MiFID II Commodities Positions Reporting Regulation

Under MiFID II*, to prevent market abuse in the commodities markets – for example, through building and exploiting dominant positions – National Competent Authorities (NCAs) require firms to report details of their commodities positions on a daily basis. Commodities positions reporting was further defined under MiFIR Article 21 to ensure that firms do not exceed the possession limits of the total amount of a commodity or contract for a given month.

*This is a requirement under Article 58, paragraph 2 of MiFID II (note: not MiFIR).

The instruments covered include both exchange-traded commodity derivatives (ETDs) and economically equivalent OTC commodity contracts*, such as:

• Energy derivatives, metal derivatives, agricultural derivatives and other food derivatives
• Derivatives on intangibles such as climate derivatives
• Derivatives with flow-based delivery e.g. electricity and gas
• Both cash-settled and physically-settled derivatives
• Derivatives on any of the other instruments covered e.g. baskets, indexes, swaps

*An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements.

• This reporting obligation primarily affects MiFID “investment firms”* trading commodity derivatives off-exchange. If the directive is implemented without changes, firms who ONLY trade commodity on-exchange won’t have to report to NCAs

• As it is a directive, the scope may increase to cover more firms when being enacted into national regulations

• At the moment, the geographical scope is unclear. However, if this turns out to be the same as the scope for MiFIR reporting, then non-EU firms will have a reporting obligation when operating from a branch within the EEA

*Under MiFID, an “investment firm” means any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis. 

• Net positions: strategies/complex trades to be disaggregated, with long and short positions to be netted off against each other.
• All positions: across all maturities for all contracts must be reported on a daily basis by COB on T+1.

The 19 reporting fields per the current ESMA draft templates for commodity derivatives position reporting, require:    

• Basic report details: report date-time, report reference, value date, action, reporting entity ID, parent ID and email, parent collective investment scheme status, position holder ID and email.
• Contract details: contract ID, venue product code, venue ID, contract type, maturity.
• Position details: quantity, delta-equivalent quantity, hedging indicator, position quantity notation.

• Position limits will be set by NCAs* for each derivatives contract. There are two position limits per contract – one for the spot month, and one for all other months
• The NCA of the exchange sets the limit (typically between 2.5% and 50%), depending on liquidity, size of market etc. If the contract trades across multiple exchanges, the NCA of the venue with the most volumes sets the limit (the “central competent authority”, or CCA)

*It is the NCAs, not the firms, who have the obligation to monitor whether firms exceed the limits on commodity positions

As indicated in the diagram above, if the investment firm is also a member of a trading venue or MTF, or is a client of an OTF, it will additionally be required to submit theirs and their clients’ ETD position data to the venue, which in turn will report this to the NCA.

Regulatory Reporting can assist with sending these ETD positions to the venue, since we already receive ETD positions from venue members that are Regulatory Reporting Commodity Positions Reporting clients. This separate requirement to report to venues can be found in Article 58(3) of MiFID II.