EC strengthens regulation of commodities markets under MiFID II
by Kylene Casanova
Proposals under MiFID II to strengthen the regulation of commodities markets, curb price speculation and regulate companies in these markets have been announced by the European Commission.
The regulations come under the revised Markets in Financial Instruments Directive, known as MIFID II, which market participants must comply with from 3 January 2018.
There are two proposed regulations:
- define parameters for competent authorities to determine "position limits", i.e. the maximum amount of commodity derivatives that can be held by a single trader, and which represent a tool to help to limit commodity speculation, support orderly pricing and prevent market abuse;
- ensure that large non-financial firms trading a large amount of commodity derivatives are regulated under MiFID II (through the so called “ancillary activity test”).
According to the Commission's Valdis Dombrovskis, the new rules will “contribute to better functioning commodities markets that work for the real economy while helping to deal with some of the problems we saw in the financial crisis. We have listened to the concerns raised by the European Parliament and provided for stricter position limit standards whilst at the same time seeking to avoid unintended consequences.”
The announced regulations are the two final pieces of the 28 regulatory standards that ensure the application of MiFID II as of 3 January 2018. The Council and the European Parliament now have three months to approve or object to the two standards.
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