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 Over-The-Counter (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.
Any person 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.
Which contracts are currently identified as critical or significant?
Dutch Title Transfer Facility (TTF) gas derivative contracts are traded on ICE Endex and on the European Energy Exchange (EEX). ICE Endex is under supervision of AFM, whilst EEX is under supervision of the relevant German regulatory authorities, a.o. German Federal Financial Supervisory Authority (BaFin). The ICE Endex contracts and the EEX contracts both qualify as significant under Article 57(1) of MiFID II. Given that the largest volume of trading takes place on ICE Endex, the AFM is given the role as Central Competent Authority (CCA) in accordance with Article 57(6) of MiFID II. As such, the AFM is therefore responsible for setting the single position limit for the Dutch TTF gas contracts traded on ICE Endex and EEX.
Surveillance of position limits
These limits, which are set by AFM in close cooperation with the BaFin, also apply to OTC contracts that are also economically equivalent to TTF gas derivative contracts traded on ICE Endex and EEX. The limits apply to (on-venue and off-venue) net positions held by a party and those positions that are held on its behalf at an aggregate group level. When a person holds a position on both ICE Endex and EEX the aggregated level is evaluated against the set limit. If a set position limit is about to be exceeded, the AFM may force a party not to enter into new agreements regarding the contract to which that position limit applies or to reduce the volume of the position within a reasonable period. 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.
Overview table
Contract | Date | Market | Reporting Information Centre (MIC) | Venue Product Codes | Spot month | Other months |
|---|---|---|---|---|---|---|
Contract Contract Contract Contract Contract Contract Dutch TTF-gas | Date Datum Datum Datum Datum Datum 02-07-2024 | Market Markt Markt Markt Markt Markt ICE Endex, | Reporting Information Centre (MIC) MIC MIC MIC MIC MIC NDEX, | Venue Product Codes Venue Product Codes 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, G3BM, G3BQ, G3BS, G3BY, O3FM | Spot month Spotmaand Spotmaand Spotmaand Spotmaand Spotmaand 25,050,960 (15%) | Other months Andere maanden Andere maanden Andere maanden Andere maanden Andere maanden 153.017.049 (12,5%) |
Each commodity derivatives contract in fact has one position limit for the spot month and one position limit for the other months, both expressed in the energy unit MWh. After the AFM has set a position limit, that position limit may be subject to adjustments in line with the Level 2 regulation (MiFID II, RTS 21, Chapter 3). 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, which acts as the CCA for the Dutch TTF gas derivative contract, can decide upon application that position limits do not apply for: (i) positions in commodity derivatives and in their economically equivalent over-the-counter contracts; (ii) positions that are held by or for the account of a non-financial entity. And (iii) for positions 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 Delegated Regulation 2022/1302. A party to whom an exemption is granted have to inform the AFM 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 information supplied by this party in the past, and submits a new application if it wants to keep using the exemption.
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. You will receive a confirmation and reference number of your application within five working days upon receipt of your application. The AFM aims to provide a motivated decision within 21 calendar days of a complete submitted application.
See the manual for a step-by-step explanation.