Commission Delegated Regulation (EU) 2017/591Show full title

CHAPTER III U.K. METHODOLOGY FOR COMPETENT AUTHORITIES TO CALCULATE POSITION LIMITS

SECTION 1 U.K. Determination of baseline figures

Article 9 U.K. Methodology for determining the baseline figure for spot month limits(Article 57(4) of Directive 2014/65/EU)

1. Competent authorities shall determine a baseline figure for the spot month position limit in a commodity derivative by calculating 25 % of the deliverable supply for that commodity derivative.

2. The baseline figure shall be specified in lots which shall be the unit of trading used by the trading venue on which the commodity derivative trades representing a standardised quantity of the underlying commodity.

3. Where a competent authority establishes different position limits for different times within the spot month period, those position limits shall decrease on an incremental basis towards the maturity of the commodity derivative and shall take into account the position management arrangements of the trading venue.

4. By way of derogation to paragraph 1, competent authorities shall determine the baseline figure for the spot month position limit for any derivative contract with an underlying that qualifies as food intended for human consumption with a total combined open interest in spot and other months' contracts exceeding 50 000 lots over a consecutive three month period by calculating 20 % of the deliverable supply in that commodity derivative.

Article 10 U.K. Deliverable supply(Article 57(3) of Directive 2014/65/EU)

1. Competent authorities shall calculate the deliverable supply for a commodity derivative by identifying the quantity of the underlying commodity that can be used to fulfil the delivery requirements of the commodity derivative.

2. Competent authorities shall determine the deliverable supply for a commodity derivative referred to in paragraph 1 by reference to the average monthly amount of the underlying commodity available for delivery over the one year period immediately preceding the determination.

3. In order to identify the quantity of the underlying commodity meeting the conditions of paragraph 1, competent authorities shall take into account the following criteria:

(a) the storage arrangements for the underlying commodity;

(b) the factors that may affect the supply of the underlying commodity.

Article 11 U.K. Methodology for determining the baseline figure for other months' limits(Article 57(4) of Directive 2014/65/EU)

1. Competent authorities shall determine a baseline figure for the other months' position limit in a commodity derivative by calculating 25 % of the open interest in that commodity derivative.

2. The baseline figure shall be specified in lots which shall be the unit of trading used by the trading venue on which the commodity derivative trades representing a standardised quantity of the underlying commodity.

Article 12 U.K. Open interest(Article 57(3) of Directive 2014/65/EU)

Competent authorities shall calculate the open interest in a commodity derivative by aggregating the number of lots of that commodity derivative that are outstanding on trading venues at a point in time.

Article 13 U.K. Methodology for determining the baseline figure in respect of certain contracts(Article 57(4) of Directive 2014/65/EU)

1. By way of derogation to Article 9, competent authorities shall determine the baseline figure for the spot month position limits for cash settled spot month contracts which are under C(10) of Annex I to Directive 2014/65/EU and which have no measurable deliverable supply of their underlying commodities by calculating 25 % of the open interest in those commodity derivative contracts.

2. By way of derogation to Articles 9 and 11, competent authorities shall determine the baseline figure for the position limits for commodity derivatives defined under point (c) of Article 4(1)(44) of Directive 2014/65/EU by calculating 25 % of the number of securities issued. The baseline figure shall be specified in number of securities.

3. By way of derogation to Articles 9 and 11, where a commodity derivative provides that the underlying is delivered constantly over a specified period of time, the baseline figures calculated pursuant to Articles 9 and 11 shall apply to related commodity derivatives for the same underlying to the extent that their delivery periods overlap. The baseline figure shall be specified in units of the underlying.

SECTION II U.K. Factors relevant for the calculation of position limits

Article 14 U.K. Assessment of factors(Article 57(3) of Directive 2014/65/EU)

Competent authorities shall set the spot month and other months' position limits for a commodity derivative by taking the baseline figure determined in accordance with Articles 9, 11 and 13 and adjusting it according to the potential impact of the factors referred to in Articles 16 to 20 on the integrity of the market for that derivative and for its underlying commodity to a limit:

(a)

between 5 % and 35 %; or

(b)

between 2,5 % and 35 %, for any derivative contract with an underlying that qualifies as food intended for human consumption with a total combined open interest in spot and other months' contracts exceeding 50 000 lots over a consecutive three month period.

Article 15 U.K. New and illiquid contracts(Article 57(3)(g) of Directive 2014/65/EU)

1. By way of derogation to Article 14,

(a) for commodity derivatives traded on a trading venue with a total combined open interest in spot and other months' contracts not exceeding 10 000 lots over a consecutive three month period, competent authorities shall set the limit of positions held in those commodity derivatives at 2 500 lots;

(b) for commodity derivatives traded on a trading venue with a total combined open interest in spot and other months' contracts in excess of 10 000 but not exceeding 20 000 lots over a consecutive three month period, competent authorities shall set the spot and other months' position limit between 5 % and 40 %;

(c) for commodity derivatives as defined in point (c) of Article 4(1)(44) of Directive 2014/65/EU with a total number of securities in issue not exceeding 10 million over a consecutive three month period, the competent authority shall set the limit of positions held in those commodity derivatives at 2,5 million securities;

(d) for commodity derivatives as defined in point (c) of Article 4(1)(44) of Directive 2014/65/EU with a total number of securities in issue in excess of 10 million but not exceeding 20 million over a consecutive three month period, the competent authority shall set the spot and other months' position limit between 5 % and 40 %.

2. The trading venue shall notify the competent authority when the total open interest of any such commodity derivative reaches any of the amounts of lots or number of securities in issue mentioned in the previous paragraph over a consecutive three month period. Competent authorities shall review the position limit upon receiving such notifications.

Article 16 U.K. The maturity of the commodity derivatives contracts(Article 57(3)(a) of Directive 2014/65/EU)

1. For spot month position limits, if the commodity derivative has a short maturity, competent authorities shall adjust the position limit downwards.

2. For other months' position limits, where the commodity derivative has a large number of separate expiries, competent authorities shall adjust the position limit upwards.

Article 17 U.K. Deliverable supply in the underlying commodity(Article 57(3)(b) of Directive 2014/65/EU)

Where the deliverable supply in the underlying commodity can be restricted or controlled or if the level of deliverable supply is low relative to the amount required for orderly settlement competent authorities shall adjust the position limit downwards. Competent authorities shall assess the extent to which this deliverable supply is used also as the deliverable supply for other commodity derivatives.

Article 18 U.K. The overall open interest(Article 57(3)(c) of Directive 2014/65/EU)

1. Where there is a large volume of overall open interest, competent authorities shall adjust the position limit downwards.

2. Where the open interest is significantly higher than the deliverable supply, competent authorities shall adjust the position limit downwards.

3. Where the open interest is significantly lower than the deliverable supply, competent authorities shall adjust the position limit upwards.

Article 19 U.K. The number of market participants(Article 57(3)(e) of Directive 2014/65/EU)

1. Where the daily average number of market participants holding a position in the commodity derivative over a period of one year is high the competent authority shall adjust the position limit downwards.

2. By way of derogation to Article 14, competent authorities shall set the spot month and other months' position limit between 5 % and 50 % if:

(a) the average number of market participants holding a position in the commodity derivative in the period leading up to the setting of the position limit is lower than 10; or

(b) the number of investment firms acting as a market maker in accordance with Article 4(1)(7) of Directive 2014/65/EU in the commodity derivative at the time the position limit is set or reviewed is lower than 3.

For the purposes of the first subparagraph, competent authorities may establish different position limits for different times within the spot month period, the other months' period or for both periods.

Article 20 U.K. Characteristics of the underlying commodity market(Article 57(3)(f) of Directive 2014/65/EU)

1. Competent authorities shall take into account how the characteristics of the underlying market impact on the functioning and trading of the commodity derivative and on the size of the positions held by market participants, including having regard to the ease and speed of access which market participants have to the underlying commodity.

2. The assessment of the underlying commodity market referred to in paragraph 1 shall take into account:

(a) whether there are restrictions on the supply of the commodity, including the perishability of the deliverable commodity;

(b) the method of transportation and delivery of the physical commodity, including the following:

(i)

whether the commodity can be delivered to specified delivery points only;

(ii)

the capacity constraints of specified delivery points.

(c) the structure, organisation and the operation of the market, including the seasonality present in extractive and agricultural commodity markets whereby physical supply fluctuates over the calendar year;

(d) the composition and role of market participants in the underlying commodity market, including consideration of the number of market participants which provide specific services that enable the functioning of the underlying commodity market such as risk management, delivery, storage, or settlement services;

(e) macroeconomic or other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity;

(f) the characteristics, physical properties and lifecycles of the underlying commodity.

Article 21 U.K. Volatility of the relevant markets(Article 57(3)(d)) of Directive 2014/65/EU)

After having applied the factors referred to in Articles 16 to 20 which are relevant to set the position limit for each contract in commodity derivatives referred to in Article 57(4) of Directive 2014/65/EU, competent authorities shall further adjust that position limit where the following conditions are met:

(a)

there is excessive volatility in the price of commodity derivative or in the underlying commodity;

(b)

a further adjustment of the position limit would effectively reduce the excessive volatility in the price of that commodity derivative or in the underlying commodity.

Article 22 U.K. Entry into force and application

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

It shall apply from 3 January 2018.