EUROPEAN UNION: ESMA and NCAS Agree Work Plan on MIFID II Pre-trade Transparency Waivers and Position Limits

Thursday September 28 2017

The European Securities and Markets Authority (ESMA) together with the national competent authorities (NCAs) have finalised an updated work plan for the opinions on pre-trade transparency waivers and position limits that must be issued under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). The updated work plan has the full support of both ESMA and NCAs.

In view of the large number of opinions to be issued, about 700 for pre-trade transparency waivers and 110 for position limits, and in order to avoid processing bottlenecks, the work plan presents a pragmatic approach for ensuring the implementation of the MiFID II/MiFIR waivers and position limits as of 3 January 2018 pending the issuance of the opinions.

Under MiFIR, NCAs have to submit pre-trade transparency waivers to ESMA that subsequently needs to issue opinions on the compatibility of pre-trade transparency waivers with MiFIR and the Commission Delegated Regulations (EU) 2017/5871and (EU) 2017/5832 of 14 July 2016.

ESMA, under MiFID II, must publish opinions on the position limits notified by NCAs for commodity derivative contracts, the compatibility of the limits proposed with MiFID II and the methodology set out in the Commission Delegated Regulation (EU) 2017/591 of 1 December 2016 (RTS 21)3. No transitional provisions are foreseen in that area under MiFID II.

Setting position limits for commodity derivatives under MiFID II is a new and technically challenging task for NCAs, which has an immediate and potentially far-reaching impact on commodity derivatives trading. The calibration of position limits has therefore required gathering and analysing large amounts of data by NCAs while the late publication of RTS 21 affected NCAs’ timelines for setting position limits

ESMA together with NCAs, given the complexity and the timing of position limit notifications, agreed that it will not be possible to finalise and publish all the position limit opinions for liquid commodity derivative contracts by the end of the year. However, ESMA and NCAs recognise that it is important for market participants to know limits sufficiently far in advance of 3 January 2018 to apply for appropriate exemptions, enter positions with confidence or reduce positions which would not be permissible under the regime without damaging markets.

Therefore, ESMA together with NCAs have agreed that NCAs will publish limits ahead of its opinions. Those limits will enter into force, and be monitored by NCAs, on 3 January 2018. Following the issuance of opinions, all NCAs have agreed to modify the position limits in accordance with the opinion, or provide ESMA with a justification for why the change is not necessary.

Both for pre-trade transparency waivers and/or position limits, where NCAs would amend their initial decision after ESMA has issued a non-compliant opinion, market participants will be given sufficient lead-time to adapt to the revised trading environment.

Please click on the above link for more information.