Position limits for commodity derivatives
MiFID II defines the position limits regime for commodity derivatives. The current regime provides for agricultural commodity derivatives and critical or significant commodity derivatives traded on trading venues and economically equivalent OTC contracts to be subject to position limits. Commodity derivatives are considered to be critical or significant where a net open interest constitutes the size of above 300,000 lots over a one-year period.
Statement
Starting 2 July 2024, AFM will act as Central Competent Authority (CCA), thereby applying its position limit to the TTF-gas derivative contracts traded at ICE Endex (Amsterdam), the European Energy Exchange (Leipzig) and economically equivalent OTC traded derivatives contracts.
ICE Endex is under supervision of AFM, whilst EEX is under supervision of the relevant German regulatory authorities, amongst other the German Federal Financial Supervisory Authority (BaFin). The ICE Endex contracts and the EEX contracts both qualify as significant under MiFID II. Moreover, given that the largest volume of trading takes place on ICE Endex, the AFM is given the role as Central Competent Authority (CCA). As such, the AFM is therefore responsible for setting the single CCA-position limit for the TTF-gas derivative contracts, supervising these limits and examining applications for exemptions. AFM has determined the spot month position limit and other months position limit. This has been done after consultation of the BaFin. On this website the publication will follow, including the exact position limit figures and further details. The tentative publication date is 1 July 2024 after market close (6 pm CET). Therefore, please check AFM’s website regularly for an update.
Any person based in or residing in the Netherlands is prohibited to maintain a net position in a critical or significant commodity derivative that exceeds the position limit. This also applies to parties that are not subject to a licence obligation. It is possible to apply for a position limits exemption.
Supervision of position limits
The AFM set position limits for all critical or significant commodity derivatives traded on a trading venue located or managed in the Netherlands. These limits also apply to economically equivalent OTC contracts. The limits are set based on all positions held by a party and those positions that are held on its behalf at an aggregate group level.
If a set position limit is about to be exceeded, the AFM may force a party not to enter into new agreements regarding a commodity derivative to which that position limit applies or to reduce the volume of the position within a reasonable period set by the AFM.
Which contracts has the AFM currently identified as critical or significant?
The AFM has identified one commodity derivative as critical or significant, namely the TTF gas contract, which is traded on ICE Endex in the energy derivatives segment. The table below, the ‘Overview Table’, shows the market specifications, the product specifications and the contract specifications, as well as a reference to the ESMA Opinion for overall overview and technical details, and the effective date of the limits taking effect. Each commodity derivatives contract in fact has one position limit for the spot month and one position limit for the other months, both expressed below in the energy unit Mwh. After the AFM has set a position limit, that position limit may be subject to;- an adjustment if the AFM establishes that the deliverable supply in the spot month,
- or the total open contracts in the other months has changed substantially,
- or in case of another significant change in the market.
The percentage in italics represents the adjustment factor chosen by the AFM within the possible ranges for both types of limits.
Overview table
Contract | Date | Market | Reporting Information Centre (MIC) | Venue Product Codes | Spot month | Other months |
|---|---|---|---|---|---|---|
Contract Contract Contract Contract | Date Date Date Date 20-12-2022 | Market Market Market Market ICE Endex | Reporting Information Centre (MIC) Reporting Info Centre (MIC) Reporting and Information Centre (MIC) Reporting and Information Centre (MIC) NDEX | Venue Product Codes Venue Product Codes Venue Product Codes Venue Product Codes TFM, TFE, TFO, T12, TF1, TF2, TF3, TF4, TF5, TF6, DT0, DT1, DT2, DT3, DT4, DT5, DT6 | Spot month Spot month Spot month Spot month 17.110.110 (10%) | Other months Other months Other months Other months 101.332.061 (10%) |
After such an adjustment, the details of the new limit and the effective date will be presented in the table above.
Application for a position limits exemption
The AFM can decide upon application that position limits do not apply for:
1. positions in commodity derivatives and in their economically equivalent over-the-counter contracts
2. that are held by or for the account of a non-financial entity, and
3. of which it can be objectively determined that these positions reduce risks directly relating to the non-financial entity’s commercial activity, hereinafter simply referred to as a ‘hedge position’.
Parties can apply to the AFM by means of this application form. The information that has to be provided for the application can be found in Article 8(2) of Delegated Regulation (EU) 2022/1302. To ensure secure data exchange, the AFM makes use of Cryptshare. Cryptshare is an encryption software through which the applicant has to send the signed application form and any supporting documents in an ‘encrypted’ manner by email to AFM’s e-mail address commodities_mifid2@afm.nl, thereby stating the name of the non-financial entity applying for the position limits exemption. See the Cryptshare manual for a step-by-step explanation. We aim to send you a confirmation and reference number of your application within five working days upon receipt of your application.
When do you submit an application form?
You need to submit an application for a position limits exemption for a non-financial entity that expects that its net position in a certain commodity derivative will exceed a position limit listed in the overview table above.
If there is a significant change to the nature or value of the non-financial institution’s commercial and/or trading activities in commodity derivatives and if this change is relevant to the information described in Article 8(2) of Delegated Regulation (EU) 2022/1302. A new application form must be submitted if the non-financial institution also wants an exemption for the relevant position limits.
The application form should also be used if the non-financial entity wishes to cancel an existing position limits exemption and thus making the position limits applicable again.
Scope of the position limits exemption
Once the AFM has decided that a position limits exemption (i) does apply (ii) partially applies (iii) does not apply, you will receive a reasoned explanation from us, with (re. i) a quantified specification.