Positions reporting under MiFID II
Sunday, 19 March 2017 23:22

 


 

 

Under MiFID II members and participants of trading venues must report to the trading venue on a daily basis a complete breakdown of their positions in commodity derivatives, emission allowances, and derivatives of emission allowances, as well as those of their clients and the clients of those clients and so on down to the end client (Article 58(3) MIFID II).

 

The trading venue must then provide those reports to the national competent authority (NCA).

 

In addition, investment firms which undertake trading in commodity derivatives, emission allowances or derivatives of emission allowances outside a trading venue must report on a daily basis their positions in all commodity derivatives, emission allowances and derivatives of emission allowances, as well as those of their clients and the clients of those clients and so on down to the end client to the relevant NCA (Article 58(2) MIFID II).

 

The wording of the above provisions raises some ambiguities.

 

In particular, as there is no definition of “end client” in MiFID II/MiFIR, the document of GFMA, ISDA and FIA - Level 3 Q&A: Commodity Derivatives Position Reporting (MiFID II, Article 58) has proposed to resolve this problem in light of the Article 4(1)(9) MiFID II definition of “client” ("any natural or legal person to whom an investment firm provides investment or ancillary services").

 

GFMA, ISDA and FIA infer the following implications from the said definition:

 

- for a person to be a “client” it must receive investment or ancillary services from an investment firm; 



- if that person (the “client”) is not itself an investment firm, then that client must also be the “end client” as it will not be providing investment or ancillary services, and therefore cannot have any clients of its own; and 



- if the client is an investment firm, but does not provide investment or ancillary services to another person, then the client will also be the “end client”. 



Accordingly, GFMA, ISDA and FIA argue that not every position taken in a commodity derivative, emission allowance or derivative thereof that is traded on a trading venue or in an economically equivalent OTC contract (EEOTC) contract will involve a client.

 

For example, an investment firm will not have a “client” where it is dealing on its own account.

 

Where an investment firm enters into an EEOTC with another investment firm, neither firm may be providing investment or ancillary services to the other.

 

Indeed, if both investment firms are dealing on their own account, neither investment firm has a “client”.

 

Consequently, according to the above organisations, an investment firm would not be required to report positions of a trading counterparty (where such counterparty is not that firm’s client), or those of any client that the trading counterparty may have.

 

Investment firms should only report their own positions, as well as those of their clients and the clients of those clients, until the end client is reached.

 

 

 

Article 58 MiFID II

 

Position reporting by categories of position holders

 

1. Member States shall ensure that an investment firm or a market operator operating a trading venue which trades commodity derivatives or emission allowances or derivatives thereof:

 

(a) make public a weekly report with the aggregate positions held by the different categories of persons for the different commodity derivatives or emission allowances or derivatives thereof traded on their trading venue, specifying the number of long and short positions by such categories, changes thereto since the previous report, the percentage of the total open interest represented by each category and the number of persons holding a position in each category in accordance with paragraph 4 and communicate that report to the competent authority and to ESMA; ESMA shall proceed to a centralised publication of the information included in those reports;

 

(b) provide the competent authority with a complete breakdown of the positions held by all persons, including the members or participants and the clients thereof, on that trading venue, at least on a daily basis.

 

The obligation laid down in point (a) shall only apply when both the number of persons and their open positions exceed minimum thresholds.

 

2. Member States shall ensure that investment firms trading in commodity derivatives or emission allowances or derivatives thereof outside a trading venue provide the competent authority of the trading venue where the commodity derivatives or emission allowances or derivatives thereof are traded or the central competent authority where the commodity derivatives or emission allowances or derivatives thereof are traded in significant volumes on trading venues in more than one jurisdiction at least on a daily basis with a complete breakdown of their positions taken in commodity derivatives or emission allowances or derivatives thereof traded on a trading venue and economically equivalent OTC contracts, as well as of those of their clients and the clients of those clients until the end client is reached, in accordance with Article 26 of Regulation (EU) No 600/2014 and, where applicable, of Article 8 of Regulation (EU) No 1227/2011.

 

3. In order to enable monitoring of compliance with Article 57(1), Member States shall require members or participants of regulated markets, MTFs and clients of OTFs to report to the investment firm or market operator operating that trading venue the details of their own positions held through contracts traded on that trading venue at least on a daily basis, as well as those of their clients and the clients of those clients until the end client is reached.

 

4. Persons holding positions in a commodity derivative or emission allowance or derivative thereof shall be classified by the investment firm or market operator operating that trading venue according to the nature of their main business, taking account of any applicable authorisation, as either:

 

(a) investment firms or credit institutions;

 

(b) investment funds, either an undertaking for collective investments in transferable securities (UCITS) as defined in Directive 2009/65/EC, or an alternative investment fund manager as defined in Directive 2011/61/EC;

 

(c) other financial institutions, including insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC, and institutions for occupational retirement provision as defined in Directive 2003/41/EC;

 

(d) commercial undertakings;

 

(e) in the case of emission allowances or derivatives thereof, operators with compliance obligations under Directive 2003/87/EC.

 

The reports referred to in point (a) of paragraph 1 shall specify the number of long and short positions by category of persons, any changes thereto since the previous report, percent of total open interest represented by each category, and the number of persons in each category.

 

The reports referred to in point (a) of paragraph 1 and the breakdowns referred to in paragraph 2 shall differentiate between:

 

(a) positions identified as positions which in an objectively measurable way reduce risks directly relating to commercial activities; and

 

(b) other positions.

 

5. ESMA shall develop draft implementing technical standards to determine the format of the reports referred to in point (a) of paragraph 1 and of the breakdowns referred to in paragraph 2.

 

ESMA shall submit those draft implementing technical standards to the Commission by 3 January 2016.

 

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.

 

In the case of emission allowances or derivatives thereof, the reporting shall not prejudice the compliance obligations under Directive 2003/87/EC.

 

6. The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to specify the thresholds referred to in the second subparagraph of paragraph 1 of this Article, having regard to the total number of open positions and their size and the total number of persons holding a position.

 

7. ESMA shall develop draft implementing technical standards to specify the measures to require all reports referred to in point (a) of paragraph 1 to be sent to ESMA at a specified weekly time, for their centralised publication by the latter.

 

ESMA shall submit those draft implementing technical standards to the Commission by 3 January 2016.

 

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.

 

 

 

Documentation

 

 

ITS 4: Draft implementing technical standards on position reporting

 

GFMA, ISDA, FIA, Level 3 Q&A: Commodity Derivatives Position Reporting (MiFID II, Article 58)

 

 

 

Add your comment

Your name:
Your website:
Comment:
 

Search

Twitter
Copyright © 2009 - 2017 Michal Glowacki. All rights reserved.
The materials contained on this website are for general information purposes only and are subject to the disclaimer