It is one year today since MiFID II started to apply, on 3rd January 2018. The rule-set affects those in energy and commodities in different degrees, depending on whether any entities are required to become Investment Firms due to the inability to use one of the exemptions available under MiFID II Article 2(1). For the most part, those in the sector make use of the “Ancillary Activity” exemption found in Article 2(1)j and further specified in RTS 20 (see here).
For those who remain exempt, it is still necessary to comply with the position limits rules found in Article 57 and further specified in RTS 21. The limit themselves have changed from time to time (last announced on this blog here). Exempt entities will also be required to report certain data to trading venues under the positing reporting rules. In addition, those engaging in “algorithmic trading” in financial instruments that is not “high frequency” are required to comply with the relevant parts of MiFID II.
MiFID II also make changes to the definition of a “financial instrument” as defined in Annex I Section C. In late December, ESMA issued updated guidelines on the application of sections C6 and C7, which can be found here.
In terms of the rules as applied to “commodity derivatives”, there have not been a large number of announcements in recent months. The wider financial services world has however seen more change in several areas: This article published yesterday on FT.com reports on the impact that the “research unbundling” rules has had on certain parts of the industry, with several unintended consequences. The rules for transaction reporting and other data reporting are significant for investment firms. This article on the Investment Europe web site by Volker Lainer is of Goldensource discusses the issues that firms who took a tactical approach to reporting may face with the stream of changes, and suggests a move to a strategic approach. Similarly, this article on the Markets Media web site by Shanny Basar looks at how on the one hand, compliance with the reporting requirements improved in the second half of 2018, whereas on the other hand, the use of ISIN codes has possibly decreased transparency. It is suggested in the article by Amir Khwaja of FT Clarus that generating ISIN for each maturity date, rather than by tenor, has led to an order of magnitude more ISINs than necessary.
This article on the Practice Insight web site by Lizzie Meager looks at some innovative approaches that MiFID II has given rise to, for example in issues around third countries. In the meantime, this article on the Citywire web site reports that several Multi Family Offices are still not compliant. This article on Finextra by Matt Smith, CEO of Steeleye is more optimistic: It looks at how thew Best Execution rules have unfolded, data quality issues as well as the impact of the transparency rules. While the article discusses the issues over the last year, some of these are on the path to resolution. It is therefore suggested that as the rules get clarified, we may see some of the originally posited benefits.
While the financial services industry continues to “bed down” MiFID II in 2019, it will be interesting to the level of effort generated by the parts of the rule-set that impacts energy and commodities over the coming months.