ESMA’s third-country venues - the naughty or nice list

ESMA recently issued guidance on the treatment of commodity derivatives traded on third-country venues in the context of the MiFID ll position limit regime. Prior to this is was not clear if commodity derivatives traded on a third-country exchange would be considered economically equivalent OTC (“EEOTC”) contracts and would consequently fall under the position limit regime. The guidance states that a third-country venue will be considered a trading venue for the purposes of this regime only if it meets certain objective criteria concerning its operation of a multilateral system, being subject to authorization and having a supervisory framework in place.

ESMA will publish a list of the venues that meet the requisite criteria and a list of those that do not. Perhaps in the spirit of ESMA holiday giving, until the publication of these ‘naughty’ and ‘nice’ lists, third-country commodity derivatives will not be considered EEOTC contracts for EU position limits. As with many things MIFID ll, we have now been given some direction, but not complete certainty, on these third-country issues.