On May 2, 2016, the ESMA published two Opinions proposing amendments to two of its draft Regulatory Technical Standards under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together known as MiFID II. In September 2015, ESMA submitted the two final draft RTS to the European Commission for endorsement. In April 2016, the Commission requested ESMA to amend each of the final draft RTSs. ESMA’s opinions are in response to the Commission’s request.

The first Opinion is on the revision of the draft RTS on non-equity transparency. MiFID II extends transparency requirements in MiFID I from equities to other products such as bonds, structured finance products, emission allowances and derivatives. The Commission requested ESMA to revise the draft RTS to phase-in the application of certain parts of the new transparency regime so as to mitigate possible liquidity risks to bond markets, proposing a four year period and suggesting that the annual phase-in requirements would depend on the results of annual liquidity testing. ESMA has instead proposed an automatic phase-in, prescribing the stages in the revised draft RTS. Following each annual phase-in, ESMA would conduct an assessment of the impact of the provisions on bond market liquidity and on the activities of liquidity providers and the phase-in parameters would only be amended in the event of significant negative impacts on liquidity. In addition, ESMA has proposed that newly issued corporate and covered bonds would be subject to a more cautious transparency regime and proposes increasing the issuance size thresholds.

The second Opinion is on the revision of the final draft RTS on the methodology for the calculation and application of position limits for commodity derivatives. MiFID II will introduce positions limits, or caps, on the number of commodity contracts that can be held. These will apply based on technical standards for calculating limits on commodity derivatives traded on trading venues and economically equivalent over the counter contracts. The Commission has requested amendments to ESMA’s final draft RTS to remove issues associated with commodity derivatives that have an agricultural underlying, the methodology in cases where deliverable supply and open interest of a contract differ significantly and the definition of contracts which are traded “OTC only” so that they can be considered as economically equivalent to contracts traded on a trading platform. ESMA largely agreed with the recommended changes and proposed to lower the position limits for derivatives based on food stuffs. ESMA has also suggested that where deliverable supply and open interest diverge significantly, the other months’ position limits should be adjusted accordingly. ESMA finally proposed a wider definition of “OTC only” contracts to prevent circumventions of the position limits regime.

The Opinions and the revised RTS are available at: https://www.esma.europa.eu/press-news/esma-news/esma-amendsmifid-ii-standards-non-equity-transparency-and-position-limits.

The Commission’s request for amendments to draft RTS on non-equity transparency is available at: http://ec.europa.eu/finance/securities/docs/isd/mifid/160420-letter-to-esma-rts-02_en.pdf.

The Commission’s request for amendments to draft RTS on position limits is available at: http://ec.europa.eu/finance/securities/docs/isd/mifid/160420-letter-to-esma-rts-21_en.pdf.