MiFIR pre-trade transparency regime: making it work for commodity derivatives – recommendations

Brussels, 25 June 2018 | The purpose of this paper is to provide ESMA and National Competent Authorities with specific recommendations in support of their work with regard to amending certain parts of Regulation 2017/583 (‘RTS 2’)1, relating to the MiFIR pre-trade transparency regime for non- equity products.

Europex members have long argued that, in its present form, the regime is not fit for purpose and cannot be applied to trade registration facilities in energy derivatives markets. Should these pre- arranged trades be no longer reported to regulated markets for clearing purposes, this would compromise their vital role in supporting the hedging activity of commercial market participants and in mitigating wider systemic risks.

We have recently provided an initial overview of two alternative suggestions for the revision of RTS 2. The first proposal suggested replacing the current methodology for calculating Large in Scale (LIS) and Illiquid Instrument (IL) waiver thresholds for commodity derivatives with a product-specific approach based on well-established practices of trading venues. The second proposal suggested a ‘quick-fix’ approach, whereby the current thresholds are to be recalibrated in order to better reflect the actual market conditions.

As a follow-up to this recent position paper, the present memo provides further details on both proposals. Those are laid out in two different sections:

  1. Key principles for determining pre-trade transparency thresholds for commodities
  2. Re-calibrating the LIS and IL waiver thresholds for energy derivatives

Please download the full paper below.