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Dealing on own account: Difference between revisions
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“Excluding those traded on a venue?” We suppose this exclusion is predicated on there being someone else — a broker — involved in an on-venue trade who has the appropriate permissioning (if there isn’t, the entity must be accessing the venue directly itself, so is out of scope for the exemption anyway) so these naturally should not count towards your limit — though query whether they should count towards offsetting OTC exposures you might have in other markets. It would be odd if an exposure to commodity derivatives hedged with futures gave you a different result to one hedged with a note or another swap. | “Excluding those traded on a venue?” We suppose this exclusion is predicated on there being someone else — a broker — involved in an on-venue trade who has the appropriate permissioning (if there isn’t, the entity must be accessing the venue directly itself, so is out of scope for the exemption anyway) so these naturally should not count towards your limit — though query whether they should count towards offsetting OTC exposures you might have in other markets. It would be odd if an exposure to commodity derivatives hedged with futures gave you a different result to one hedged with a note or another swap. | ||
=== | === “Net notional outstanding 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- | 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-''settleable'' emission allowance derivatives — in that either party has an option to cash settle, that will be enough — but it leaves out purely ''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: | 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]]. | ||
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. | ||
but it shouldn’t have been, in any case: MiFID eligibility should trigger the need to look to the de minimis exemption, but should not put a limit on the sorts of contracts that contribute to your exposure calculation. But the pragmatic reaction is: ''make sure your derivatives have a cash settlement option''. | |||
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. | ||