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On May 30, 2016, ESMA published an Opinion specifying the
criteria for establishing, under MiFID II, when the activity of a
firm is to be considered "ancillary" to the main business
of the firm at a group level. Under the current MiFID, eligible
firms trading commodity derivatives can rely on exemptions for
ancillary activities, avoiding the need to become regulated as an
investment firm. MiFID II narrows the ancillary activity exemption
considerably. ESMA is required to develop RTS to specify the
criteria which must be taken into account for the revised
exemption. They have specified at least the following two elements:
(i) the need for ancillary activities to constitute a minority of
activities at a group level; and (ii) the size of their ancillary
trading activity compared to the overall market trading activity in
that asset class. ESMA submitted draft RTS to the Commission on
September 28, 2015. On March 14, 2016, the Commission indicated its
intention to endorse the draft RTS, subject to a number of changes.
In particular, the Commission requested that ESMA include, when
proportionate and appropriate, a capital-based test for groups that
have undertaken significant capital investments, relative to their
size, in the creation of infrastructure, transportation or
production facilities or groups that undertake activities or
investments which cannot be hedged in financial instruments. The
Opinion published is in response to the Commission's
request.
ESMA has responded by stating its view that the proposed
business activity test in its final draft RTS is in line with the
objectives pursued by the exemption for ancillary activities
contained in MiFID II. ESMA's view is that a capital-based test
has drawbacks, because such a test could be inaccurate and could
see a firm meeting requirements, or failing to meet requirements,
depending on a given time period. Also, the different sizes and
wide varieties of sectors and participants in commodity derivatives
markets mean that such a test may fail to ensure a level playing
field for market participants. Should the Commission decide to
introduce a capital test, ESMA has identified some metrics that
could be used by the Commission as an alternative to the main
business test already designed by ESMA, such as the annual gross
notional amount of transactions in commodity derivatives in the EU.
ESMA has proposed that, if a capital test is introduced, entities
should be able to choose between performing the original main
business test based on trading activity or a capital test, on the
basis that this would avoid putting small-and medium-sized entities
at a disadvantage.
ESMA also published an amended version of the RTS with some
minor changes not related to the Commission's request; for
example, altering the date in the RTS to take into account the
co-legislator's agreement to delay the implementation of MiFID
II.
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