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.