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===The curious case of [[commodity derivatives]] and emissions=== | ===The curious case of [[commodity derivatives]] and emissions=== | ||
We mention this only because there are some odd provisions of [[MiFID 2]] which potentially put [[SPV]]s into scope should they look to securitise [[commodity derivative]]s or [[carbon emission allowance]]s. | We mention this only because there are some odd provisions of [[MiFID 2]] which potentially put [[SPV]]s into scope should they look to securitise [[commodity derivative]]s or [[carbon emission allowance]]s or EA derivatives (which for sanity’s sake we will call “'''commodity products'''” on this page, even though it isn’t a fantastically accurate description). | ||
So, an odd thing. In MiFID 1, commodity derivatives and carbon emissions products were (largely) excluded from scope. To ensure participants on commodity derivatives markets appropriately regulated and supervised, MiFID 2 narrowed exemptions, especially as regards “[[dealing on own account]]”. The idea being, you would think, to make sure that commodity based financial products that in other ways resembled MiFID financial instruments — and commodity swaps to that, as do emissions allowances — should be regulated in the same way. You wouldn’t expect them to be regulated more heavily. | So, an odd thing. In MiFID 1, commodity derivatives and carbon emissions products were (largely) excluded from scope. To ensure participants on commodity derivatives markets appropriately regulated and supervised, MiFID 2 narrowed exemptions, especially as regards “[[dealing on own account]]”. The idea being, you would think, to make sure that commodity based financial products that in other ways resembled MiFID financial instruments — and commodity swaps to that, as do emissions allowances — should be regulated in the same way. You wouldn’t expect them to be regulated more heavily. | ||
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''Anyway''. When trying to bring commodity derivatives and EUAs into scope for MiFID, the regulations and technical standards do a curious job of them handling the usual exemptions, such as those under Art {{mifid2prov|2(1)(d)}} (see full text in panel on right), which, in a nutshell, exempts from MiFID: | ''Anyway''. When trying to bring commodity derivatives and EUAs into scope for MiFID, the regulations and technical standards do a curious job of them handling the usual exemptions, such as those under Art {{mifid2prov|2(1)(d)}} (see full text in panel on right), which, in a nutshell, exempts from MiFID: | ||
{{ | {{quote|{{mifid2prov|2(1)(d)}} Persons dealing on own account ''other than in commodity products and who do not provide any other [[Investment service - MiFID Directive Provision|investment services]] or do any [[investment activities]] ''other than in commodity products'' unless they are [[Market maker|market makers]] participate on or have [[direct electronic access]] to [[Regulated market|a regulated market]] or [[MTF]] (excluding corporates who trade to hedge their commercial or financing activity in an objectively measurable way), use high-frequency trading algorithms; or are executing client orders.}} | ||
All very tedious, but what is going on here is exactly as presaged above: if you are just a regular joe, and you aren’t making markets, using algos, executing client orders, or directly accessing a regulated market, you | All very tedious, but what is going on here is exactly as presaged above: if you are just a regular joe, and you aren’t making markets, using algos, executing client orders, or directly accessing a regulated market beyond your normal funding and hedging activity, you don’t need to be authorised under MiFID 2 ... ''unless you’re transacting in commodity products''. | ||
Like, ''what''? we have gone from commodities being ''out of scope'' from MiFID altogether, to being ''in scope'' for [[MiFID 2]], even when normal MiFID instruments aren’t. That ''cannot'' have been what the regulators intended. Can it? | Like, ''what''? we have gone from commodities being ''out of scope'' from MiFID altogether, to being ''in scope'' for [[MiFID 2]], even when normal MiFID instruments aren’t. That ''cannot'' have been what the regulators intended. Can it? To see, we have to continue down the laundry list of exemptions. The next one that might help is Article {{mifid2prov|1(j)}} — again, set out in full in the panel for completists, but what it means in layperson’s terms is the following persons are exempt: | ||
{{quote|{{mifid2prov|2(1)(j)}} persons who “deal on own account” commodity products, as long as they are not executing client orders or providing other [[investment services]] in commodity products to their customers or suppliers, an further provided that: | |||
*taken together this activity is an ancillary to their main business at a group level, | |||
*that main business is not providing banking or [[Investment services - MiFID Directive Provision|investment services]], or acting as a [[market-maker]] in [[commodity derivatives]] | |||
*they are not using high-frequency trading algorithms; [[and]] | |||
*they annually notify their competent authority that they are using this exemption and, when asked, explain how consider their activity to be “ancillary to their main business”;}} | |||
}} | |||