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Questions and Answers on MiFID II and MiFIR commodity derivatives topics (ESMA70-872942901-36) (updated 23 September 2022)Acronyms and definitions used [Last update: 23/09/2022]Table of questions [Last update: 23/09/2022]1 Introduction [Last update: 23/09/2022]2 Position limits [Last update: 23/09/2022]Question 1 Are position limits applicable only at the end of each trading day or also throughout the trading day? [Last update: 19/12/2016]Question 2 What is the definition of a lot for the application of Article 57(1) of MiFID II to those commodity derivatives for which a lot, as defined in the contract specification by the trading venue, does not represent a standard quantity of the underlying across all maturities/delivery periods for that commodity derivative? [Last update: 23/09/2022]Question 3 What is a lot in the case of Economically Equivalent OTC contracts (EEOTC)? [Last update: 19/12/2016]Question 4 Should positions with different maturities for other month's limits be netted? [Last update: 23/09/2022]Question 5 How should non-EU entities with positions above the thresholds be treated? Do they have access to exemptions, and if so, when and how do they apply to the relevant NCA? [Last update: 19/12/2016]Question 6 How do limits apply to long and short positions? [Last update: 19/12/2016]Question 7 Are securitized derivatives considered to be commodity derivatives under MIFID II? How does ESMA differentiate between ETCs and securitized derivatives? [Last update: 23/09/2022]Question 8 Are the net positions held by clearing members usable for the purposes of determining the positions of their clients for the application of position limits under Article 57? [Last update: 19/12/2016]Question 9 Will there be a different position limit for options and futures? If so, how should options be converted into futures for the application of position limits? [Last update: 23/09/2022]Question 10 How is the position limits regime applied to the various underlyings listed in Annex I, Section C(10) of MIFID II? [Last update: 23/09/2022]Question 11 Can a hedge exemption be netted against positions in derivatives which are not objectively measurable as reducing risks directly related to that person's commercial activity? [Last update: 23/09/2022]Question 12 What is the meaning of the 'single fungible pool of open interest' in Art 5.1(b) of RTS 21? Does it refer only to those commodity derivatives cleared in the same central counterparty? [Last update: 23/09/2022]Question 13 How should agricultural contracts that have a high variability of open interest during the year be treated (i.e. minimum open interest is below 10,000 lots but maximum above it)? [Last update: 23/09/2022]Question 14 Is it necessary for a Non-Financial Entity (NFE) to apply to the relevant NCA of a trading venue for a position limit exemption in all contracts in which that NFE holds positions? [Last update: 07/07/2017]Question 15 How should the spot month be defined for contracts where there are daily, weekly, quarterly and calendar as well as monthly variants of the same contract? [Last update: 15/12/2017]Question 16 How can limits be set for contracts with an open interest between 5,000 and 10,000 lots which have a low number of market participants or market makers as described in Article 19(2) of RTS 21? [Last update: 23/09/2022]Question 17 How are position limits applied to intercommodity 'spread' or 'diff' contracts? [Last update: 23/09/2022]Question 18 Do position limits also apply to positions in contracts that have been entered into prior to 3 January 2018 and are traded on a trading venue, including an OTF, or are economically equivalent OTC contracts (EEOTC) to those traded on a trading venue? [Last update: 23/09/2022]3 Ancillary activity [Last update: 23/09/2022]Question 1 Do all legal entities that deal in commodity derivatives within a financial group need to be individually authorised as investment firms? [Last update: 19/12/2016]Question 2 Does trading activity in C6 contracts which takes place on OTFs after 3 January 2018 need to be counted towards the ancillary thresholds prior to that date? [Last update: 19/12/2016]Question 3 Can the parent undertaking notify its NCA for the whole group or do the subsidiary undertakings also have to notify their local NCA? [Last update: 23/09/2022]Question 4 Who has to notify annually the relevant competent authority that they make use of the ancillary activity exemption? [Last update: 23/09/2022]Question 5 To which competent authority should a person provide notification that it makes use of the ancillary activity exemption? [Last update: 23/09/2022]Question 6 By when does a firm that wants to make use of the ancillary activity exemption need to notify its competent authority? [Last update: 23/09/2022]Question 7 When does a firm that can no longer make use of the ancillary activity exemption need to apply for a license? [Last update: 23/09/2022]Question 8 What are the criteria that liquidity provision contracts need to meet in order to qualify for the privileged transactions exemption? [Last update: 23/09/2022]Question 9 Should the capital employed test be calculated only on the same positions as included in the trading market size test or for all commodity derivatives traded in the group? [Last update: 23/09/2022]Question 10 Should the denominator in capital employed test under Article 5(4) of CDR 2021/1833 be calculated using consolidated accounts? Should firms use capital on a worldwide basis or just capital employed within the EU? [Last update: 23/09/2022]Question 11 How should various underlyings falling under the C(10) category be treated for the purpose of ancillary activity calculations? [Last update: 23/09/2022]Question 12 How shall transactions concluded on venues outside the EU be treated for the market size test computations under Article 2 of RTS 20? [Last update: 23/09/2022]Question 13 How shall OTC transactions done by non-EU entities of an EU group with EU counterparties be counted for the market size test? [Last update: 02/10/2018] - deletedQuestion 13 CDR 2021/1833 refers only to Article 360 of the CRR, while the 'simplified approach for calculating regulatory capital requirements' is contained in CRR Articles 357, 358 and 360. Is the text in CDR 2021/1833 self-contained or should firms refer to the whole of CRR? [Last update: 23/09/2022]Question 14 Is a third-country firm (or a third-country subsidiary of an EU firm) dealing on an EU trading venue in commodity derivatives or emission allowances or derivatives thereof in scope of the Ancillary Activity test as per CDR 2021/1833? [Last update: 23/09/2022]4 Position reporting [Last update: 23/09/2022]Question 1 Do positions held by an investment firm on behalf of their clients add to the investment firm's own positions? [Last update: 07/07/2017]Question 2 How should investment firms report the positions in commodity derivatives of persons who receive investment or ancillary services from a non-investment firm that is an "end client" of the investment firm? [Last update: 07/07/2017]Question 3 Who should submit position reports under Article 58(2) MiFID II? [Last update: 07/07/2017]Question 4 Should investment firms include positions traded on a trading venue and economically equivalent OTC contracts in position reports under Article 58(2) MiFID II? [Last update: 07/07/2017]Question 5 Does the requirement for trading venues to make public weekly aggregate position reports and to communicate that report to the competent authority and to ESMA apply to securitised derivatives? [Last update: 23/09/2022]Question 6 At what level should Asset Managers aggregate positions? Is this to be done at group level or a lower level (e.g. fund/legal entity identifier etc.)? [Last update: 23/09/2022]Question 7 Which MIC should be used by trading venues for position reporting? [Last update: 07/07/2017]Question 8 By when do positions have to be reported under Articles 58(1)(b) and 58(2) of MIFID II? [Last update: 07/07/2017]Question 9 Does the requirement under Article 58(1)(b) and (2) of MiFID II to submit daily position reports to the NCA apply to securitised derivatives with a total number of securities in issue not exceeding 2.5 million? [Last update: 23/09/2022]Question 10 How does ESMA propose to address the breaches of applicable non-EU laws and regulations regarding data protection and bank secrecy which may potentially arise from the reporting of client and end client positions? [Last update: 07/07/2017]Question 11 Where an NFE trades only, or partly, for hedging purposes, can every transaction be reported as being for speculative purposes? Can on-venue liquidity provision be also reported as being for speculative purposes? [Last update: 23/09/2022]Question 12 Should an investment firm acting as broker and using a matched principal model be subject to position reporting? [Last update: 13/11/2017]Question 13 Do end-of-day zero positions need to be reported? [Last update: 13/11/2017]Question 14 Can position reporting pursuant to Article 58(2) be outsourced to another entity? [Last update: 13/11/2017]Question 15 Do positions in C(10) instruments with an underlying which is not a commodity as defined in Article 2(6) of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 need to be reported? [Last update: 13/11/2017]Question 16 In respect of which contracts does ESMA expect to receive weekly reporting data from trading venues under Article 58(7) of MiFID II in conjunction with ITS 4 and 5? [Last update: 23/09/2022]Question 17 Where there is a chain of investment firms that have to comply with commodity position reporting obligations, who has to report to the trading venue or NCA? [Last update: 15/12/2017]Question 18 How should clients of investment firms inform their intermediaries of the nature of each of their positions (hedge or speculation)? Should that information be provided for each position or could clients indicate to their intermediaries that, except if they explain otherwise, all their positions should be deemed for hedging or non-hedging purposes? [Last update: 15/12/2017]Question 19 How is the position quantity field reported for contracts that relate to delivery of the same underlying over different periods of time? [Last update: 15/12/2017]Question 20 How should the position in the spot month and other months be reported for contracts where there are daily or weekly as well as monthly contracts? [Last update: 15/12/2017]Question 21 In cases where an OTC contract is economically equivalent to more than one ETD contract traded on an EU trading venue and where those ETD contracts are not falling under the coordination procedure set out in Article 57(6) of MiFID II, to which NCA should the reporting of the EEOTC contracts be addressed? [Last update: 23/09/2022]Question 22 Which types of firm fall within each of the ITS 4 categories for the purposes of the weekly Commitment of Trader (CoT) reports? [Last update: 23/09/2022]5 Position management controls [Last update: 04/10/2017]Question 1 Are position management controls required to play a role in the application of position limitsapplied by NCAs according to Article 57(1) MiFID II? [Last update: 04/10/2017]6 Third country issues [Last update: 23/09/2022]Question 1 Should economically equivalent contracts traded on a third-country venue be considered EEOTC for position limit and position reporting purposes under MiFID II? [Last update: 23/09/2022]7 Other issues [Last update: 04/01/2019]Question 1 How should the field "Price Multiplier" (field 25 of Table 3 of the Annex of RTS 23) be populated for electricity derivative contracts? [Last update: 04/01/2019]
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Version date: 23 September 2022 - onwards
Version 2 of 2

Question 17 How are position limits applied to intercommodity 'spread' or 'diff' contracts? [Last update: 23/09/2022]

RTS 21

How are position limits applied to intercommodity 'spread' or 'diff' contracts?

Answer 17

A commodity derivative contract in the legal form of a "spread" or "diff" contract is a cash-settled contract whose value is determined by the difference between two reference commodities that may vary in, inter alia, type, grade, location, or delivery characteristics. Whilst having multiple underlying constituents, the spread derivative is available on a trading venue as a single tradable financial instrument.

A spread contract differs from a 'spread trading strategy' (two or more com modity contracts traded together to achieve a particular economic effect), as such a strategy may be executed by a single action in a venue's trading systems, but it remains composed of separate, and legally distinct commodity derivatives which are executed as trades simultaneously.

As a spread contract has no single underlying commodity at a specific place or time, it is not possible to link it to a single physical deliverable supply against a contractual obligation to physically settle the trade. It is for this reason all spread contracts are cash-settled and not physically settled.

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