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Dealing on own account: Difference between revisions
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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 | {{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 beyond your normal funding and hedging activity, you don’t need to be authorised under MiFID 2 ... ''unless you’re transacting in commodity products''. | 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''. | ||
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*they are not using high-frequency trading algorithms; [[and]] | *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”;}} | *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”;}} | ||
Ok we are getting somewhere, but — ah: there is this gnomic question of what counts as “ancillary to one’s main business”. Fear not: Article 2 also addresses that, but punts it off to ESMA to come up with some regulatory technical standards governing it. This has been recently updated and you can find the latest — as of June 2022 — [https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX%3A32021R1833 here]. | |||
There are three alternative ancillary activity tests. Under the “'''[[de minimis threshold test]]'''”, a person’s activity is ancillary to its main business if its ''net outstanding notional exposure'' in cash settled commodity products traded in the EU, excluding those traded on a venue, is less than EUR 3 billion annually. The other two tests are a bit more speculative and fiddly to calculate, but for a repackaging SPV, the first one gives plenty of room to work with. | |||
The annual threshold should be calculated against an average over three-years on a rolling basis. | |||