The FCA Announces New Commodity Derivative Contract Position Limits

On October 22, the United Kingdom Financial Conduct Authority (FCA) updated its webpage on position limits for commodity derivative contracts.

Under regulation 16 of the European Securities and Markets Authority’s (ESMA’s) Financial Services and Markets Act 2000, European National Competent Authorities (NCAs) were granted the power to establish position limits on commodity derivative contracts. With the implementation of MiFID II and MiFIR in January 2018, new regulations relating to commodity derivatives were implemented in attempt to ensure that participants in commodity derivative markets are appropriately regulated and supervised.

RTS 21, implemented as part of MiFID II, outlines a methodology to be followed by NCAs when setting position limits. These limits apply to contracts traded on trading venues and their economically equivalent OTC (EEOTC) contracts. RTS 21 also specifies that liquid contracts should receive bespoke position limits as set by the relevant NCAs.

In instances when multiple contracts are based on identical contract specifications, FCA retains the right to aggregate these contracts. In cases such as these, a single overall limit will apply to the primary contract incorporating those identified as mini, Balance of the Month (Balmo), mini-Balmo, or other contracts. It is important to note that, while a single position limit may apply to all positions in contracts which are aggregated together, separate position reports are still required for each commodity derivative. This is specified in Article 58 of MiFID II and MAR 10 of the FCA Handbook.

As is stated on FCA’s website, these position limits are not static, and FCA reserves the right to ‘change a position limit as a result of an ESMA Opinion, or in the event we decide it is necessary to do so’. Bearing this in mind, FCA have just implemented their most recent string of updates.

The biggest changes made by FCA have been the updates made to its bespoke position limits for a number of commodity derivatives traded on ICE Futures in the United Kingdom. The update has been made in the wake of ICE Futures’ most recent update of its range of products.

FCA has made the following amendments:

  1. The Gasoil Diff – Singapore Gasoil (Platts) vs Singapore Gasoil 0.05% (Platts) Future now has an aggregating contract
  2. Data for bespoke contracts also includes a new contract launched by ICE Futures on October 22, namely, Permian WTI oil. However, a position limit has not yet been set for the venue product code (VPC). In this instance, FCA are likely waiting for the contract to develop sufficient maturity so as to allow a more accurate position limit to be set in accordance with ESMA’s methodology for setting position limits as outlined in RTS 21.
  3. Two new de minimis aggregated contracts have been added. These are TD19 Cross Med (Ceyhan to Lavera) (Baltic) Future, and TD9 FFA – Caribbean to US Gulf (Baltic) Future.

Two other adjustments have also been made to FCA’s webpage on Position Limits for Commodity Derivative Contracts. The spreadsheet listing the full aggregation of all possible VCPs has been updated for the purpose of monitoring position limits.

As well as this, FCA is also currently reviewing the spot month limit it has currently published for ICE Futures Natural Gas. The limit published on FCA’s site contradicts ESMA’s published limit. This, according to FCA, can be explained by way of nothing more than a simple typographical mistake, and will be immediately adjusted.

For a comprehensive overview of FCA’s position limits for commodity derivative contracts, visit FCA’s website.

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