Derivatives and Reporting Regulations, 2017

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 19,925, 22 ta’ Diċembru, 2017

Taqsima B

L.N. 389 of 2017

FINANCIAL MARKETS ACT

(CAP. 345)

INVESTMENT SERVICES ACT

(CAP. 370)

Position Limits and Position Management Controls in Commodity

Derivatives and Reporting Regulations, 2017

IN EXERCISE of the powers conferred by article 49 of the

Financial Markets Act and article 12 of the Investment Services Act,

the Minister responsible for the regulation of financial services,

acting on the advice of the Malta Financial Services Authority, has

made the following regulations

(1)

The title of these regulations is the Position Limits Title, scope and

and Position Management Controls in Commodity Derivatives and commencement.

Reporting Regulations, 2017.

(2) The purpose of these regulations is to implement Article

57(1), (2), (4) to (6), (8) to (11), (13) and (14), Article 58(1) to (4),

Article 69(2)(o) and (p) and Article 79(5) of MIFID as herein defined,

and they shall be interpreted and applied accordingly.

(3) These regulations shall come into force on the 3rd January

2018.

(1) In these regulations unless the context otherwise Definitions.

requires

"the Acts" means the Financial Markets Act and the Investment Cap. 370.

Services Act;

"Central competent authority" means the regulatory authority

of the trading venue where the largest volume of trading takes place;

"Directive 2009/65/EC" means Directive 2009/65/EC of the

European Parliament and of the Council of 13 July 2009 on the

coordination of laws, regulations and administrative provision

relating to undertakings for collective investment in transferable

securities (UCITS) as amended from time to time, and includes any

implementing measures that have been or may be issued thereunder;

"Directive 2011/61/EC" means Directive 2011/61/EU of the

European Parliament and of the Council of 8 June 2011 on

Alternative Investment Fund Managers, as amended from time to

time, and includes any implementing measures that have been or may

be issued thereunder;

"Directive 2009/138/EC" means Directive 2009/138/EC of the

European Parliament and of the Council of 25 November 2009 on the

taking-up and pursuit of the business of Insurance and Reinsurance

(Solvency II), as amended from time to time, and includes any

implementing measures that have been or may be issued thereunder;

"Directive 2003/41/EC" means Directive 2003/41/EC of the

European Parliament and of the Council of 3 June 2003 on the

activities and supervision of institutions for occupational retirement

provision, as amended from time to time, and includes any

implementing measures that have been or may be issued thereunder;

"Directive 2003/87/EC" means Directive 2003/87/EC of the

European Parliament and of the Council of 13 October 2003

establishing a scheme for greenhouse gas emission allowance trading

within the Community, as amended from time to time, and includes

any implementing measures that have been or may be issued

thereunder;

"ESMA" means the European Securities and Markets Authority

established by Regulation (EU) No 1095/2010 of the European

Parliament and of the Council of 24 November 2010;

"investment firm" means any legal person, other than persons to

whom MiFID does not apply in terms of Article 2 of the said

Directive, whose regular occupation or business is the provision of

any one or more investment services to third parties on a professional

basis;

"MiFID" means Directive 2014/65/EU of the European

Parliament and of the Council of 15 May 2014 on markets in financial

instruments and amending Directive 2002/92/EC and Directive 2011/

61/EU, as amended from time to time, and includes any implementing

measures that have been or may be issued thereunder;

"MiFIR" means Regulation (EU) No 600/2014 of the European

Parliament and of the Council of 15 May 2014 on markets in financial

instruments, as amended from time to time;

"Regulation (EU) No 1095/2010" means Regulation (EU) No

1095/2010 of the European Parliament and of the Council of 24

November 2010 establishing a European Supervisory Authority

(European Securities and Markets Authority), as amended from time

to time;

"Regulation (EU) No 1227/2011" means Regulation (EU) No

1227/2011 of the European Parliament and of the Council of 25

October 2011 on wholesale energy market integrity and transparency,

as amended from time to time;

"Regulation (EC) 713/2009" means Regulation (EC) No 713/

2009 of the European Parliament and of the Council of 13 July 2009

establishing an Agency for the Cooperation of Energy Regulators, as

amended from time to time.

(2) Words and expressions used in the Acts shall, in these

regulations, have the same meaning as is assigned to them in the Acts.

(1)

The competent authority shall, in line with the Position limits

methodology for calculation determined by ESMA, establish and and

management

apply position limits on the size of a net position which a person can controls

commodity

hold at all times in commodity derivatives traded on trading venues derivatives.

and economically equivalent OTC contracts.

(2) The limits referred to in sub-regulation (1) shall be set on

the basis of all positions held by a person and those held on its behalf

at an aggregate group level in order to

(a)

prevent market abuse;

(b)

support orderly pricing and settlement conditions,

including preventing market distorting positions, and ensuring,

in particular, convergence between prices of derivatives in the

delivery month and spot prices for the underlying commodity,

without prejudice to price discovery on the market for the

underlying commodity.

(3) Position limits shall not apply to positions held by or on

behalf of a non-financial entity and which are objectively measurable

as reducing risks directly relating to the commercial activity of that

non-financial entity.

(4) Position limits shall specify clear quantitative thresholds

for the maximum size of a position in a commodity derivative that

persons can hold.

(5) The competent authority shall set limits for each contract

in commodity derivatives traded on trading venues based on the

methodology for calculation as determined by ESMA in the

regulatory technical standards issued for that purpose in accordance

with Article 57(3) of MiFID. The position limit shall include

economically equivalent OTC contracts.

(6) The competent authority shall review position limits where

there is a significant change in deliverable supply or open interest or

any other significant change on the market, based on its determination

of deliverable supply and open interest and reset the position limit in

accordance with the methodology for calculation developed by

ESMA.

(7) The competent authority shall notify ESMA of the exact

position limits it intends to set in accordance with the methodology

for calculation as established by ESMA in the regulatory technical

standards issued for that purpose in accordance with Article 57(3) of

MiFID.

(8) The competent authority shall modify the position limits in

accordance with ESMA’s opinion or provide ESMA with justification

why the change is considered to be unnecessary

Provided that where the competent authority imposes

limits contrary to an ESMA opinion, it shall immediately publish on

its website a notice fully explaining its reasons for doing so.

(9) Where the same commodity derivative is traded in

significant volumes on trading venues in more than one jurisdiction

and the largest volume of trading takes place in Malta, the competent

authority shall set the single position limit to be applied on all trading

in that contract. The competent authority shall consult the European

regulatory authorities of other trading venues on which that derivative

is traded in significant volumes on the single position limit to be

applied and any revisions to that single position limit

Provided that where the competent authority and the

European regulatory authorities of the other trading venues do not

agree, they shall state in writing the full and detailed reasons why

they consider that the requirements prescribed in sub-regulations (1)

to (3) are not met. ESMA will settle any dispute arising from a

disagreement between competent authorities in accordance with its

powers under Article 19 of Regulation (EU) No 1095/2010.

(10) Where the competent authority disagrees with the single

position to be applied, in the case where the same commodity

derivative is traded in significant volumes on trading venues in more

than one jurisdiction and the largest volume of trading takes place

outside Malta, it shall state in writing the full and detailed reasons

why it considers that the requirements prescribed in sub-regulations

(1) to (3) are not met

Provided that ESMA will settle any dispute arising from a

disagreement between the competent authority and the European

regulatory authorities in accordance with its powers under Article 19

of Regulation (EU) No 1095/2010.

(11) Where the MFSA is the competent authority of the trading

venue where the same commodity derivative is traded, it shall put in

place cooperation arrangements including exchange of relevant data

with the European regulatory authorities of the position holders in

order to enable the monitoring and enforcement of the single position

limit.

(12) Where the MFSA is the competent authority of the

position holders in a commodity derivative which is traded on a

trading venue, it shall put in place cooperation arrangements

including exchange of relevant data with the European regulatory

authority of the trading venue where the same commodity derivative

is traded, in order to enable the monitoring and enforcement of the

single position limit.

(13) A Maltese investment firm or market operator operating a

trading venue which trades commodity derivatives shall apply

position management controls. Those controls shall include at least,

the powers for the trading venue to

(a)

monitor the open interest positions of persons;

(b)

access information, including all relevant

documentation, from persons about the size and purpose of a

position or exposure entered into, information about beneficial

or underlying owners, any concert arrangements, and any

related assets or liabilities in the underlying market;

(c)

require a person to terminate or reduce a position,

on a temporary or permanent basis as the specific case may

require and to unilaterally take appropriate action to ensure the

termination or reduction if the person does not comply; and

(d)

where appropriate, require a person to provide

liquidity back into the market at an agreed price and volume on

a temporary basis with the express intent of mitigating the

effects of a large or dominant position.

(14) The position limits and position management controls

shall be transparent and non-discriminatory, specifying how they

apply to persons and taking account of the nature and composition of

market participants and of the use they make of the contracts

submitted to trading.

(15) The Maltese investment or market operator operating the

trading venue shall inform the competent authority of the details of

position management controls. The competent authority shall

communicate the same information as well as the details of the

position limits it has established to ESMA.

(16) The competent authority shall not impose limits which are

more restrictive than those adopted pursuant to sub-regulations (1) to

(3) except in exceptional cases where they are objectively justified

and proportionate taking into account the liquidity of the specific

market and the orderly functioning of that market.

(17) The competent authority shall publish on its website the

details of the more restrictive position limits it decides to impose in

accordance with sub-regulation (18), which shall be valid for an

initial period not exceeding six months from the date of their

publication on the website. The more restrictive position limits may

be renewed for further periods not exceeding six months at a time if

the grounds for the restriction continue to be applicable. If not

renewed after that six-month period, they shall automatically expire.

(18) Where the competent authority decides to impose more

restrictive position limits, it shall notify ESMA. The notification shall

include a justification for the more restrictive position limits

Provided that where the competent authority imposes

limits contrary to an ESMA opinion, it shall immediately publish on

its website a notice fully explaining its reasons for doing so.

(19) The competent authority shall impose administrative

penalties and other administrative measures in terms of regulation 7

for the infringements of position limits set in accordance with this

regulation to

(a)

positions held by persons situated or operating in

Malta or abroad which exceed the limits on commodity

derivative contracts the competent authority has set in relation

to contracts on trading venues situated or operating in Malta or

economically equivalent OTC contracts;

(b)

positions held by persons situated or operating in

Malta which exceed the limits on commodity derivative

contracts set by European competent authorities in other

Member States or EEA States.

(1) A Maltese investment firm or a market operator Position

operating a trading venue which trades commodity derivatives or reporting

categories of

emission allowances or derivatives thereof shall

position holders.

(a)

make public a weekly report with the aggregate

positions held by the different categories of persons for the

different commodity derivatives or emission allowances or

derivatives thereof traded on their trading venue, specifying the

number of long and short positions by such categories, changes

thereto since the previous report, the percentage of the total

open interest represented by each category and the number of

persons holding a position in each category in accordance with

sub-regulations (5) to (7) and communicate that report to the

competent authority and to ESMA which in turn shall proceed

to a centralised publication of the information included in such

reports; and

(b)

provide the competent authority with a complete

breakdown of the positions held by all persons, including the

members or participants and the clients thereof, on that trading

venue, at least on a daily basis.

(2) The Maltese investment firm or market operator operating

a trading venue as referred to in sub-regulation (1) shall be required to

provide the competent authority with the information referred to in

sub-regulation (1)(b) only when both the number of persons and their

open positions exceed minimum thresholds.

(3) Maltese Investment firms trading in commodity

derivatives or emission allowances or derivatives thereof outside a

trading venue shall

(a)

where the commodity derivatives or emission

allowances or derivatives thereof are traded in Malta, provide

the competent authority; or

(b)

where the commodity derivatives or emission

allowances or derivatives thereof are traded outside Malta,

provide the European regulatory authority; or

(c)

where the commodity derivatives or emission

allowances or derivatives thereof are traded in significant

volumes on trading venues in more than one jurisdiction,

provide the central competent authority;

at least on a daily basis with a complete breakdown of their

positions taken in commodity derivatives or emission allowances or

derivatives thereof traded on a trading venue and economically

equivalent OTC contracts, as well as of those of their clients and the

clients of those clients until the end client is reached, in accordance

with Article 26 of MiFIR and, where applicable, of Article 8 of

Regulation (EU) No 1227/2011.

(4) In order to enable monitoring of compliance with

regulation 3(1) to (3) of these regulations, members or participants of

regulated markets, MTFs and clients of OTFs shall report to the

investment firm or market operator operating that trading venue the

details of their own positions held through contracts traded on that

trading venue at least on a daily basis, as well as those of their clients

and the clients of those clients until the end client is reached.

(5) Persons holding positions in a commodity derivative or

emission allowance or derivative thereof shall be classified by the

investment firm or market operator operating that trading venue

according to the nature of their main business, taking account of any

applicable authorisation, as either

(a)

investment firms or credit institutions;

(b)

investment funds, either an undertaking for

collective investments in transferable securities (UCITS) as

defined in Directive 2009/65/EC, or an alternative investment

fund manager as defined in Directive 2011/61/EC;

(c)

other financial institutions, including insurance

undertakings and reinsurance undertakings as defined in

Directive 2009/138/EC, and institutions for occupational

retirement provision as defined in Directive 2003/41/EC;

(d)

commercial undertakings;

(e)

in the case of emission allowances or derivatives

thereof, operators with compliance obligations under Directive

2003/87/EC.

(6) The reports referred to in sub-regulation (1)(a) shall

specify the number of long and short positions by category of

persons, any changes thereto since the previous report, percent of

total open interest represented by each category, and the number of

persons in each category.

(7) The reports referred to in sub-regulation (1)(a) and the

breakdowns referred to in sub-regulation (3) shall differentiate

between

(a)

positions identified as positions which in an

objectively measurable way reduce risks directly relating to

commercial activities; and

(b)

other positions.

The competent authority may

Powers of the

competent

authority.

(a)

request any person to take steps to reduce the size

of the position or exposure; and

(b)

limit the ability of any person from entering into a

commodity derivative, including by introducing limits on the

size of a position any person can hold at all times in accordance

with regulation 4 of these regulations.

(1) The competent authority shall notify ESMA and other Notifications.

European regulatory authorities of the details of

(a)

any requests to reduce the size of a position or

exposure pursuant to regulation 5(a);

(b)

any limits on the ability of persons to enter into a

commodity derivative pursuant to regulation 5(b).

(2) The notification shall include, where relevant, the details

of the request or the demand pursuant to article 32 of the Financial Cap. 345

Markets Act, and article 13 of the Investment Services Act, including Cap. 370.

the identity of the person or persons to whom it was addressed and the

reasons therefor, as well as the scope of the limits introduced pursuant

to regulation 5(b) including the person concerned, the applicable

financial instruments, any limits on the size of positions the person

can hold at all times, any exemptions granted thereto, and the reasons

therefor in accordance with regulation 3 and the reasons therefor.

(3) The notifications referred to in sub-regulation (2) shall be

made not less than 24 hours before the actions or measures are

intended to take effect. In exceptional circumstances, the competent

authority may make the notification less than 24 hours before the

measure is intended to take effect where it is not possible to give 24

hours’ notice.

(4) Where the competent authority receives a notification from

another European regulatory authority pursuant to Article 79(5) of

MiFID, it may take measures in accordance with regulation 5(a) or

(b) where it is satisfied that the measure is necessary to achieve the

objective of the other European regulatory authority.

(5) Where the competent authority proposes to take measures

in accordance with regulation 5(a) or (b), it shall also give notice in

accordance with the provisions of this regulation.

(6) When an action under sub-regulation (1)(a) or (b) relates to

wholesale energy products, the competent authority shall also notify

the Agency Cooperation of Energy Regulators (ACER) established

under Regulation (EC) No 713/2009.

(1)

Where a person falling within the scope of these

regulations fails to comply with any provisions of such regulations or

any rules issued thereunder further implementing such regulations,

the competent authority may, by notice in writing and without

recourse to a court hearing, impose on such person an administrative

penalty and other administrative measures in accordance with the

provisions of the Financial Markets Act (MiFID and MiFIR

Administrative Penalties, Measures and Investigatory Powers)

Regulations, 2017 or the Investment Services Act and Banking Act

(MiFID and MiFIR Administrative Penalties, Measures and

Investigatory Powers) Regulations, 2017.

(2) A right of appeal to the Financial Services Tribunal shall

lie from the decisions which the competent authority shall take under

these regulations and the provisions of Part VI of the Financial

Markets Act or article 19 of the Investment Services Act shall apply

mutatis mutandis.

€0.45