|MiFID II ancillary activity exemption - market share test (OMT) - Page 2|
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ANNEX - ARCHIVED
Market share test pursuant to the ESMA's Consultation Paper – Annex B Regulatory technical standards on MiFID II/MiFIR of 19 December 2014, ESMA/2014/1570
The process for the developing secondary legislation stipulating the detailed rules for applying MiFID II ancillary activity exemption was prolonged and the construction of the market share test evolved.
To show the evolution of the legislation in that regard the remarks below refer to the main points of the market share test according to the draft regulatory technical standards on criteria for establishing when an activity is to be considered to be ancillary to the main business as set out in the ESMA Consultation Paper – Annex B Regulatory technical standards on MiFID II/MiFIR of 19 December 2014 ESMA/2014/1570 (p. 373-380).
It needs to be reserved that the ESMA's draft is of historical significance today, given the final rules stipulated in the Commission Delegated Regulation (EU) 2017/592 of 1 December 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the criteria to establish when an activity is considered to be ancillary to the main business.
Thresholds for relevant asset classes
Pursuant to the aforementioned ESMA's Consultation Paper of 19 December 2014, an activity was considered to be ancillary to the main business in accordance with Article 2(1)(j) of MiFID II, if the size of the trading activity:
(i) in commodity derivatives of the group undertaken in the European Union accounted for less than 0.5% of the overall market trading activity in the European Union in one of the following asset classes:
- oil and oil products;
- agricultural products; or
- other commodities, including freight and commodities referred to in Section C 10 of Annex I of the MiFID II Directive; or
(ii) in emission allowances or derivatives thereof of the group undertaken in the European Union accounted for less than 0.5% of the overall market trading activity in the European Union.
Calculation of the size of the trading activity
The volume of trading activity undertaken by an entity of the group possessing a MiFID license was not counted when calculating the size of the trading in the eligible activity.
The volumes were measured using the gross notional value of contracts.
The calculation of the size of the trading activity was intended to be undertaken on the basis of a rolling average of three calendar years. The relevant calculations untill 2020 were scheduled as follows:
De minimis exemption
ESMA planned to apply de minimis exemption as regards ancillary activity, the ESMA's Consultation Paper of 19 December 2014 elaborated on this issue as follows (p. 523):
"Some respondents also suggested a de minimis exemption, under which smaller firms should not be required to undertake further calculations and should not be required to make an annual notification to the competent authority. ESMA appreciates this suggestion, as it would mitigate the impact on the market of every natural or legal person undertaking a transaction in a commodity derivative from having to notify annually the competent authority of the use of the exemption and being required to demonstrate their bona fide use of the exemption on request. Therefore, ESMA has explored the option of introducing a de minimis threshold. However, the mandate given to ESMA in the Level 1 text leaves very limited scope for the introduction of a de minimis threshold.
[...] ESMA is not able to introduce a de minimis threshold in relation to the annual notification. The only way ESMA may be able to introduce a de minimis threshold would be to establish a relative threshold comparing the size of the ancillary activity to the main activity of the group. It may be possible to establish a de minimis threshold if a person's trading activity only constitutes a small share of the overall market trading activity in each asset class. For example, a person may not be captured by the scope of MiFID if the size of its trading activity constitutes less than 0.25% of the overall market trading activity in each asset class. A person that falls below this threshold would not have to undertake the first test in relation to the capital employed but would still be required to make an annual notification to the competent authority."
The aforementioned ESMA's draft of 19 December 2014 used the following glossary:
1. "eligible activity" was understood as:
(a) dealing on own account, including market makers, in commodity derivatives or emission allowances or derivatives thereof, excluding persons who deal on own account when executing client orders; or
(a) intra-group transactions as referred to in Article 3 of EMIR Regulation, serving group-wide liquidity and/or risk management purposes;
(b) transactions in derivatives which are objectively measurable as reducing risks directly related to the commercial activity or treasury financing activity (i.e. hedging);
(c) transactions in commodity derivatives and emission allowances entered into to fulfil obligations to provide liquidity on a trading venue ("where such obligations are required by regulatory authorities in accordance with Union or national laws, regulations and administrative provisions or by trading venues")
|Last Updated on Sunday, 06 October 2019 17:13|