On December 1, 2016, the European Commission adopted a Delegated Regulation supplementing the MiFID II Directive (2014/65/EU) in relation to regulatory standards (“RTS“) for the application of position limits to commodity derivatives (2016) 4362 final).

The MiFID II Directive requires that competent authorities, in line with ESMA’s methodology, establish and apply position limits on the size of a net position a person can hold in certain commodity derivatives and economically equivalent OTC (EEOTC) contracts. Article 57(3) and (12) of the MiFID II Directive empowers ESMA to develop RTS providing the basis of the methodology for the calculation and application of the position limits.

In September 2015, ESMA submitted the draft RTS to the Commission. The Commission then notified ESMA in April 2016 that it intended to endorse the RTS, provided that a number of changes were made. ESMA submitted revised draft RTS to the Commission in May 2016. The Commission explains that the amended provisions create a more stringent regime for liquid contracts whose underlying product is food for human consumption. Further, it caps the upper position for new and illiquid contracts to 40%, but stipulates that upper position limits of up to 50% can be imposed on a temporary basis. The proposed methodology also highlights how competent authorities are to consider volatility when setting position limits.

The Council of the EU and the European Parliament are now to consider the Delegated Regulation. Should neither of them object, it will enter into force 20 days after its publication in the Official Journal of the EU (OJ).