ESMA has published an opinion proposing amendments to its draft technical standards (“RTS“) under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) relating to criteria to establish when a non-financial firm’s commodity derivatives trading activity is considered to be ancillary to its main business. The revised draft RTS are set out in an annex to the opinion.

In response to the draft text submitted by ESMA to the European Commission in September 2015, the Commission requested that ESMA include in its RTS a capital-based test for groups that have undertaken significant capital investments in creating infrastructure, transportation or production facilities or groups that undertake activities or investments that cannot be hedged in financial markets.

ESMA maintains that its business activity test was in line with the objectives set out in MiFID II, and a capital based test has significant drawbacks. However, it has identified some metrics for a numerator and denominator that the Commission could use to construct a capital test as an alternative to ESMA’s main business test. In cases where a capital test is introduced, ESMA proposes to allow entities choose between performing the original main business test based on trading activity or a capital test to avoid putting small and medium-sized entities at a disadvantage. Opinion.