EFET have today issued this statement, calling for the “capital employed” test to be reintroduced into the assessment of whether trading is an “Ancillary Activity” of the firm, determining whether they will be required to obtain a “MiFID licence”.

The final draft Regulatory Technical Standard (RTS), published in late September, removed this test (which was contained in the originally proposed RTS) and replaced it with a “main business test”. The capital employed test examined the proportion of group capital allocated to “speculative” trading. As a result, “asset heavy” companies are more likely to “pass” this test. In the original RTS, the test was accompanied by a “market size” test which compared the level of trading activity in each of eight commodities to a set of thresholds. Originally BOTH tests needed to be passed

The latest test raised these thresholds and introduced the “main business test”,  which compares the level of “speculative” trading activity to overall trading activity. Those whose level is above 10% see their thresholds lowered in two increments (See here for a full explanation). While the calculation is often easier to perform, it will disadvantage those asset heavy companies that have a high level of trading but as a smaller proportion of the groups activity. This is the argument of EFET’s objection.

Interestingly, the re introduction of the capital employed test is also being sought by those who wish for a narrower exemption, as reported yesterday, albeit for slightly different reasons.

The European Commission have until 3 months after the RTS was issued (i.e. end of December) to approve or reject it. Given the probable delay of MiFID II by a year,  a rejection becomes more feasible if there is good reason. However, the European Parliament made clear that if a delay occurs, the RTSs must be finalised quickly. In the event of rejection it is therefore likely that ESMA will need to respond with a new version with a quick turnaround.