Response to the ESMA call for evidence on position limits and position management in commodity derivatives.

The MiFID II/MiFIR position limits regime has, so far, been able to function in a reasonable manner for a number of well-developed benchmark contracts. These highly developed markets are characterised by a large number of different types of active trading firms and an overall substantial amount of open interest. However, for the development of new products and further growth of the existing illiquid commodity derivative markets, the position limits regime has proven to be a substantial barrier. To overcome this, a proportionate and efficient position limits regime should concentrate on a limited number of benchmark contracts. For example, in the US only benchmark products are included in the position limit regime, while the EU regime covers all commodity derivatives traded on EU trading venues regardless of their liquidity profile, size of open interest and underlying market characteristics. Also, cash settled derivatives on broad-based indices composed of commodities related items should not be included in the scope of definitions.

Focusing only on a set of benchmark contracts would prevent market abuse and excessive speculation which may negatively impact global retail prices, while allowing new and nascent products to develop. Furthermore, in order to prevent market squeezes, it would be sufficient to set limits for the period right before expiry rather than covering the entire maturity curve.