Commodity Derivative Position Limits : ESMA Publishes New Opinions
ESMA published six opinions on position limits regarding commodity derivatives under MiFID II/MIFIR. These confirm the position limits proposed by the governing NCas, so market participants can now set their trading, position management, and surveillance systems accordingly.
On 23rdJanuary ESMA published six opinions on position limits regarding commodity derivatives under MiFID II/MIFIR. The six opinions confirm the position limits proposed by the governing National Competent Authorities (NCAs), so market participants can now set their trading, position management, and surveillance systems accordingly if they haven’t already done so. ESMA’s opinions agree proposed position limits for the following commodities:
- ICE Low Sulphur Gasoil (1)
- EEX Panamax TC Freight (2)
- ICE Endex Dutch Gas TTF Contracts (3)
- Powernext Dutch Gas TTF Contracts (4)
- Dutch Power Physical Base Contracts (5)
- Dutch Power Physical Peak Contracts (6)
The legal basis for these opinions is that ESMA has been notified by the appropriate NCA for the exact position limits that NCA intends to set in accordance with the calculation methodology established in MiFID II RTS 21, and taking into account the factors governing baseline adjustment referred to in Article 57(3) of MiFID II. In all six opinions, ESMA states that all proposed position limits do comply with the methodology established in RTS 21, and is consistent with the objectives of Article 57 of MiFID II.
These six opinions are the first to be announced by ESMA since early October 2018, which covered ICE Natural Gas Futures, EEX Swiss Power Baseload Contracts, and EEX Phelix DE/AT Baseload Power Contracts.
As an aide memoire for readers, ESMA opinions confirm the following NCA’s position limits :
Spot Month Position Limit (1 Lot = 100MT)
| Deliverable Supply (Lots) | 135,391 |
| Spot Month Position Limit (Lots) | 58,850 |
| %ge of Deliverable Supply | 43.5 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 25.0 |
| Downward Adjustment for very large open Int % | 4.0 |
| Downward Adjustment for large number of participants % | 2.5 |
Other Months Position Limit (1 Lot = 100MT)
| Open Interest (Lots) | 913,452 |
| Other Months Position Limit (Lots) | 132,450 |
| %ge of Open Interest | 14.5 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0.0 |
| Downward Adjustment for very large open Int % | 8.0 |
| Downward Adjustment for large number of participants % | 2.5 |
Spot Month Position Limit (1 Lot = 1000MT)
| Open Interest (Lots) | 16,194 |
| Spot Month Position Limit (Lots) | 4,049 |
| %ge of Open Interest | 25.0 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0.0 |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
Other Months Position Limit (1 Lot = 1000MT)
| Open Interest (Lots) | 913,452 |
| Other Months Position Limit (Lots) | 4,049 |
| %ge of Open Interest | 25.0 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0.0 |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
Spot Month Position Limit
| Deliverable Supply (MWh) | 182,976,030 |
| Spot Month Position Limit (MWh) | 45,744,008 |
| %ge of Deliverable Supply | 25.0 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0.0 |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
Other Months Position Limit
| Open Interest (MWh) | 547,907,987 |
| Other Months Position Limit (MWh) | 164,372,396 |
| %ge of Open Interest | 30.0 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 5.0 |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
Spot Month Position Limit (1 Lot = 720MWh)
| Deliverable Supply (Lots) | 254,120 |
| Spot Month Position Limit (Lots) | 65,00 |
| %ge of Open Interest | 25.6 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0 (*) |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
* Rounding up actual Lot limit as %ge of Deliverable Supply
Other Months Position Limit (1 Lot = 720MWh)
| Open Interest (Lots) | 663,637 |
| Other Months Position Limit (Lots) | 166,000 |
| %ge of Open Interest | 25.0 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment (composition, role) % | 0.0 |
| Downward Adjustment for very large open Int % | 0.0 |
| Downward Adjustment for large number of participants % | 0.0 |
Spot Month Position Limit
| Deliverable Supply (MWh) | 25,715,520 |
| Spot Month Position Limit (MWh) | 6,171,725 |
| %ge of Deliverable Supply | 24.0 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment % | 0.0 |
| Downward Adjustment % | 1.0 |
Other Months Position Limit
| Open Interest (MWh) | 25,537,599 |
| Other Months Position Limit (MWh) | 8,938,159 |
| %ge of Open Interest | 35.0 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment % | 10.0 |
| Downward Adjustment % | 0.0 |
Spot Month Position Limit
| Deliverable Supply (MWh) | 9,429,024 |
| Spot Month Position Limit (MWh) | 2,262,967 |
| %ge of Deliverable Supply | 24.0 |
| Baseline for Spot Month Limit % | 25.0 |
| Upward Adjustment % | 0.0 |
| Downward Adjustment % | 1.0 |
Other Months Position Limit
| Open Interest (MWh) | 3,324,053 |
| Other Months Position Limit (MWh) | 1,329,621 |
| %ge of Open Interest | 40.0 |
| Baseline for Other Months Limit % | 25.0 |
| Upward Adjustment % | 15.0 |
| Downward Adjustment % | 0.0 |
No doubt more ESMA opinions will follow throughout 2019, following the initial proposals by the governing NCAs. Hopefully, ESMA will continue to confirm the limits proposed by the NCAs and not plunge market participants into limbo if there is any disagreement from ESMA regarding the NCA’s interpretation of MiFID II’s methodology.
