditions of “must be physically settled”.

If market participants are to benefit from the exclusion, (which with MiFID II has an impact on the Ancillary Activity test) the EEX venue will need to ensure that all trades executed on it comply with the “must be physically settled” requirement from the start of MiFID II on 3rd January 2018.

The ICIS Regulation Portal has recently published two articles on the new platforms, the issues around them and how they gain some “first mover advantage”. The articles can be found here and here.

 

 

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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