On October 24th 2017, the CSSF published its first questions and answers on the Markets in Financial Instruments Directive (recast) – Directive 2014/65/EU (“MiFID II”) and Markets in Financial Instruments Regulation – Regulation 600/2014 (“MiFIR”) (the “Q&A”), addressing one issue related to data reporting and then on December 5th 2017, updated those Q&A to address a number of points regarding commodity derivative contracts.
As regards data reporting, the CSSF addressed the question whether the use of the services of a Luxembourg or foreign approved reporting mechanism (“ARM”), as provided for by MiFIR, is subject to an authorisation of the CSSF.
The CSSF takes the view that using an ARM for the purpose of the reporting obligation under Article 26 of MiFIR is not outsourcing within the meaning of CSSF Circulars 12/552 and 17/654.
The CSSF nevertheless requires to be notified by the investment firms and credit institutions that use an ARM, of the name and country of establishment of the designated ARM. On the other hand, the CSSF points out that when an investment firm or credit institution decides to use an ARM with the sole purpose of drafting the reporting which will be completed and sent by the investment firm or credit institution to the competent authority, this will be considered as outsourcing within the meaning of CSSF Circulars 12/552 and CSSF 17/654 and an authorisation from the CSSF will be required.
MiFID II introduces a regime of limits applicable to net positions that a participant can hold at all times in commodity derivatives to prevent market abuse and to support orderly pricing and settlement conditions on the futures markets. Section 3 of the Q&A includes 11 questions and answers relating to commodity derivative contracts, a few of which we summarise below.
Of particular note is that the CSSF has provided some clarity on the types of financial instruments which are governed by the provisions of Article 57 (Position limits and position management controls in commodity derivatives) and Article 58 (Position reporting by categories of position holders) of MiFID II. Importantly, the CSSF has clarified to whom the position limits under Article 57 and 58 of MiFID II apply, specifically it is confirmed that they apply also to persons exempt from MiFID II under Article 2.1 thereof.
The CSSF explains about the different types of exemptions available in the context of dealing in commodity derivatives and the fact that they may apply cumulatively. With respect to the ancillary activity exemption, details are provided as to which competent authority should be notified by an entity making use of that exemption and where the competent authority is the CSSF, specific details are provided on how the notification must be made. With respect to the position limits exemption requested by a non-financial entity under Article 57.1 in fine of MiFID II, it is confirmed that such request should be sent to the competent authority of the trading venue on which the relevant commodity derivative is traded and where that competent authority is the CSSF, the relevant email address to which such requests must be sent is provided.