CESR and CEBS have published their advice to the Commission on the Commission’s review of commodities business. The committees think there is a risk of market and regulatory failures. They are worried that regulation of commodity derivatives business is not consistent with other financial regulation or between countries. The advice makes recommendations in particular on the future scope of the MiFID exemptions for and the prudential treatment of specialist commodity derivatives firms. They would narrow the exemptions in Article 2(1)(i) and (k) of MiFID. Instead they suggest a narrow exemption for the incidental provision of investment services related to commodity derivatives and an exemption for primarily non-financial firms which trade on own account with sophisticated clients and to ensure a level playing field. They also think the Commission should consider whether firms covered by the exemptions relating to commodity derivatives could be authorised as investment firms if they wanted. On prudential treatment, the Committees suggest alternatives:

  • requiring specialist commodity derivatives firms to meet a high-level requirement to have adequate financial resources and qualitative risk management requirements; or 
  • full application of the CRD to specialist commodity derivatives firms with an exemption from any prudential requirements for firms where this would not impede the overall aims of prudential regulation.