This week the EU Commission published its report to the EU Parliament and Council assessing the functioning of EU commodity derivative markets and the need for any changes to the existing commodity derivatives regulatory regime (click here).
Background:
Article 90(5) of MiFID II requires the EU Commission to present a comprehensive report to the EU Parliament and Council assessing the markets for commodity derivatives, EU Allowances (EUAs) or derivatives on EUAs. To that end, the EU Commission ran a consultation between February and April 2025 seeking feedback from the market across a wide range of topics. Input was also sought from several EU agencies including ESMA and ACER and the European Banking Authority (EBA), although input from the latter is explicitly excluded from the report. Running well beyond the 2024/25 deadlines originally set by Article 90(5), the report contains a compact 18-page summary of the EU Commission's assessment.
Headline Finding
At a headline level, the EU Commission does not see any "urgent" need to make substantive changes to the elements reviewed, although some targeted adjustments may be warranted and further explored.
Data and Reporting
On data aspects of commodity derivatives, the EU Commission supports the idea of reporting harmonisation, but notes that a "thorough assessment" (including a cost-benefit analysis) would be needed before any concrete steps are taken. It rejects, for now, the idea of a single reporting mechanism across regulations, instead supporting a more "gradual approach" where short-term measures, such as data-sharing between regulators and adopting unique identifier formats for transactions reported under both financial and energy frameworks, could be considered.
The EU Commission considers the current framework for pre- and post-trade transparency under MiFID to be sufficient and does not see a need for change. On the MiFID Ancillary Activity Exemption (AAE), the EU Commission does not believe any changes are urgently required, noting that if any future changes result in more firms being captured, a tailored regulatory capital regime would be needed. The EU Commission may also consider implementing a once-off notification by market participants to NCAs when they start and cease commodity derivatives trading activity, to improve visibility for regulators.
Position Limits
The EU Commission concluded that the current position limits regime functions adequately and that no strong evidence suggests the need to tighten or loosen it. It "sees potential" to further explore trading venues taking on more responsibilities in granting hedging, liquidity provision exemptions and ad hoc exemptions, but rejects a significant transfer of powers away from regulators, including giving exchanges the power to set position limits (as is the case in the US and which will soon be the case in the UK).
Position Management Controls and Position Reporting
On position management controls and position reporting, the EU Commission "could" further explore trading venues being entrusted to request information on the positions held by market participants in a broader set of OTC and related assets and liabilities in the underlying commodity on an ad hoc basis. It does not support the need for market participants to systematically report positions in the underlying market or in a broad set of OTC contracts to trading venues. It may, however, consider whether the reporting of economically equivalent OTC (EEOTC) positions could be extended to all market participants, as well as requiring third-country market participants to submit information on end beneficiaries to close the gap in the current position reporting.
Report Observations
The report delivers the following succinct conclusion:
"Responses from stakeholders, as well as the subsequent Commission assessment based on the analysis of market trends did not point to an urgent need to make substantive changes to the reviewed elements of the commodity derivatives framework, even though certain targeted amendments could be considered in the future."
The general "no change" message will undoubtedly be welcomed by many firms in the market. Firms should nonetheless be aware of the smaller changes under consideration, particularly the potential broadening of EEOTC reporting to all market participants, as well as the possibility of third-country market participants needing to submit information on end beneficiaries.
