Setting position limits

Position limits are determined by the competent authority of the Member State in which the trading venue the commodity derivative is predominantly traded on is established. Under sections 54 et seq. of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), BaFin is the competent authority for Germany.

As part of a package of measures to aid the recovery of the capital markets (Capital Markets Recovery Package – CMRP), the European Parliament and the Council have adopted an amendment to the second Markets in Financial Instruments Directive (MiFID II). This also involves changes to the position limits regime. In Germany, the CMRP has been transposed into national law by the Crowdfunding Accompanying Act (Schwarmfinanzierung-Begleitgesetz).

One of these changes affects section 54 (1) of the WpHG, according to which the application of position limits is now restricted to agricultural commodity derivatives and critical or significant commodity derivatives with an open interest, i.e. the total number of all outstanding positions in a contract, of at least 300,000 lots. In future, commodity certificates will be excluded from the application of position limits in general.

ESMA opinions on position limits

Under Article 57(5) of MiFID II, national competent authorities (NCAs) have to notify the European Securities and Markets Authority (ESMA) of the position limits for commodity derivatives they intend to set before issuing them. ESMA must subsequently issue an opinion, within two months, to the NCA concerned assessing the compatibility of the position limits with statutory provisions. The NCA may then modify its position limits accordingly or issue limits contrary to the ESMA opinion provided that the authority publishes on its website its reasons for doing so.

Position limits in force

BaFin has set the following position limits. Where applicable, the respective position limit shall apply to both futures and options. Options are weighted on the basis of their delta according to ESMA's "Questions & Answers on MiFID II and MiFIR commodity derivatives topics" in the "Position limits" section.

BaFin wishes to point out that it has the power to revoke a position limit, in accordance with section 54 (5) of the WpHG, in order to be able to flexibly react to new circumstances that justify or necessitate an adjustment to the position limit.

Based on the information currently available, BaFin considers all below listed agricultural commodity derivatives that are traded on German trading venues or which largest volume of trading takes place at German trading venues and are thus subject to a position limit set by BaFin to be illiquid. In such cases, a position limit of 10,000 lots shall apply at all times, both for the spot month and for all other months.

Critical or significant commodity derivatives where the open interest is at a minimum of 300 000 lots on average over a one-year period do not exist at German trading venues for the time being.

This list is not exhaustive and will be extended to include additional contracts that are listed on German trading venues as soon as they are to be categorised as liquid agricultural commodity derivatives or as critical or significant commodity derivatives and BaFin becomes the competent authority. Every adoption of a position limit is preceded by a hearing during which those concerned are given the opportunity to state their positions.