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Dealing on own account: Difference between revisions
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{{a|mifid2|{{subtable|{{mifid2prov|4(1)(6)}} “[[dealing on own account]]” means trading against proprietary capital resulting in the conclusion of transactions in one or more [[financial instruments]];<ref>https://www.esma.europa.eu/databases-library/interactive-single-rulebook/directive-201465eu-european/article-4-0</ref> | {{a|mifid2|{{subtable|{{mifid2prov|4(1)(6)}} “[[dealing on own account]]” means trading against proprietary capital resulting in the conclusion of transactions in one or more [[financial instruments]];<ref>https://www.esma.europa.eu/databases-library/interactive-single-rulebook/directive-201465eu-european/article-4-0</ref> | ||
}} | }} | ||
{{subtable|{{mifid2prov|2(1)(d)}} Persons dealing on own account in [[financial instrument]]s ''other than [[commodity derivative]]s or [[emission allowance]]s or derivatives thereof'' and not providing any other [[Investment services and activities|investment services]] or performing any other investment activities in financial instruments ''other than commodity derivatives or emission allowances or derivatives thereof'' unless such persons: | {{subtable|{{mifid2prov|2(1)(d)}} Persons dealing on own account in [[financial instrument]]s ''other than [[commodity derivative]]s or [[emission allowance]]s or derivatives thereof'' and not providing any other [[Investment services and activities|investment services]] or performing any other investment activities in financial instruments ''other than commodity derivatives or [[emission allowances]] or derivatives thereof'' unless such persons: | ||
:(i) are [[Market maker|market makers]]; | :(i) are [[Market maker|market makers]]; | ||
:(ii) are members of or [[Regulated market|participants in a regulated market]] or an [[MTF]], on the one hand, or have direct electronic access to a trading venue, on the other hand, except for non-financial entities who execute transactions on a trading venue which are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of those non-financial entities or their groups; | :(ii) are members of or [[Regulated market|participants in a regulated market]] or an [[MTF]], on the one hand, or have direct electronic access to a trading venue, on the other hand, except for non-financial entities who execute transactions on a trading venue which are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of those non-financial entities or their groups; | ||
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{{subtable|{{mifid2prov|2(1)(j)}} persons: | {{subtable|{{mifid2prov|2(1)(j)}} persons: | ||
:(i) dealing on own account, including market makers, in [[commodity derivatives]] or [[emission allowances]] or derivatives thereof, excluding persons who deal on own account when executing client orders; or | :(i) dealing on own account, including market makers, in [[commodity derivatives]] or [[emission allowances]] or derivatives thereof, excluding persons who deal on own account when executing client orders; or | ||
:(ii) providing [[investment services]], other than dealing on own account, in [[commodity derivatives]] or emission allowances or derivatives thereof to the customers or suppliers of their main business; | :(ii) providing [[investment services]], other than dealing on own account, in [[commodity derivatives]] or [[emission allowances]] or derivatives thereof to the customers or suppliers of their main business; | ||
provided that: | provided that: | ||
:— for each of those cases individually and on an aggregate basis, the activity is ancillary to their main business, when considered on a group basis, | :— for each of those cases individually and on an aggregate basis, the activity is ancillary to their main business, when considered on a group basis, | ||
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{{subtable|'''The [[de minimis threshold test]]''' <ref>Art 2(1)(a) of MiFID 2 RTS 20 at https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX%3A32021R1833</ref><br> | {{subtable|'''The [[de minimis threshold test]]''' <ref>Art 2(1)(a) of MiFID 2 RTS 20 at https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX%3A32021R1833</ref><br> | ||
2(1). The activities of persons referred to in Article 1 shall be considered to be ancillary to the main business at group level where they comply with any of the following conditions: | 2(1). The activities of persons referred to in Article 1 shall be considered to be ancillary to the main business at group level where they comply with any of the following conditions: | ||
:(a) the net outstanding notional exposure in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement traded in the Union calculated in accordance with Article 3, excluding commodity derivatives or emission allowances or derivatives thereof traded on a trading venue, is below an annual threshold of EUR 3 billion ([[de minimis threshold test|De-Minimis Threshold Test]]); [...] <br> | :(a) the net outstanding notional exposure in commodity derivatives for cash settlement or [[emission allowances]] or derivatives thereof for cash settlement traded in the Union calculated in accordance with Article 3, excluding commodity derivatives or [[emission allowances]] or derivatives thereof traded on a trading venue, is below an annual threshold of EUR 3 billion ([[de minimis threshold test|De-Minimis Threshold Test]]); [...] <br> | ||
3(1). The net outstanding notional exposure referred to in Article 2, paragraph 1, point (a), shall be calculated by averaging the aggregated month-end net outstanding notional values for the previous 12 months resulting from all contracts in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement entered into in the Union by a person within a group. | 3(1). The net outstanding notional exposure referred to in Article 2, paragraph 1, point (a), shall be calculated by averaging the aggregated month-end net outstanding notional values for the previous 12 months resulting from all contracts in commodity derivatives for cash settlement or [[emission allowances]] or derivatives thereof for cash settlement entered into in the Union by a person within a group. | ||
The net outstanding notional values referred to in the first subparagraph shall be calculated on the basis of all contracts in commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement that are not traded on a trading venue to which any person located in the Union is a party during the relevant annual accounting period referred to in Article 6(2). | The net outstanding notional values referred to in the first subparagraph shall be calculated on the basis of all contracts in commodity derivatives for cash settlement or [[emission allowances]] or derivatives thereof for cash settlement that are not traded on a trading venue to which any person located in the Union is a party during the relevant annual accounting period referred to in Article 6(2). | ||
The contracts in commodity derivatives or emission allowances derivatives for cash settlement referred to in the first and second subparagraph shall include all derivative contracts relating to commodities or emission allowances which must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event. | The contracts in commodity derivatives or [[emission allowances derivatives]] for cash settlement referred to in the first and second subparagraph shall include all derivative contracts relating to commodities or [[emission allowances]] which must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event. | ||
3(2). The aggregation referred to in the first paragraph shall not include positions from contracts resulting from transactions referred to in Article 2(4), fourth subparagraph, points (a), (b) and (c), of Directive 2014/65/EU or from contracts where the person within the group that is a party to any of them is authorised in accordance with Directive 2014/65/EU or Directive 2013/36/EU. | 3(2). The aggregation referred to in the first paragraph shall not include positions from contracts resulting from transactions referred to in Article 2(4), fourth subparagraph, points (a), (b) and (c), of Directive 2014/65/EU or from contracts where the person within the group that is a party to any of them is authorised in accordance with Directive 2014/65/EU or Directive 2013/36/EU. | ||
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===== Net exposure ===== | ===== Net exposure ===== | ||
In any case this is all good stuff, if you can monitor, and keep a lid on, your commodity product exposure, or — if you are some kind of securitisation vehicle — you may wonder what “net outstanding notional” exposure means. 3(1) of the RTS addresses this. The punctuation in “commodity derivatives for cash settlement or emission allowances or derivatives thereof for cash settlement” leaves something to be desired — namely, some punctuation — but the only way we can read this is (i) cash-settled commodity derivatives; (ii) emission allowances; (iii) cash-settled emission allowance derivatives, which leaves out ''physically-settled'' commodity derivatives and emission allowance derivatives. | In any case this is all good stuff, if you can monitor, and keep a lid on, your commodity product exposure, or — if you are some kind of securitisation vehicle — you may wonder what “net outstanding notional” exposure means. 3(1) of the RTS addresses this. The punctuation in “commodity derivatives for cash settlement or [[emission allowances]] or derivatives thereof for cash settlement” leaves something to be desired — namely, some punctuation — but the only way we can read this is (i) cash-settled commodity derivatives; (ii) [[emission allowances]]; (iii) cash-settled emission allowance derivatives, which leaves out ''physically-settled'' commodity derivatives and emission allowance derivatives. | ||
This, we think, as something to do with MiFID’s fractalised coastline when it comes to commodities: Physical commodities are out of scope; “synthetic” commodities — i.e., [[commodity derivatives]] — are in — ''unless'' they are [[physically-settled]] commodity derivatives, which are out of scope — ''unless'' they are physically settled derivatives, but traded on a [[regulated market]] in the EU (i.e., a [[trading venue]]), in which case they’re ''in'' scope again. This is the kind of flip-flopping, concatenated series of [[Double negative|multiple negatives]] that would get an [[Indemnifiable Tax - ISDA Provision|ISDA tax ninja excited]]. | This, we think, as something to do with MiFID’s fractalised coastline when it comes to commodities: Physical commodities are out of scope; “synthetic” commodities — i.e., [[commodity derivatives]] — are in — ''unless'' they are [[physically-settled]] commodity derivatives, which are out of scope — ''unless'' they are physically settled derivatives, but traded on a [[regulated market]] in the EU (i.e., a [[trading venue]]), in which case they’re ''in'' scope again. This is the kind of flip-flopping, concatenated series of [[Double negative|multiple negatives]] that would get an [[Indemnifiable Tax - ISDA Provision|ISDA tax ninja excited]]. | ||
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The odd one out is physical emissions allowances, which are sort of commodity-like — in that they’re inexorably tied to the commodities markets — but also [[financial instrument]]-like, in that they are abstract economic concepts represented and bounded by words, regulations, and legal title, and they can’t go off or be impounded in a warehouse in the Sudan, contaminated with sea-water or painted yellow and passed off as copper.<ref>https://www.mining.com/web/trader-buys-36m-of-copper-and-gets-painted-rocks-instead/</ref> Thus, these are ''not'' in fact commodities, and are in scope in their physical format. Which is why this is such a tortured definition. | The odd one out is physical emissions allowances, which are sort of commodity-like — in that they’re inexorably tied to the commodities markets — but also [[financial instrument]]-like, in that they are abstract economic concepts represented and bounded by words, regulations, and legal title, and they can’t go off or be impounded in a warehouse in the Sudan, contaminated with sea-water or painted yellow and passed off as copper.<ref>https://www.mining.com/web/trader-buys-36m-of-copper-and-gets-painted-rocks-instead/</ref> Thus, these are ''not'' in fact commodities, and are in scope in their physical format. Which is why this is such a tortured definition. | ||
In any case, we have a scenario where if you are trading on a regulated [[Venue|trading venue]], the ancillary business exemption is off the table, so it stands to reason that the only regulated activity you can conceivably be doing and still qualify is emissions trading, or transacting cash-settled OTC commodity (or, sigh, emission allowances) derivatives. | In any case, we have a scenario where if you are trading on a regulated [[Venue|trading venue]], the ancillary business exemption is off the table, so it stands to reason that the only regulated activity you can conceivably be doing and still qualify is emissions trading, or transacting cash-settled OTC commodity (or, sigh, [[emission allowances]]) derivatives. | ||
{{sa}} | {{sa}} | ||
*[[Emission allowances]] | |||
*[[Repackaging programme]] | *[[Repackaging programme]] | ||
{{ref}} | {{ref}} | ||