MiFID II ancillary activity exemption - the procedure's summary




The MiFID II framework aims at reclassifying large non-financial commodities traders as financial counterparties.


MiFID II puts in place an 'ancillary activity test' that determines how much non-hedging (or speculative) commodity derivative or emission allowances derivative trading non-financial firms (NFCs) can conduct before this activity is no longer deemed 'ancillary to the main business' of the firm and the firm be obliged to seek a MiFID authorisation (MiFID II ancillary activity exemption).


Hence the largest NFCs active on commodity derivative or emission allowance derivative markets will need to seek a MiFID authorisation.


Two thresholds are used in MiFID II:


- one based on the value of contracts traded by the firm as a percentage of the overall EU market size for that commodity derivative or emission allowance derivative (the market share test), and


- one based on whether commodity derivative or emission allowance derivatives make up more than 10% of the firm's business (the main business test). 


Both tests need to be passed to keep the exemption, however, the main business test has two, alternative, options:


a) the trading test, and


b) the capital employed test.


There is also the backstop mechanism to correct the results.





Mifid2 ancillary exemption tests structure






    Territorial scope   





All the above tests are to be calculated based on activities undertaken in the European Union.


The only exceptions are:


- the denominator of the trading test,

- the denominator of the capital employed test;


which are to be calculated on a world-wide group basis.


Such stance is shared by Bundesverband der Energie- und Wasserwirtschaft (BDEW), European Federation of Energy Traders (EFET), EURELECTRIC, Energy UK, EUROGAS, Futures Industry Association (FIA) and International Oil and Gas Producers association (IOGP) in the document of 16 February 2017 "Joint associations' Questions & Answers (Q&A) on Regulatory Technical Standard (RTS) 20 of the Markets in Financial Instruments Directive (MiFID II)".


However, ESMA Opinion of 6 July 2017 on ancillary activity – market size calculation (ESMA70-156-165) with respect to on-venue data calculations in the denominator of the market share test refers to the broader scope, i.e. the trading venues located in the EEA.


The said document of 16 February 2017 proposed, moreover, further interpretations on the cross-border issues involved, as in the box below.


Last Updated on Friday, 06 October 2017 19:52


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