In several letters, MEPs have indicated they would be prepared to reject those standards, which would potentially derail the entire MiFID II implementation. The standards will now go back to the European Securities and Markets Authority for reconsideration.
Finance Watch Secretary General Christophe Nijdam said:
“These seemingly technical standards implement an essential part of the European commitment to reduce commodity price volatility in derivative markets, including food. It is important to get the rules right so that they reduce excessive speculation and help to refocus financial markets on serving end users.”
In early 2014, EU legislators agreed on a law (MiFID II) which includes a limit on speculative trading in agricultural and other commodity derivatives, in order to reduce excessive price volatility, which harms users and producers of everyday foodstuffs and essential materials. Finance Watch warned in March 2015 that ESMA would have to improve its rules. In September 2015, ESMA nevertheless presented rather weak rules in its advice to the European Commission and following criticism in the European Parliament, the Commission has now formally decided to ask ESMA to revise its proposed drafting.
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ESMA now has six weeks to provide the Commission with a new draft of the three regulatory technical standards (RTS) concerned. The majority of non-contested RTS will go through the planned procedure and should be delivered to the European Parliament in April 2016.
Finance Watch and its member NGOs will continue to monitor this process to ensure the standards ultimately adopted meet the policy goal of MiFID II as agreed at the G20 Pittsburgh Summit: to bring down volatility in commodities markets.
Once all RTS have been adopted, the rules will start to apply as of 3 January 2018, one year later than previously planned. There is a separate procedure ongoing to revise the primary legislation to put the one year delay in place, where MEPs have committed themselves not to reopen substantive discussions.
What are position limits?
The Level 1 legislative text of MiFID II/MiFIR, which entered into force in 2014, introduced among other things a regime of position limits throughout Europe to reduce the potential for harm caused by excessive amounts of speculative capital in commodity derivative markets. The measure aims to reduce the scope for gambling on food prices – a matter of life of death for millions of the world’s poorest citizens – and on other commodities that are used daily by European citizens. The Level 1 agreement followed more than two years of campaigning and lobbying by civil society representatives, including Finance Watch, Oxfam, Foodwatch and others (read more). The legislation will be implemented via Level 2 regulatory technical standards (RTS) which, among other things, provide guidance for national supervisors to calibrate the position limits.
To see Finance Watch’s detailed comments about these and other devices and loopholes, see our 2 March 2015 response to ESMA’s consultation on its draft regulatory technical and implementing standards (RTS/ ITS) regarding the implementation of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) here.