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Ancillary to the main business at a group level - MiFID 2 Provision: Difference between revisions
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Ancillary to the main business at a group level - MiFID 2 Provision (view source)
Revision as of 10:41, 27 October 2022
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}}This whole business of what is or is not in scope for MiFID — especially where it comes to the fractal coastline of commodities and commodity-like things, is an utter disaster with a face only a Eurocrat could love. This article stands as a sort of help to the articles on the MiFID-regulated [[Investment services and activities|investment service]] of [[dealing on own account]], the related de minimis threshold test, and also EMIR’s [[hedging exemption]]. | }}This whole business of what is or is not in scope for MiFID — especially where it comes to the fractal coastline of commodities and commodity-like things, is an utter disaster with a face only a Eurocrat could love. This article stands as a sort of help to the articles on the MiFID-regulated [[Investment services and activities|investment service]] of [[dealing on own account]], the related de minimis threshold test, and also EMIR’s [[hedging exemption]]. | ||
This regulatory technical standard describes in better detail what is meant by | This regulatory technical standard describes in better detail what is meant by “[[objectively measurable as reducing risks]]” directly relating to a person’s commercial activity or treasury financing activity. | ||
So. | So. | ||
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For a start, “[[dealing on own account]]” when it comes to [[emissions allowances]] and [[commodity derivatives]] is a regulated [[Investment services and activities|investment service]], with, in Article {{mifid2prov|2(1)(j)}}, some exceptions, buried amongst which is that the activity is “ancillary to their main business, when considered on a group basis”. Something will be considered ancillary (assuming all no other other criteria are triggered: see [[dealing on own account]] about this as it will do your head in), if it passes the [[de minimis threshold test]], which looks at the “net outstanding notional exposure” in [[commodity derivatives]] for cash settlement or emission allowances or derivatives thereof for cash settlement. | For a start, “[[dealing on own account]]” when it comes to [[emissions allowances]] and [[commodity derivatives]] is a regulated [[Investment services and activities|investment service]], with, in Article {{mifid2prov|2(1)(j)}}, some exceptions, buried amongst which is that the activity is “ancillary to their main business, when considered on a group basis”. Something will be considered ancillary (assuming all no other other criteria are triggered: see [[dealing on own account]] about this as it will do your head in), if it passes the [[de minimis threshold test]], which looks at the “net outstanding notional exposure” in [[commodity derivatives]] for cash settlement or emission allowances or derivatives thereof for cash settlement. | ||
What counts as | What counts as “net outstanding notional exposure” is no cake walk, since the regulations teeter uneasily between scoping out physical commodities, and scoping in cash-settled ones, exchange-traded ones, and so on. It is a thorough mess. Cue this [[regulatory technical standard]]. It may not do what it sets out to do - by putting some contracts out of scope, one wonders whether one should be allowed to count them for risk-reducing purposes. For example: If I have a physical emissions contract (that is, I hold an emissions allowance) which I am hedging with a cash-settled emissions derivative, and when calculating my [[net outstanding notional exposure]] I must exclude the hedging transaction, because it is a hedging transaction, but cannot exclude the emission allowance it actually hedges, then this exemption puts me in a worse position than I would have been in had I not counted to the hedge. | ||
This is madness of course, and is plainly not what is intended, but good luck getting a legal opinion confirming that without significant runniness around the edges. | |||
{{sa}} | {{sa}} | ||
*[[De minimis threshold test]] | *[[De minimis threshold test]] | ||
*[[Dealing on own account]] | *[[Dealing on own account]] | ||
*[[Hedging exemption]] | *[[Hedging exemption]] | ||