EEX and Powernext launched several “Non MTF” trading platforms on 1st July. Unlike trades executed on Regulated Markets (exchanges), physical forwards executed on these platforms are not necessarily “financial instruments” as defined by MiFID Annex I Section C6. As a result, such trades will not contribute to the clearing threshold under EMIR. The run up to EMIR saw several broker platforms create non-MTF versions of their platforms, most of which had been classified as MTF(Multilateral Trading Facility). A key differentiator between an MTF and non-MTF is that non-MTFs must have a discretionary element to them. It is often this that removes a venue from MTF status.
MiFID II sees the introduction of the “OTF”, the Organised Trading Facility, which is intended to regulate discretionary venues under the MiFID framework. MiFID II also sees the revision of Annex I Section C, with paragraph 6 now generally defining physical forwards executed on an OTF as financial instruments. However, the “REMIT carve out” ends paragraph 6 by excluding:
wholesale energy products traded on an OTF that must be physically settled
.The defining elements of this statement, such as the meaning of “must be physically settled” are found in the corresponding Delegated Act.
Thus, in order for trades executed on the new platforms not to be considered as financial instruments:
- The venue must be classified as an OTF
- The contract must be considered to be “must be physically settled.
If these conditions are achieved, it will be possible to exclude trades executed on the platform from the as not yet finalised Ancillary Activity test, found in RTS 20, that is hoped to be finalised in the coming weeks.
This article on Bloomberg explains the latest developments, and provides industry thoughts on the likelihood of the venue continuing to achieve the appropriate status. This article on Risk.net (subscription required) further examines the issue.
It remains to be seen if all of the conditions required for the venues to continue with the desired status will be met.