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Revision as of 10:45, 3 February 2023

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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 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.}}
{{quote|{{mifid2prov|2(1)(d)}} Persons dealing on own account '''''other than in commodity products''' and who do not provide any other [[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 are hedging 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''.  


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:
Like, ''what''? We have gone from ''all'' commodity activities being ''out of scope'' from MiFID 1 altogether, to ''some'' being ''in scope'' for [[MiFID 2]], even when the same activities in other, “normal” MiFID instruments are not.


{{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:
That ''cannot'' have been what the regulators intended. Can it?
*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]], or acting as a [[market-maker]] in [[commodity derivatives]]
To see,  we have to continue down the laundry list of exemptions. The next one that might help is Article {{mifid2prov|2(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:
*they are not using high-frequency trading algorithms; [[and]]
 
*when asked, explain to their competent authority how consider their activity to be “ancillary to their main business”;}}
{{quote|''{{mifid2prov|2(1)(j)}} Persons who “deal on own account” in commodity products, as long as they are not executing client orders or providing [[investment services]] in commodity products to their customers, ''and'':
*''Taken together this dealing activity is “ancillary” to their group’s “main business”,  
*''That main business is not providing banking or [[investment services]] or [[market-maker|making markets ]] in [[commodity derivatives]]
*''They are not using high-frequency trading algorithms; [[and]]
*''When asked, explain to their competent authority 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].
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].


===== The “de minimis threshold” for ancillary activity =====
=====The “de minimis threshold” for ancillary activity=====
There are three alternative ancillary activity tests, of which two are a bit speculative and fiddly to calculate, but the third — the “'''[[de minimis threshold test]]'''” — gives a repackaging SPV room to work with.  
There are three alternative ancillary activity tests, of which two are a bit speculative and fiddly to calculate, but the third — the “'''[[de minimis threshold test]]'''” — gives a repackaging SPV room to work with.  


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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”===
===“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.  
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.  


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*[[Repackaging programme]]
*[[Repackaging programme]]
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