MiFID II Commodity Derivatives Reporting

 

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What is MiFID II Commodity Derivatives Reporting?

As part of an initiative to prevent market abuse occurring in the commodities markets (for example, through building and exploiting dominant positions), as part of MiFID II*, National Competent Authorities (NCAs) will require firms to report details of their commodities positions on a daily basis. This is to ensure that firms do not exceed the possession limits of the total amount of a commodity or contract for a given month.

*This is a requirement under Article 58, paragraph 2 of MiFID II (note: not MIFIR)

Timelines

This directive, 2014/65/EU (aka MiFID II) is required to be enacted into national regulation by EU firms by 3rd July 2017, and enter into application on 3rd January 2018.

This means that from 3rd January 2018, firms will be required to report commodities positions to NCAs on a daily basis.

Which instruments need to be reported? 

The instruments covered include both exchange-traded commodity derivatives and economically equivalent OTC commodity contracts*, including:

  • Energy derivatives, metal derivatives, agricultural derivatives and other food derivatives
  • Derivatives on intangibles such as climate derivatives
  • Derivatives with flow-based delivery e.g. electricity and gas
  • Both cash-settled and physically-settled derivatives
  • Derivatives on any of the other instruments covered e.g. baskets, indexes, swaps

*An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements.

What details are required?

  • Gross positions – strategies/complex trades to be disaggregated and there will be no netting allowed when reporting positions
  • All positions across all maturities of all contracts must be reported, at least on a daily basis
  • There are 17 fields to be reported, as per the current state of the ESMA draft templates for commodity derivatives position reporting.

          These comprise:

  • Basic report details: report date, report reference, value date, action, reporting entity ID, parent ID, position holder ID & email 
  • Contract details: contract ID, venue product code, venue ID, contract type, maturity
  • Position details: quantity, delta-equivalent quantity, long/short, hedging indicator

Calculation and application of position limits

  • Position limits will be set by NCAs* for each derivatives contract. There are two position limits per contract – one for the spot month, and one for all other months
  • The NCA of the exchange sets the limit (typically between 2.5% and 50%), depending on liquidity, size of market etc. If the contract trades across multiple exchanges, the NCA of the venue with the most volumes sets the limit (the “central competent authority”, or CCA)

*It is the NCAs, not the firms, who have the obligation to monitor whether firms exceed the limits on commodity positions

Reporting data flow

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Which firms are affected by the MiFID II commodities reporting obligation

  • This reporting obligation primarily affects MiFID “investment firms”* trading commodity derivatives off-exchange. If the directive is implemented without changes, firms who ONLY trade commodity on-exchange won’t have to report to NCAs
  • As it is a directive, the scope may increase to cover more firms when being enacted into national regulations
  • At the moment, the geographical scope unclear. However, if this turns out to be the same as the scope for MiFIR reporting, then non-EU firms will have a reporting obligation when operating from a branch within the EEA

* Under MiFID, an “investment firm” means any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis. 

How UnaVista can help?

UnaVista currently helps thousands of firms with their global regulatory reporting obligations including MiFID and EMIR. In line with this, UnaVista plans to support firms that have to fulfil the MiFID II commodity derivatives reporting obligation when the regulation comes into effect.

Some benefits of using UnaVista’s platform include:

  • One system for all your regulatory reporting, giving you unique insights and efficiency Enrich and Validate your data using our reference data sources, such as LEI, eligibility files and ISIN.
  • Save you the cost of middleware as transaction reports can be submitted in any standard format
  • Improve management information with our advanced dashboards
  • Improving your workflow by setting different levels of access for individuals or groups in your organisation

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