Yesterday ESMA issued this updated statement on the impact of Brexit on MIFID II once the transitional period ends on 31st December 2020. The statement has a focus on commodities and addresses several topics, as applied to EU 27 entities:

“REMIT Carve out” – The exclusion in section C6 of Annex I of MIFID II, which permits physical forwards in Wholesale Energy Products executed on an Organised Trading Facility (OTF) that “must be physically settled” to be treated as non financial instruments.

The statement maintains its previous position, that two conditions must be considered in order to ascertain whether a product that delivers in the UK could still benefit from the carve out:

• The OTF must be in the Union.
• The definition of “Wholesale Energy Product” requires that the product either be physically delivered in the Union, or “traded in the Union.

For the second point, the statement suggests that if the underlying spot product of the forward in question is traded on a venue in the Union, no matter where delivered, and the forward is executed on an EU based OTF, it may still qualify for the carve out despite being delivered in the UK.

The statement points out that if transactions do not qualify for the carve out, they may be considered to be “C7” financial instruments.

Position Limits – The statement addresses the issue of whether contracts in commodity derivatives traded on a UK venue could be considered Economically Equivalent OTC (EEOTC) contracts in some cases. The statement has been updated to say that UK venues are currently being assessed and will likely be on the “exclusion list” from such a rule. 

ESMA has also issued this statement which recognises three Central Counterparties (CCP) as third country CCPs eligible to provide their services in the EU. The CCPs in question are ICE Clear, LME Clear and LCH, who have been recognised at different tiers. The recognition permits EU Investment Firms to continue to use them after the end of the transition period. The recognition is granted until the end of June 2022.