In December 2020, we published a Supervisory Statement[1] setting out our approach to the operation of the MiFID markets regime after the end of the EU withdrawal transition period.
This included a changed approach to commodity derivative position limits in the light of evidence of potential constraints on market functioning during the coronavirus (Covid-19) crisis because of inflexibilities in the commodity derivatives position limits regime.
We said we do not intend to take supervisory or enforcement action for positions that exceed limits where the position is held by a liquidity provider to fulfil its obligations on a trading venue. We confirm that this remains our position.
On 1 July 2021, HM Treasury published a consultation[2] on its wholesale markets review. This included specific proposals on reforming the MiFID commodity derivatives position limits regime. It proposes changes that would limit the scope of position limits to agricultural contracts and physically settled contracts. We support these proposals.
We have decided that while change to the scope of the regime is being considered – and as an extension to our approach set out in the December 2020 Supervisory Statement – we will not take supervisory or enforcement action in relation to commodity derivative positions that exceed position limits on cash-settled commodity derivative contracts, unless the underlying is an agricultural commodity. We will keep this position under review, and reconsider if there are indications of market abuse.
This statement does not apply to physically deliverable or agricultural commodity derivative contracts – where final settlement can be in the form of physical settlement of the underlying commodity – or where the underlying is an agricultural commodity. Our existing supervisory and enforcement approach relating to position limits remains for these contracts.
Our position does not affect the responsibilities on members or participants of a trading venue under the position management rules of that venue. Further, it does not affect our expectation that firms trading or arranging trades in commodity derivatives comply with their other market conduct obligations including requirements set out under the Market Abuse Regulation. Firms must also continue to have adequate systems and controls to do so.