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Template:M intro mifid2 Dealing on own account: Difference between revisions
Template:M intro mifid2 Dealing on own account (view source)
Revision as of 16:15, 3 July 2023
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Amwelladmin (talk | contribs) (Created page with "===Dealing on own account generally=== The activity “dealing on own account” is vaguely defined in MiFID — always has been — as “'trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments” — but given MiFID’s purpose, generally has been understood as being restricted to brokerage and market-making activity; being continual prepared to fulfil third-party customer demand or provide market liqui...") |
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So our starting point is this: whatever the regulations actually ''say'' — and God knows they are a mess, and we have met no-one with (or for that matter without) any expertise who is prepared to declare, hand on heart, what they actually say — it cannot be right that they are meant to to bring emissions investors — who are, by and large, acting through the agency of MiFID-regulated [[broker]]s and dealers — to ''themselves'' be regulated by [[MiFID]]. That would be a ''stupid'' outcome. | So our starting point is this: whatever the regulations actually ''say'' — and God knows they are a mess, and we have met no-one with (or for that matter without) any expertise who is prepared to declare, hand on heart, what they actually say — it cannot be right that they are meant to to bring emissions investors — who are, by and large, acting through the agency of MiFID-regulated [[broker]]s and dealers — to ''themselves'' be regulated by [[MiFID]]. That would be a ''stupid'' outcome. | ||
===The curious case of [[commodity derivatives]] and [[emission allowances]]=== | |||
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. | |||
''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 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''. | |||
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. | |||
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|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: | |||
{{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]. | |||