MAR 10.2 Position limit requirements

3A trading venue operator must establish a position limit in relation to:

1. (1)

   a commodity derivative listed in MAR 10 Annex 2R and traded on a trading venue it operates;

2. (2)

   any other contract traded on a trading venue it operates which is critical for the purposes of the functioning of the commodity derivatives markets in the UK, having regard to its characteristics, when notified to do so by the FCA; and

3. (3)

   any related contract as part of the position limit it imposes for the purposes of (1).

1. (1)

   3A trading venue operator must consider whether there are other contracts which:

   1. (a)

      offer a comparable economic exposure to that provided by a critical contract and may be used to circumvent the purpose of MAR 10.2.1AR; or

   2. (b)

      influence the pricing or settlement conditions of a critical contract.

2. (2)

   Where a trading venue operator identifies a contract to which (1) applies, it must treat that contract as if it were a related contract for the purposes of MAR 10.

3. (3)

   Where a trading venue operator identifies a contract to which (1) applies, it must promptly notify the FCA of the details of that contract.

3When a trading venue operator considers that a contract may amount to a critical contract and requires closer monitoring by it or the FCA for this purpose, it must promptly notify the FCA of the details of the contract having had regard to:

1. (1)

   the risk to the settlement method at contract expiry;

2. (2)

   the size of the commodity derivative market compared with the underlying commodity and the robustness of the reference price used to settle contracts;

3. (3)

   the type of underlying and the impact on non-financial end-users;

4. (4)

   the size of the market, including factors such as open interest, traded volumes, and the number and variety of market participants;

5. (5)

   changes in volatility and liquidity; and

6. (6)

   its use for circumventing the purpose of MAR 10.2.1AR.

3A trading venue operator must establish and apply a position limit no later than the date from when the contract becomes a critical contract.

3When setting a position limit in respect of a critical contract, a trading venue operator must have regard at least to:

1. (1)

   deliverable supply in the underlying commodity;

2. (2)

   aggregate open interest and its relationship with deliverable supply;

3. (3)

   maturity of the critical contract;

4. (4)

   volatility in the price of the commodity derivative and in the underlying commodity;

5. (5)

   liquidity, including:

   1. (a)

      aggregate traded volumes of the critical contract and the underlying of the critical contract;

   2. (b)

      aggregate traded volumes of the related contracts, related OTC contracts and related overseas commodity derivative contracts; and

   3. (c)

      the number, size and type of the market participants; and

6. (6)

   the ability of market participants to make or take delivery and the characteristics of the underlying commodity market, including transportation, delivery, storage and settlement of the commodity.

1. (1)

   3A trading venue operator must apply its position limits in respect of critical contracts to:

   1. (a)

      spot month contracts and other months’ contracts; and

   2. (b)

      the net positions held by a person, together with those held on its behalf, at an aggregate group level.

2. (2)

   A trading venue operator must require that a person determine the net position it holds in a commodity derivative for both spot month contracts and other months’ contracts.

3. (3)

   A trading venue operator must require that:

   1. (a)

      where a person holds both long and short positions in any critical contracts or related contracts, the person net those positions (and no other positions in other commodity derivatives) to determine its net position other than where (4) applies;

   2. (b)

      a position to which an exemption in MAR 10.2 applies is not aggregated for the purposes of (1)(b);

   3. (c)

      a parent undertaking determines its net position by aggregating its own net position and the net positions of each of its subsidiary undertakings except where (3)(d) applies; and

   4. (d)

      the parent undertaking of a manager of a collective investment undertaking must not aggregate the positions in commodity derivatives in any collective investment undertaking where it does not in any way influence the investment decisions in respect of opening, holding or closing those positions.

4. (4)

   A trading venue operator must not permit the netting of positions in relation to a related contract where it considers this will increase the likelihood of disorderly pricing or settlement conditions.

5. (5)

   Where (4) applies, a trading venue operator must inform the relevant members, participants or clients, and describe how their positions should be aggregated for the purposes of discharging their obligation to meet the position limit imposed by the trading venue operator in accordance with MAR 10.2.1AR.

3A trading venue operator must:

1. (1)

   publish its position limits and apply these on a non-discriminatory basis;

2. (2)

   maintain arrangements designed to enable it to ensure persons comply with position limits relating to a critical contract traded on its trading venue at all times, regardless of the location of the person at the time of entering into the position;

3. (3)

   ensure the position limits on a trading venue it operates remain appropriate at all times;

4. (4)

   review its position limits at least once every year and whenever there is a significant change in deliverable supply or open interest, or a change which significantly impacts the commodity derivatives market;

5. (5)

   establish and maintain a methodology for applying position limits in respect of critical contracts;

6. (6)

   notify the FCA prior to imposing a position limit unless it is not reasonably practicable to do so;

7. (7)

   consult with its members, participants or clients prior to setting or modifying a position limit unless it is not reasonably practicable to do so, in accordance with its rules; and

8. (8)

   publish in a clear and accessible manner a list of related contracts for each critical contract traded on its systems.

3A trading venue operator may determine that a non-financial entity’s position for the purposes of a position limit does not include a position it holds, or one held on its behalf, which is:

1. (1)

   objectively measurable as reducing risks directly relating to its commercial activity; and

2. (2)

   approved by the trading venue operator setting the position limit in accordance with:

   1. (a)

      the relevant criteria and methods in MAR 10.2.7R; and

   2. (b)

      the relevant procedure in MAR 10.2.9R to MAR 10.2.10R.

3A trading venue operator may make the determination in MAR 10.2.6R where it is satisfied that the following criteria are met:

1. (1)

   a position held by a non-financial entity:

   1. (a)

      reduces the risks arising from the potential change in the value of assets, services, inputs, products, commodities or liabilities that the non-financial entity or its group owns, produces, manufactures, processes, provides, purchases, merchandises, leases, sells, or incurs or reasonably anticipates owning, producing, manufacturing, processing, providing, purchasing, merchandising, leasing, selling or incurring in the normal course of its business; or

   2. (b)

      qualifies as a hedging contract pursuant to UK-adopted IFRS; and

2. (2)

   the position held by the non-financial entity is capable of being unwound in an orderly way.

3When making a determination in accordance with MAR 10.2.6R, a trading venue operator must require a non-financial entity to submit to it at least the following information, at the time of its application and in relation to the following 12 months, which demonstrates how the position reduces risks directly relating to the non-financial entity’s commercial activity:

1. (1)

   a description of the nature and value of the non-financial entity’s commercial activities in the commodity underlying the commodity derivative for which an exemption is sought;

2. (2)

   a description of the nature and value of the non-financial entity’s activities in the trading of and positions held in the relevant commodity derivatives traded on trading venues and in related OTC contracts;

3. (3)

   a description of the nature and size of the exposures and risks in the commodity which the non-financial entity has or expects to have as a result of its commercial activities and which are or would be mitigated by the use of commodity derivatives; and

4. (4)

   an explanation of how the non-financial entity’s use of commodity derivatives directly reduces its exposure and risks in its commercial activities.

3A qualifying risk-reducing position taken on its own or in combination with other derivatives is one, for the purposes of MAR 10.2.6R, for which the non-financial entity:

1. (1)

   describes the following in its internal policies:

   1. (a)

      the types of commodity derivative contract included in the portfolios used to reduce risks directly relating to commercial activity and their eligibility criteria;

   2. (b)

      the link between the portfolio and the risks that the portfolio is mitigating; and

   3. (c)

      the measures adopted to ensure that the positions concerning those contracts serve no other purpose than covering risks directly related to the commercial activities of the non-financial entity, and that any position serving a different purpose can be clearly identified; and

2. (2)

   is able to provide a sufficiently disaggregated view of the portfolios in terms of class of commodity derivative, underlying commodity, time horizon and any other relevant factors.

3A trading venue operator must require a non-financial entity to notify it:

1. (1)

   promptly if there is a significant change to the nature or value of the non-financial entity’s commercial activities or its trading activities in commodity derivatives, and the change is relevant to the information required in MAR 10.2.9R;

2. (2)

   promptly of a breach of any condition relating to an exemption; and

3. (3)

   in any event, on an annual basis, of its intention to rely on the exemption or otherwise, and supplying any changes to the information previously submitted in accordance with MAR 10.2.9R.

3A trading venue operator must notify the FCA:

1. (1)

   promptly of an exemption granted to a non-financial entity in accordance with MAR 10.2.6R, including any conditions such as an exemption ceiling attached to the exemption; and

2. (2)

   on an annual basis of all exemptions from position limits, granted by it to non-financial entities, including:

   1. (a)

      any exemption ceilings;

   2. (b)

      positions that exceeded those exemption ceilings; and

   3. (c)

      steps taken to address resulting risks.

3A trading venue operator must review exemptions from position limits granted to non-financial entities:

1. (1)

   at least on an annual basis; and

2. (2)

   whenever it receives a notification as described in MAR 10.2.11R.

3A trading venue operator may determine that a financial entity’s position for the purposes of a position limit does not include a position it holds or one held on its behalf for the purposes of enabling a non-financial entity to benefit from the hedging exemption.

3A trading venue operator may determine that a financial entity’s (A’s) position for the purposes of a position limit does not include a position it holds or one held on its behalf when it:

1. (1)

   arises under a commodity derivative traded on a trading venue; and

2. (2)

   is entered into by A on a trading venue for the purpose of off-setting the risk arising from a contract with a non-financial entity (B) facilitating hedging activity by B.

3A trading venue operator may only make the determination with regard to MAR 10.2.15R when a financial entity has obtained written confirmation from a non-financial entity that the position entered into facilitates hedging activity.

3When making a determination in accordance with MAR 10.2.14R or MAR 10.2.15R, a trading venue operator must require a financial entity to submit to it at least the following information at the time of its application and where possible in relation to the following 12 months:

1. (1)

   a description of the financial entity’s risk-mitigation services in the commodity underlying the commodity derivative for which an exemption is applied; and

2. (2)

   a description of the financial entity’s trading activity and positions in commodity derivatives for which an exemption is applied, including in OTC commodity derivatives that relate to providing risk-mitigation services.

3A trading venue operator must require a financial entity to notify it:

1. (1)

   promptly if there is a significant change relevant to the information set out in MAR 10.2.18R; and

2. (2)

   on an annual basis of its intention to rely on the exemption or otherwise, and supplying any changes to the information previously submitted in accordance with MAR 10.2.18R, including information relating to the period for the next 12 months.

3A trading venue operator must notify the FCA:

1. (1)

   promptly of an exemption granted to a financial entity in accordance with MAR 10.2.14R or MAR 10.2.15R, including any conditions such as an exemption ceiling attached to the exemption; and

2. (2)

   on an annual basis of all exemptions from position limits granted by it to financial entities, including:

   1. (a)

      exemption ceilings;

   2. (b)

      positions that exceeded those exemption ceilings; and

   3. (c)

      steps taken to address resulting risks.

3A trading venue operator must review all exemptions from position limits granted to financial entities:

1. (1)

   at least on an annual basis; and

2. (2)

   whenever it receives a notification as described in MAR 10.2.19R(1).

3A trading venue operator may determine that a position limit does not apply to a position held by a person for a position that is objectively measurable as resulting from a transaction consistent with obligations to provide liquidity on a trading venue.

3A trading venue operator may make the determination in MAR 10.2.22R where:

1. (1)

   it receives an application from a person for these purposes;

2. (2)

   the obligations to provide liquidity are clearly defined and relate to observable metrics of market quality, including depth and tightness of the spread;

3. (3)

   the position arises from discharge of the person’s obligation as a liquidity provider; and

4. (4)

   the exemption is temporary in duration and the person reduces its position as soon as reasonably practicable prior to the expiry of the contract.

3A trading venue operator must ensure that an application for the purposes of MAR 10.2.22R provide as a minimum a description of the liquidity the applicant provides in respect of the commodity derivatives for which an exemption from a position limit is being requested.

3A trading venue operator must notify the FCA;

1. (1)

   promptly of an exemption granted to it in accordance with MAR 10.2.22R, including any conditions such as an exemption ceiling attached to the exemption; and

2. (2)

   on an annual basis of all exemptions from position limits granted by it to in accordance with MAR 10.2.22R, including:

   1. (a)

      any exemption ceilings;

   2. (b)

      positions that exceeded those exemption ceilings; and

   3. (c)

      steps taken to address resulting risks.

3A trading venue operator must:

1. (1)

   provide the FCA, upon request, with such information as the FCA may reasonably require to enable a fuller understanding of the basis for granting an exemption to which MAR 10.2 applies;

2. (2)

   store information in an easily retrievable way that is accessible for future reference by the FCA for the purposes of (1); and

3. (3)

   ensure that its systems can identify:

   1. (a)

      when an exemption under MAR 10.2 is being used in relation to a market participant’s position in a commodity derivative; and

   2. (b)

      which exemption is being used.

1. (1)

   3A trading venue operator may establish an exemption ceiling for the purposes of any of the exemptions in MAR 10.2 where to do so would mitigate the risk that large positions otherwise pose to the orderly pricing and settlement of a critical contract.

2. (2)

   A trading venue operator must explain in its rules how it will apply and determine an exemption ceiling, including how and when it may be amended.