Response to the ESMA Consultation Paper on MiFID II Position Limits and Position Management in Commodity Derivatives

The current MiFID II position limits regime functions in a reasonable manner for a number of well-developed benchmark contracts but it has issues for what it concerns the development of new products and further growth of the existing illiquid commodity derivative markets.

To overcome this, we would suggest a fundamental review of the scope by focusing the application of the regime on a more limited set of important, critical commodity derivative contracts. This would not only create a more proportionate and efficient position limit regime which would allow new and nascent products to develop, but would also better fulfil the overall objective of MiFID II to ‘improve the functioning and transparency of commodity markets and address excessive commodity price volatility’.

Having said this, although we support a review of the scope at Level 1, we also believe that there is an urgent need to limit the negative impact the regime has, in its current form, on new and nascent contracts. For this, we recommend a two-tier approach whereby Level 2 is amended immediately (and changes are implemented quickly), while the more fundamental reform is dealt with as part of the Level 1 review.