The Managed Funds Association ("MFA") made recommendations on how amendments proposed by the European Commission ("EC") concerning commodity derivative position limits could most effectively be incorporated into the European Securities Market Authority ("ESMA") MiFID II Regulatory Technical Standards ("RTSs"). In its letter to ESMA, MFA stated that its recommendations were aimed at "seeking a pragmatic outcome that adheres to the spirit of proposals made both by the [EC] and by the European Parliament."
The MFA made the following recommendations relating to commodity derivative position limits:
- Baseline for Non-Spot Month Limits: The MFA urged the EC to rely on national competent authorities ("NCAs") to interpret what constitutes a "significant discrepancy" between open interest and deliverable supply.
- Definition of "Economically Equivalent" in Commodity Derivative Contracts: The MFA proposed that ESMA revise the wording of the draft RTS to refer to over the counter commodity derivatives resulting in the "same economic exposure" (rather than referring to identical contractual specifications, etc.) as exchange-traded contracts.
- Volatility: Although the MFA acknowledged that NCAs must take volatility into account in setting position limits, MFA does not consider that the RTS should mandate that greater volatility must result in lower position limits. The MFA emphasized that imposing a lower limit on a volatile market could result in market participants "racing" to close out positions and "further exacerbate volatility."
As to non-equities transparency, the MFA encouraged ESMA to amend RTS II such that the maximum permitted post-trade transparency delay for cleared derivatives is 15 minutes, in line with the CFTC regime.
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