1. (1)

   1The purpose of this chapter is to implement articles 57 and 58 of MiFID by setting out the necessary directions, rules and guidance.

2. (2)

   In particular, this chapter sets out the FCA’s requirements in respect of:

   1. (a)

      articles 57(1) and 57(6) of MiFID, which require competent authorities or central competent authorities to establish limits, on the basis of a methodology determined by ESMA, on the size of a net position which a person can hold, together with those held on the person’s behalf at an aggregate group level, at all times, in commodity derivatives traded on trading venues and economically equivalent OTC contracts to those commodity derivatives;

   [Note: articles 3 and 4 of MiFID RTS 21]

   1. (b)

      article 57(8) of MiFID, which requires MiFID investment firms and market operators operating a trading venue which trades commodity derivatives to apply position management controls;

   2. (c)

      article 58(1) of MiFID, which requires MiFID investment firms and market operators operating a trading venue which trades commodity derivatives or emission allowances to provide the competent authority with reports in respect of such positions held; and

   3. (d)

      article 58(2) of MiFID, which requires investment firms trading in commodity derivatives or emission allowances outside a trading venue to provide the competent authority or central competent authority with reports containing a complete breakdown of their positions held through such contracts traded on a trading venue and economically equivalent OTC contracts, as well as of those of their clients and the clients of those clients until the end client is reached.

3. (3)

   The position limit requirements apply to both authorised persons and unauthorised persons. As such, the MiFI Regulations provide for a separate regulatory framework in relation to such persons. This framework is set out in:

   1. (a)

      Part 3 of the MiFI Regulations (‘Position limits and position management controls in commodity derivatives’); and

   2. (b)

      Schedule 1 to the MiFI Regulations (‘Administration and enforcement of Part 3, 4 and 5’), which provides for the administration and enforcement of position limits established by the FCA, and of the reporting of positions in commodity derivatives, emission allowances and economically equivalent OTC contracts.

   This chapter complements and adds to the regulatory framework in the MiFI Regulations by establishing the applicable position limits.

1. (1)

   The scope of this chapter is as follows: In respect of position limit requirements in MAR 10.2, a commodity derivative position limit established by the FCA in accordance with MAR 10.2.2D(1) applies regardless of the location of the person at the time of entering into the position and the location of execution.

[Note: article 57(14)(a) of MiFID]

1. (2)

   In respect of position management controls requirements:

   1. (a)

      the requirements contained or referred to in MAR 10.3 apply to persons operating a trading venue which trades commodity derivatives in respect of which the FCA is the Home State competent authority; and

   2. (b)

      in the case of a UK branch of a third country investment firm operating an MTF or OTF, MAR 10.3 applies in the same way as it does to a UK firm operating a multilateral trading facility or an OTF.

2. (3)

   In respect of position reporting requirements:

   1. (a)

      the position reporting requirements in MAR 10.4 apply to:

      1. (i)

         a UK regulated market; and

      2. (ii)

         a UK firm or a UK branch of a third country investment firm operating a multilateral trading facility or an OTF,

      when operating a trading venue which trades commodity derivatives or emission allowances; and

   2. (b)

      the position reporting requirements in MAR 10.4 apply to an investment firm regardless of its location at the time of entering into the position and the location of execution.

This chapter is structured as follows:

1. (1)

   MAR 10.1 sets out an introduction to MAR 10, a description of the application of MAR 10 to different categories of person, an explanation of the approach taken to the UK transposition of articles 57 and 58 of MiFID, the scope and territoriality of this chapter, and the structure of this chapter.

2. (2)

   MAR 10.2 sets out the position limit requirements.

3. (3)

   MAR 10.3 sets out the position management controls requirements.

4. (4)

   MAR 10.4 sets out the position reporting requirements.

5. (5)

   MAR 10.5 sets out other reporting, notification and information requirements.

1. (1)

   1The following provisions of the MiFI Regulations regulate the establishment, application and resetting of position limits:

   1. (a)

      Regulation 16(1) imposes an obligation on the FCA to establish position limits in respect of commodity derivatives traded on trading venues in the United Kingdom and economically equivalent OTC contracts;

   2. (b)

      Regulation 16(2) imposes an obligation on the FCA to establish position limits on the basis of all positions held by a person in the contract to which the limit relates and those held on the person’s behalf at an aggregate group level;

   3. (c)

      Regulation 16(4) imposes an obligation on the FCA to publish the position limits it establishes in a manner which the FCA considers appropriate;

   4. (d)

      Regulation 18 imposes an obligation on the FCA to ensure that each position limit established by it specifies clear quantitative thresholds for the maximum size of a position in a commodity derivative that a person can hold;

   5. (e)

      Regulation 19(1) imposes an obligation on the FCA to establish position limits in accordance with ESMA’s methodology, unless an exceptional case exists under Regulation 25 of the MiFI Regulations;

   6. (f)

      Regulation 19(2) imposes an obligation on the FCA to review position limits it has established in the presence of certain factors;

   7. (g)

      Regulation 19(3) imposes an obligation on the FCA to establish a new position limit following its review if it believes that the limit should be reset;

   8. (h)

      Regulation 20(2) imposes an obligation on the FCA, where it receives an ESMA opinion stating that the establishment of a position limit would be, or is, incompatible with that opinion, to modify the position limit in accordance with ESMA’s opinion or to notify ESMA as to why amendment to the limit is considered to be unnecessary;

   9. (i)

      Regulation 21(1) imposes an obligation on the FCA to not establish a position limit in respect of a commodity derivative traded on trading venues in the United Kingdom, where there is a central competent authority for that commodity derivative other than the FCA;

   10. (j)

       Regulation 23 imposes general obligations on the FCA in respect of the position limits it establishes, so that the limits must be transparent and non-discriminatory, specify how they apply to persons, and take account of the nature and composition of market participants and of the use they make of the contracts admitted to trading;

   11. (k)

       Regulation 25(1) prohibits the FCA from establishing position limits which are more restrictive than permitted under ESMA’s methodology, unless in exceptional cases where more restrictive position limits are objectively justified and proportionate;

   12. (l)

       Regulation 25(2) to Regulation 25(5) impose obligations on the FCA where it establishes position limits which are more restrictive than permitted under ESMA’s methodology in accordance with Regulation 25(1) of the MiFI Regulations. The obligations are that the FCA must publish that position limit on its website, not apply that position limit for more than six months from the date of publication unless further subsequent six-month application periods for that limit are objectively justified and proportionate, and must notify ESMA of the position limit and the justification for establishing it;

   13. (m)

       Regulation 20(5) and Regulation 25(6) impose obligations on the FCA to publish a notice on its website explaining the reasons for its decision when, under Regulation 20(2) and Regulation 25(5) of the MiFI Regulations respectively, it does not modify a position limit following an ESMA opinion incompatible with the limit; and

   14. (n)

       Regulation 27 empowers the FCA to require a person to provide information on, or concerning, a position the person holds, or trades the person has undertaken, or intends to undertake, in a contract to which a position limit relates.

2. (2)

   MiFID RTS 21 provides a methodology for the calculation of position limits on commodity derivatives, and rules for the calculation of the net position held by a person in a commodity derivative.

3. (3)

   MiFID RTS 21 provides that the FCA can establish different position limits for different times within the spot month period or other months’ period of a commodity derivative, and for the spot month period, those position limits shall decrease towards the maturity of the commodity derivative, and shall take into account the position management controls of trading venues.

[Note: article 57 of MiFID]

1. (1)

   1Regulation 17 of the MiFI Regulations regulates the position limit exemption applicable to positions in a commodity derivative held by or on behalf of a non-financial entity which are objectively measurable as reducing risks directly relating to the commercial activity of that non-financial entity, and which is approved by the FCA in accordance with the relevant criteria and procedures. Regulation 17(1) imposes an obligation on the FCA to disregard such positions, when calculating the position held by such entities in respect of a commodity derivative to which a position limit applies.

2. (2)

   Regulation 17(2) of the MiFI Regulations enables the FCA to receive applications from non-financial entities for the purposes of obtaining an exemption from the position limits which it sets and in such form as the FCA may direct.

3. (3)

   MiFID RTS 21 stipulates detail on positions qualifying as reducing risks directly related to commercial activities, and the application for the exemption from position limits.

4. (4)

   MiFID RTS 21 clarifies that a non-financial entity shall notify the FCA if there is a significant change to the nature or value of that non-financial entity’s commercial activities, or its trading activities in commodity derivatives. The obligation arises where the change is relevant to the description of the nature and value of the non-financial entity’s trading and positions held in commodity derivatives and their economically equivalent OTC contracts in a position limit exemption application it has already submitted. In this case, a non-financial entity must submit a new application if it intends to continue to make use of the exemption.

[Note: article 57(1) of MiFID]

1Where a position limit is established by a competent authority or central competent authority other than the FCA, a non-financial entity should submit its application for exemption, in relation to the position limit, to that competent authority or central competent authority in the manner it specifies.

[Note: article 8 of MiFID RTS 21]

A UK market operator operating a trading venue which trades commodity derivatives must apply position management controls on that trading venue, in accordance with paragraph 7BA of the Schedule to the Recognition Requirements Regulations, as inserted by the MiFI Regulations.

[Note: article 57(8) to 57(10) of MiFID]

An operator of a trading venue referred to in MAR 10.3.1G may include provisions in its rulebook which impose appropriate obligations on its members or participants as part of compliance with its position management controls obligations.

A firm must comply with the obligation in MAR 10.3.3R(4) by completing the form available at www.fca.org.uk.

1A UK regulated market which trades commodity derivatives or emission allowances must provide position reports in accordance with paragraph 7BB of the Schedule to the Recognition Requirements Regulations, as inserted by the MiFI Regulations.

[Note: article 58(1) of MiFID]

1For the purposes of making the weekly report referred to under MAR 10.4.3R(2), the FCA will accept an email containing a link to the report, as published on the firm’s website. Emails should be sent to the FCA at COT_reports@fca.org.uk. This guidance does not affect the separate obligation for a firm to make the weekly report to ESMA.

1. (1)

   2This guidance applies to persons subject to MAR 10.4.8D(2) or MAR 10.4.10D(3).

2. (2)

   A firm subject to MAR 10.4.8D(2) or MAR 10.4.10D(3) may use a third party technology provider to submit to the FCA the report referred to in MAR 10.4.8 D(2) provided that it does so in a manner consistent with MiFID. It will retain responsibility for the completeness, accuracy and timely submission of the report and should populate field 5 of MiFID ITS 4 Annex II with its own reporting entity identification. It should be the applicant for, and should complete and sign, the FCA MDP on-boarding application form.

3. (3)

   MAR 10.4.11.G(2) applies to a trading venue subject to MAR 10.4.

4. (4)

   A firm subject to MAR 10.4.8D(2) or MAR 10.4.10D(3) may arrange for the trading venue where that commodity derivative or emission allowance is traded to provide the FCA with the report provided that it does so in a manner consistent with MiFID. The firm will retain responsibility for the completeness, accuracy and timely submission of the report, submitted on its behalf. The firm should populate field 5 of MiFID ITS 4 Annex II with its own reporting entity identification.

1Regulation 27 of the MiFI Regulations provides the FCA with the power to:

1. (1)

   require a person to provide information including all relevant documentation, on, or concerning:

   1. (a)

      a position the person holds in a contract to which a position limit relates; and

   2. (b)

      trades the person has undertaken, or intends to undertake, in a contract to which a position limit relates; and

2. (2)

   require an operator of a trading venue to provide information including all relevant documentation on, or concerning, trades a person has undertaken, or intends to undertake in a contract to which a position limit relates.

[Note: article 69(2)(j) of MiFID]

1The following provisions of the MiFI Regulations regulate the power of the FCA to intervene in respect of position limits:

1. (1)

   Regulation 28 provides that the FCA may, if it considers necessary, limit the ability of any person to enter into a contract for a commodity derivative, restrict the size of positions a person may hold in such a contract, or require any person to reduce the size of a position held, notwithstanding that the restriction or reduction would be more restrictive than the position limit established by the FCA or another competent authority in accordance with article 57 of MiFID to which the contract relates; and

2. (2)

   Paragraph 5 of Schedule 1 provides that the FCA must maintain arrangements designed to enable it to determine whether persons on whom the FCA imposes position limit requirements are complying with those requirements, and also maintain arrangements for enforcing the position limits requirements on such persons.

[Note: article 69(2)(o) and 69(2)(p) of MiFID]

1The following provisions of the MiFI Regulations regulate the power of the FCA to impose reporting requirements in respect of positions taken in commodity derivatives and emission allowances:

1. (1)

   Paragraph 8 of Schedule 1 provides that a person must provide the FCA with information in respect of its compliance or non-compliance with position limit requirements, as the FCA may direct; and

2. (2)

   Paragraph 5 of Schedule 1 provides that the FCA must maintain arrangements designed to enable it to determine whether persons on whom the FCA imposes position limit requirements are complying with those requirements, and also maintain arrangements for enforcing the position limits requirements on such persons.

[Note: article 69(2)(j) of MiFID]

1 SUP 15.3.13G and SUP 15.3.14G apply to notifications of an application by an unauthorised person for the non-financial entity exemption under regulation 17 of the MiFI Regulations as if the person is a firm to which SUP 15.3.11R applies.

1 Firms should refer to SUP 15.3 (General notification requirements) generally, and in particular SUP 15.3.11R, in respect of the following:

1. (1)

   a breach of a rule or direction in this chapter;

2. (2)

   a breach of a directly applicable provision imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR; and

3. (3)

   a breach of any requirement imposed by or under the MiFI Regulations which relates to this chapter.

1 The powers of the FCA referred to in MAR 10.5.1G to MAR 10.5.3G can be applied to a person regardless of whether the person is situated or operating in the UK or abroad, where the relevant position relates to a commodity derivative or emission allowance of which the FCA is the competent authority or central competent authority, or economically equivalent OTC contracts.

1The power of the FCA referred to in MAR 10.5.2G is exercisable subject to the decision-making procedures in DEPP 2 Annex 2G (Supervisory notices) (and other provisions in DEPP, as appropriate).