Esma releases first crop of position limits

Regulator moving away from publishing all limits in November

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Esma approves position limits on rapeseed, corn and milling wheat

The European Securities and Markets Authority (Esma) published the first batch of position limits on August 10, in a sign other limits will be announced as and when Esma approves them, rather than in one go once all limits are finalised.

A member of Esma’s commodity derivatives task force had told Risk.net earlier that the regulator planned to publish all final limits on commodity derivatives positions in November. That would have given firms at best two months to reduce their positions if necessary or to apply for a hedging exemption before the second Markets in Financial Instruments Directive took effect on January 3.

“We and other associations had spoken to Esma a couple of times stressing how important the limits are to the market and asking for limits to be published as and when they become available rather than a big-bang publication later once all limits are available,” says a Europe-based source at a multinational derivatives association. “Thankfully, they were sympathetic and seem to be following this approach now.”

The first official position limits – for rapeseed, corn and milling wheat – were submitted by the French markets regulator on June 2, meaning Esma took longer than the two months it was given in the European Union directive for considering proposed caps.

Esma endorsed what may be seen as a deviation from its methodology by France’s Autorité des Marchés Financiers. National authorities have been instructed to set two limits: one for spot month positions and to adjust it upwards if the contract has a short maturity, and another for other months’ positions, which should be raised if the contract has a large number of separate expiries.

However, the rapeseed and milling wheat contracts have four limits each: two for the spot month – one at the start of the spot month and one over the last 12 trading sessions before a contract’s expiry – and two for other months – one for the last 21 days before the spot month expiry and one for the rest of the other months’ period.

“I’m not sure people were expecting this,” says the source at the derivatives association. “It could cause issues with how they’ve planned their systems in terms of internal monitoring.”

Risk.net understands that Esma has asked national regulators to send in half of their limits by the beginning of August and half by the beginning of September. As a result, firms may still not know all official limits until November – raising the prospect of a frantic end of the year for markets, traders and domestic regulators as contracts may need to be sold in a hurry and hedging exemption applications lodged and considered.

Risk.net also understands the UK’s Financial Conduct Authority has recently submitted some of its limits. The supervisor did not respond to a request for comment by the time of publication.

The French regulator says it is still preparing a number of limits for gas contracts listed on Powernext for submission to Esma.

Esma says it will not be publishing any more limits “for the time being”.

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