|Spot contract (MiFID definitions)|
|European Union Electricity Market Glossary|
For the purposes of defining financial instruments under the MiFID Directive (Section C(7) of Annex I thereto), a spot contract is understood as a contract for the sale of a commodity, asset or right, under the terms of which delivery is scheduled to be made within the longer of the following periods:
(a) two trading days;
The above definition is contained in Article 38(2) of the Commission Regulation (EC) No1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive (OJ L 241, 2.9.2006, p. 1).
Pursuant to the said Regulation, a contract is, however, not a spot contract if, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the underlying is to be postponed and not to be performed within the period mentioned above.
The transaction reporting regime in MiFID I and II only applies to financial instruments whereas spot commodity contracts remain outside the scope of the MiFID I and II transaction reporting framework.
"Non deliverable forwards are contracts for the difference between an exchange rate agreed before and the actual spot rate at maturity and therefore should not be considered to be spot contracts, regardless of their settlement period" (Recital 12 of the Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive).
This is in contrast with the Market Abuse Regulation (MAR) where 'spot commodity contracts' and 'spot markets' are defined respectively as:
- 'spot commodity contract' a contract for the supply of a commodity traded on a spot market which is promptly delivered when the transaction is settled, and a contract for the supply of a commodity that is not a financial instrument, including a physically settled forward contract (MAR Article 3(1)(15));
- 'spot market' a commodity market in which commodities are sold for cash and promptly delivered when the transaction is settled, and other non-financial markets, such as forward markets for commodities (MAR Article (3)(1)(16)).
It means, for particular MAR purposes physically settled forward contracts are treated the same as spot ones. But this is only MAR-specific terminological convention.
The way of the formulation of the definition for the 'spot commodity contract' under MAR entails, in particular, that wholesale energy products, as defined in Article 2(4) of the Regulation (EU) No 1227/2011 (REMIT) on wholesale energy market integrity and transparency, are included in the second limb of this definition (Consultation Paper ESMA's guidelines on information expected or required to be disclosed on commodity derivatives markets or related spot markets under MAR, 30 March 2016, ESMA/2016/444, p. 9).
'Commodity' in this context is defined in point (1) of Article 2 of the above-mentioned Regulation No 1287/2006 of 10 August 2006 as "any goods of a fungible nature that are capable of being delivered, including metals and their ores and alloys, agricultural products, and energy such as electricity".
The new MAR predominantly applies to financial instruments; however, it also expressly extends the scope of the market manipulation and insider trading prohibitions to spot commodity contracts where any transaction or order in them or any behaviour in relation to them is likely to have an effect on the price or value of a financial instrument (Article 2(2a) MAR).
This extension of the market manipulation and insider trading prohibitions in MAR will expressly exempt "wholesale energy products" as defined under REMIT.
REMIT establishes a framework applying to wholesale energy products encompassing spot and derivative contracts in electricity and gas.
While the REMIT obligation to publish inside information applies to both spot and derivative contracts in electricity and gas, the prohibitions of insider trading and market manipulation do not apply to financial instruments (i.e. derivatives in electricity and gas) where at the moment the Market Abuse Directive, in the future MAR, prevail and financial regulators are the competent authorities (see ESMA Consultation Paper on MiFID/MiFIR of 22 May 2014 (ESMA/2014/549), p. 285).
Spot in the REMIT transactions' and orders' reporting framework
The specificity of "forward style contracts" in the REMIT reporting scheme needs also to be accounted for, as the REMIT Trade Reporting User Manual clarifies (for example Data Field No 13 of the non-standard reporting form): "[f]or bilateral contracts forward style contract refers to the forward style which also includes spot transactions. Market participants should not understand forward style as a sort of derivative contract but as the style of the contract itself."
Thus, it follows under the specific REMIT reporting rules "forward style contract" includes also spot.
Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, Recitals 8 - 12
Commission Delegated Regulation (EU) of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, 25.4.2016 C(2016) 2398 final
|Last Updated on Thursday, 20 April 2017 22:47|