The German financial market regulator, BaFin, has initiated a consultation to reintroduce MiFID II position limits for German Power Futures and Options contracts traded on the European Energy Exchange (EEX). This move comes after the average Open Interest (OI) for German Power Future (Base) and German Power Option (Base) contracts surged past the 300,000 tradable units threshold on average over the last year. Under MiFID II, crossing this threshold classifies a contract as "critical or significant," mandating the setting of position limits. These limits had been rescinded in August 2022 after the contracts fell below the same OI threshold.
Why the Reintroduction?
The core objective of mandatory position limits under MiFID II (implemented in Germany via the Wertpapierhandelsgesetz - WpHG) is to prevent market-distorting positions and ensure proper price convergence between derivative and spot prices, all while safeguarding orderly markets and reducing the possibility of market abuse. The 2021 MiFID II "Quick Fix" significantly rolled back the position limit regime, but this latest announcement confirms the regime is certainly not dead, especially for contracts that regain liquidity.
Setting the Limits and Firm Obligations
BaFin has proposed specific limits by adjusting the standard Regulatory Technical Standards (RTS 21) baseline values, using the monthly contract (equivalent to 720 MWh) as the tradable unit reference.
- Spot Month Limit: The 25% baseline of deliverable supply was adjusted down to 10%, resulting in a limit of 20,926,290 MWh.
- Other Months Limit: The 25% baseline of open interest was adjusted down to 20%, resulting in a limit of 49,873,450 MWh.
The downward adjustments were driven primarily by factors such as high volatility in the German power market, a relatively high concentration of position holders, and the need to account for related German power contracts that trade on other EU exchanges like ICE Endex in the Netherlands.
Firms are reminded that these limits apply only to speculative positions, and they must have systems in place to monitor positions and stay below these new thresholds. This includes converting options positions using delta conversion.
The Regulatory Road Ahead
The proposed limits are open for market comment until 12 December 2025. Following the consultation, BaFin is required to submit the proposal to ESMA (the pan-EU financial regulator), which has two months to issue a non-binding opinion before the limits become legally binding.
BaFin has not yet clarified whether it will seek formal recognition as the Central Competent Authority (CCA) for these contracts, given that related contracts are also traded on the ICE Endex under the purview of the Dutch regulator (AFM), where no position limits are currently in force.
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