EC publishes report on commodity derivatives market

The European Commission (EC) has published a report on its assessment of the markets for commodity derivatives, emission allowances and derivatives of emission allowances under Article 90(5) of the MiFID II Directive, as amended by MiFID III. The report is addressed to the European Parliament and the Council of the EU. Input was provided by the European Securities and Markets Authority (ESMA) and the Agency for the Cooperation of Energy Regulators (ACER). The European Banking Authority (EBA) did not provide input as they informed the EC that this would require a more in-depth analysis.

The report found that stakeholders' responses and the EC's assessments did not point to an urgent need to make substantive changes to the relevant commodity derivatives framework. However, targeted amendments could be considered in the future. The findings from the report include:

• Data-sharing and reporting—the EC acknowledges that the current reporting framework for commodity derivatives is complex. Under a gradual approach, short-term measures to facilitate data-sharing between authorities and improve the interoperability of data sets could be explored. This could include the institutionalisation of data exchanges between financial and energy regulators, with systematic access granted to respective supervisory data, eliminating the need for ad hoc access requests. The EC could also explore the adoption of unique identifier formats for transactions reported under both financial and energy frameworks.
• Ancillary activity exemption—the EC confirms that the ancillary activity exemption is functioning adequately and that altering its scope and operation may have significant and far-reaching consequences. If a review of the ancillary activity exemption is contemplated at a later stage, the EC suggests that a tailored prudential regime commensurate with the risk profile of firms operating in commodity derivatives markets would be more appropriate.
• Position limits regime—the EC highlights that the current position limits regime functions adequately. The EC sees potential for further exploring: (i) the conditions under which trading venues could be tasked with greater, yet well-framed, responsibilities in granting hedging and liquidity provision exemptions, as well as possibly ad hoc exemptions. This could make the measure more agile and more responsive to market trends; (ii) in order to support trading venues in fulfilling their position management mandate and to ensure fair and orderly markets, the conditions under which trading venues could be entrusted with extended position management control powers to request, on an ad-hoc basis and in certain circumstances, information on the positions held by their market participants in a broader set of over-the-counter (OTC) contracts related to the commodity derivatives they offer for trading, and related assets and liabilities in the underlying commodity; (iii) whether the reporting of economically equivalent OTC positions could be extended to all market participants; and (iv) to what extent a possible additional requirement on third-country market participants to submit information on end beneficiaries could be appropriate to close the gap in the current position reporting.

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