ESMA Issues Opinion on MiFID 2 Position Limits for Dutch TTF Gas

This week ESMA, the pan-EU financial regulator, published (click here) an 11-page opinion confirming new MiFID 2 position limits for contracts in TTF gas which are traded on both ICE Endex and the EEX exchanges (the previous limits applying to TTF related only to contracts traded on ICE Endex – see here). Despite the significant rolling back of MiFID position limits in 2021 as part of the MiFID 2 “Quick Fix” rules (otherwise known as the Capital Markets Recovery Package), this announcement introduces certain complexities given it is traded on exchanges falling under two separate regulatory jurisdictions.

As a reminder, under the post-Quick Fix rules, MiFID position limits only apply to agricultural commodity derivatives and “critical or significant” commodity contracts meaning commodity derivatives with a net open interest of at least of 300,000 lots on average over a one-year period. TTF qualifies as a critical contract.

Under Article 57(6) of MiFID 2, where critical or significant contracts based on the same underlying and sharing the same characteristics are traded on trading venues in more than one jurisdiction, the National Competent Authority (NCA) of the trading venue where the largest volume of trading takes place is deemed to be the Central Competent Authority (CCA). The CCA has the power/obligation to set a single position limit to be applied on all trading in those derivatives. In this case, the Authority for Financial Markets (AFM), the Dutch financial regulator, is the anointed CCA for TTF given the largest volumes of contracts with a TTF underlying are traded on ICE Endex which is domiciled in the Netherlands.

According to the announcement, on 30 May 2024 ESMA had sufficient information to assess a notification received from the AFM under Article 57(5) of MiFID 2 regarding the proposed position limits. The announcement notes that the AFM had also consulted with the German Federal Financial Supervisory Authority (BaFin) given the EEX exchange falls within their regulatory jurisdiction.

Much of the opinion deals with the technical and market analysis performed by ESMA to validate the AFM’s proposed limits - those interested are advised to consult the opinion directly. The final limits adopted by ESMA are as follows:

Spot month position limit:

• The spot month limit is set at 25,050,960 MWh (current limit applicable to ICE Endex only - 17,110,110 MWh);
• This represents 15% of the deliverable supply (the metric upon which MiFID 2 “spot month” position limits are based);

Other months’ position limit

• The other months limit is set at 153,017,049 MWh (current limit applicable to ICE Endex only - 101,332,061 MWh);
• This represents 12.5% of the overall open interest (the metric upon which MiFID 2 “other months” position limits are based).

The limit applies to:

• Dutch TTF Gas Base Load TAS;
• Dutch TTF Gas Daily Futures;
• Dutch TTF Gas Futures;
• Dutch TTF Gas Options;
• EEX TTF Natural Gas Futures and Options;
• The above are addressed by the following product codes: TFM, TFE, TFO, T12, TF1, TF2, TF3, TF4, TF5, TF6, DT0, DT1, DT2, DT3, DT4, DT5, DT6, G3BM, G3BQ, G3BS, G3BY and O3FM.

The limits apply from 2 July 2024.

The AFM’s webpage confirming the applicable date may be found here. The announcement from the EEX may be found here.

 RegTrail Insights

While the limits have notionally increased, they must now also accommodate EEX-related TTF derivatives activity. MiFID 2 position limits, in comparison with limits set by the US Exchanges, are typically quite generous but this is directly related to a firm’s trading concentration in such contracts. Firms actively trading impacted TTF contracts on ICE Endex and EEX should urgently notify Front Office of this development and review their position limit controls in relation to TTF.