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ESMA asks Commission for guidance on Ancillary Activity test

Following on from the announcement earlier this week of new position limit opinions (see here), ESMA has written this letter to the European Commission asking for guidance on the applicability of the Ancillary Activity test.

The Ancillary Activity exemption found under MiFID II Article 2(1)j allows those who trade commodity derivatives on own account to use the exemption if it can be shown that the trading is ancillary to the main business of the non financial entity. The details of the test are found in RTS 20.

The issue contained in the letter relates to whether the tests should be carried out on a group or entity level. Changes to the text in the final version of RTS 20 published in December 2016 give rise to a possible interpretation that the market size test be carried out on an entity basis (see here). ESMA are now asking the Commission to give a view on whether this is indeed the case.

Should the test be carried out on a group basis, it is possible that some companies will no longer be able to use the exemption, in which case it will be necessary to apply for authorisation from a National Competent Authority for permission to provide Investment Services, subjecting the company to many strands of MiFID II and MiFIR.

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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