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MiFID II - Position limits for commodity derivatives

Any person based in or residing in the Netherlands is prohibited to maintain a net position in a commodity derivative that exceeds the position limit. This also applies to parties that are not subject to a licence obligation.

Proposed position limits

The Markets in Financial Instruments Directive of 2014 (MIFID II)requires that the AFM sets position limits for all commodity derivatives traded on a trading platform located or managed in the Netherlands. These limits also apply to economically equivalent OTC contracts (EEOTC). The proposed position limits apply to the positions held by a person and the positions that are held on his behalf at a group level.

If a position limit is (about to be) exceeded, the AFM may force a person not to enter into new agreements with regard to a commodity derivative to which that position limit applies or to reduce the volume of the position within a reasonable period set by the AFM.

The AFM intends to set the position limits for commodity derivatives as stated in the table below. The AFM has informed ESMA about the proposed position limits in accordance with Article 57, paragraph 5, MIFID II. ESMA has indicated in a public statement that it will not be possible for them to finalize and publish all opinions on position limits for liquid commodity derivatives before the end of this year. It is likely that ESMA's opinions will not deviate from the proposed position limits below. However, the possibility still exists.

The AFM monitors the position limits, subject to the section below entitled 'Notes applicable to specific contracts'.

Notes applicable to specific contracts

This list contains liquid commodity derivative contracts that are currently identified as being traded on a trading platform in the Netherlands. The proposed position limit outlined in the table below to these derivatives. This is a complete list, however it is possible that in the future the list will be extended to include new position limits for other commodity derivatives.

Each commodity derivative contract has a separate proposed limit for the spot month and for the other months’ periods. The total net position in the commodity derivative has to be calculated by aggregating all positions that the person holds in the commodity derivative and in economically equivalent OTC derivative contracts based on Article 5: 89b of the Wft (new). The specific contracts to be aggregated are identified in the table below with their Venue Product Codes (VPC).The new and illiquid commodity derivatives which are traded on a trading platform in the Netherlands and which are not listed in the table with their Venue Product Codes have a limit of 2,500 lots based on Article 15, first paragraph, under the delegated regulation (EU) 2017/591, unless the position limit has been set by another competent authority in any other member state.

The AFM can set other position limits than the proposed position limits in response to the forthcoming ESMA opinion. After the AFM has set a position limit, that position limit may be changed if the deliverable stock or the total open interest has changed substantially or in case of another significant change on the market (Article 5: 89a, third paragraph, Wft) (new)). After a change, the details of the new limit and the start date will be presented in the table below.

Commodity Derivative Name  Venue Market Identifier code (MIC) Name of Trading Venue Venue Product Codes (VPC) Spot month single limit Other months’ limit  Unit of measurement 
Dutch power Physical Base Futures NDEX ICE Endex DPB, DPW 6.171.725 (24%) 8.938.159 (35%) MWh
Dutch power Physical Peak Futures NDEX  ICE Endex DPA 2.262.967 (24%) 1.329.621 (40%) MWh
Belgian power Physical Base Futures NDEX ICE Endex BPB 4.218.480 (25%) 3.244.326 (40%) MWh
Dutch TTF Gas NDEX  ICE Endex TFM, TFE 39.216.420 (25%) 164.372.396   (30%) MWh

Determining position limits exemption

The AFM can decide upon application that position limits do not apply for:

  1. positions in commodity derivatives and in their economically equivalent over-the-counter contracts 
  2. that are held by or for the account of a non-financial entity, and 
  3. of which it can be objectively determined that these positions reduce risks directly relating to the non-financial entity’s commercial activity (hereafter referred to as a ‘hedge position’).

Parties can apply to the AFM for a position limit exemption through this application form. The information that has to be provided for the application can be found in Article 8 of Delegated Regulation (EU) 2017/591. 

When do you submit an application form:

  • The application for a position limit exemption is necessary for a non-financial entity that expects that its net position in a certain commodity derivative will exceed a position limit.
  • In the case that the AFM has decided that a position limit exemption applies
    • The application form must be used to submit a new application if the non-financial institution also wants an exemption for the relevant position limits and there is a significant change to the nature or value of the non-financial entity’s commercial and/or trading activities in commodity derivatives and in their economically equivalent over-the-counter contracts and when this change is relevant to the information described in Article 8, second paragraph of delegated regulation (EU) 2017/591.
    • The application form must be used to indicate that the non-financial entity wishes to cancel the existing position limit exemption (after which the position limits apply again.

Security information

Cryptshare is an encryption software through which the application form and supporting documents can be encrypted and subsequently send by email to the AFM. In a separate email the user can send the password generated by Cryptshare to the AFM. If needed, get step-by-step guidance in their selected language when clicking on the ‘Help’ button.

Procedure

The non-financial entity applies for the exemption by emailing the completed and signed application form and any additional documents 'encrypted' via Cryptshare to hedge_exemptions@afm.nl. Subsequently, the applicant also emails the password generated by Cryptshare to hedge_exemptions@afm.nl, stating the name of the non-financial entity that seeks an exemption in the email’s subject title. The application form can be used to apply for a single exemption (so max. one commodity contract type).

We aim to send you a confirmation email that contains a reference number of your application within three working days upon receipt of your application. We hereby ask you to mention this application reference number in your correspondence with the AFM.

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