MAR 10.3 Position management controls

2A UK market operator is subject to MAR 10.3.3R as if it were a UK firm operating a multilateral trading facility or an OTF and references to an MTF are to a regulated market or an MTF that it operates.

1. (1)

   This rule applies to a UK firm operating a multilateral trading facility or an OTF and a UK branch of a third country investment firm operating a multilateral trading facility or an OTF.

2. (2)

   A firm must apply position management controls which enable an MTF or OTF at least to:

   1. (a)

      monitor the open interest positions of persons;

   2. (b)

      access information, including all relevant documentation, from persons about:

      1. (i)

         the size and purpose of a position or exposure entered into;

      2. (ii)

         any beneficial or underlying owners;

      3. (iii)

         any concert arrangements; and

      4. (iv)

         any related assets or liabilities in the underlying market;

   3. (c)

      require a person to terminate or reduce a position on a temporary or permanent basis and unilaterally to take appropriate action to ensure the termination or reduction if the person does not comply; and

   4. (d)

      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 and dominant position.

3. (3)

   The position management controls in paragraph (2) must take account of the nature and composition of market participants and of the use they make of the contracts admitted to trading and must:

   1. (a)

      be transparent;

   2. (b)

      be non-discriminatory; and

   3. (c)

      specify how the controls apply to persons.

4. (4)

   A firm must inform the FCA of the details of the position management controls in relation to each MTF or OTF it operates which trades commodity derivatives.

2A trading venue operator must apply additional position management controls in relation to the critical contracts and related contracts traded on its systems:

1. (1)

   ensuring the effective and timely identification of substantial positions, including positions subject to an exemption referred to in MAR 10.2; and

2. (2)

   taking steps to manage excessive positions or positions which impair orderly pricing and settlement conditions, including reducing or terminating these where a person fails to comply with a request to manage their positions further to exceeding an accountability threshold, exemption ceiling or otherwise.

1. (1)

   2A trading venue operator must apply MAR 10.3.3CR to spot month contacts traded on its systems.

2. (2)

   A trading venue operator must consider whether it is necessary to apply MAR 10.3.3CR to other months’ contracts traded on its systems in order to maintain an orderly market.

1. (1)

   2A trading venue operator must set accountability thresholds below position limits enabling early identification of substantial positions and risk of breaching a position limit.

2. (2)

   A trading venue operator must ensure that its accountability thresholds are adequate, transparent, non-discriminatory, clear and accessible to market participants, at all times. It must also specify how the controls apply to persons.

3. (3)

   A trading venue operator must keep the adequacy of its accountability thresholds under review on a regular basis and notify the FCA promptly of these reviews, including:

   1. (a)

      whenever there is a significant change to either the position limit or one or more of the factors in MAR 10.3.3ER; and

   2. (b)

      at least on an annual basis.

4. (4)

   A trading venue operator must explain when notifying the FCA in accordance with (3):

   1. (a)

      how it had regard to the factors in MAR 10.3.3ER; and

   2. (b)

      the relationship between the accountability threshold and corresponding position limit.

5. (5)

   A trading venue operator, for the purposes of its annual notification under (3)(b), must inform the FCA of:

   1. (a)

      how many times an accountability threshold has been exceeded, including the duration of each occurrence;

   2. (b)

      the identity of the market participant; and

   3. (c)

      the steps then taken by the trading venue operator to address the risks identified.

6. (6)

   A trading venue operator must in respect of critical contracts traded on a trading venue it operates:

   1. (a)

      identify the related contracts; and

   2. (b)

      notify the FCA promptly of the details of the contracts in paragraph (a).

2A trading venue operator, when setting accountability thresholds, must establish a methodology that has regard at least to:

1. (1)

   the level of the position limit and the factors determining the position limit;

2. (2)

   the need to ensure increasing positions can be investigated before risks crystallise;

3. (3)

   whether the volume and any required remedial action of accountability threshold excesses indicates that the control is effective in providing early warning of prospective position limit breaches and enabling action; and

4. (4)

   market concentration and concentrated trading activity.

2A trading venue operator, when setting accountability thresholds, may exclude positions, to which an exemption in MAR 10.2 applies, where an exemption ceiling is in place.

1. (1)

   2A trading venue operator must develop a risk assessment framework to enable it to discharge its obligations under MAR 10.3.3AR and to determine the need for additional reporting.

2. (2)

   The risk assessment framework must have regard at least to:

   1. (a)

      exemptions determined in accordance with MAR 10.2, including any conditions attaching to exemptions in the form of exemption ceilings or otherwise;

   2. (b)

      accountability thresholds;

   3. (c)

      whether a person otherwise holds a concentrated position in the physical or commodity derivatives markets which presents a material risk to the functioning of a commodity derivatives market, including the risk of market abuse and to orderly pricing and settlement conditions;

   4. (d)

      the price and liquidity of and other relationships between:

      1. (i)

         critical contracts; and

      2. (ii)

         related OTC contracts or related overseas commodity derivative contracts; and

   5. (e)

      the relevance of (d) to the position management of critical contracts traded on a trading venue it operates.

1. (1)

   2A trading venue operator must have the power to require additional reporting to it by a member or participant (A) acting on its behalf or on behalf of a client (B) to enable it to discharge its obligation under (2).

2. (2)

   A trading venue operator must obtain additional information from A or B as it determines necessary to ensure the proper monitoring of risks to its markets and to protect orderly pricing and settlement conditions in relation to the critical contracts or related contracts traded on its systems.

3. (3)

   In discharging its obligations under (2), a trading venue operator must consider whether to require additional reporting in relation to OTC positions.

4. (4)

   For the purposes of (3), a trading venue operator may consider the size of the relevant OTC derivatives market, the potential impact that market may have on the orderly functioning of the relevant market for the critical contract traded on its systems and the position management controls it operates.

5. (5)

   A trading venue operator must notify the FCA promptly when and how it decides to exercise its power to require additional reporting.

1. (1)

   2A trading venue operator may require that additional information relating to the price or delivery of a critical contract or related contract form part of additional reporting when MAR 10.3.3HR applies, including at least related OTC contracts positions, and also where relevant:

   1. (a)

      related overseas commodity derivative contracts positions;

   2. (b)

      trades in the underlying commodity of the critical contract;

   3. (c)

      trades used to settle commodity futures, including prices published by price reporting agencies; and

   4. (d)

      inventories, storage and infrastructure integrity at locations where deliveries are made.

2. (2)

   A trading venue operator may seek information about inventory, storage and infrastructure integrity from other data sources in addition to the position holder subject to additional reporting imposed further to MAR 10.3.3HR.

3. (3)

   A trading venue operator must inform its members, participants or clients of related OTC contracts and, where relevant, related overseas commodity derivative contracts to which additional reporting applies and the form and frequency of that reporting.

1. (1)

   2A trading venue operator must use the information referred to in MAR 10.3 and the reported information in MAR 10.4 to perform market risk analysis.

2. (2)

   The market risk analysis must include at least:

   1. (a)

      an identification of risks arising from the underlying physical commodity, related OTC contracts and related overseas commodity derivative contracts markets in relation to their impact on critical contracts and related contracts traded on a trading venue it operates; and

   2. (b)

      how those risks are being managed by the trading venue operator.

3. (3)

   A trading venue operator must:

   1. (a)

      make available its market risk analysis to the FCA on a regular basis and, upon request, data underlying the analysis; and

   2. (b)

      store information in an easily retrievable way that is accessible for future reference by the FCA for the purposes of (3)(a).

4. (4)

   A trading venue operator must make available its market risk analysis to the FCA:

   1. (a)

      whenever there is a significant change in market risk, having regard to size or concentration of positions, settlement or delivery and underlying commodity markets; and

   2. (b)

      at least on an annual basis.

2When additional reporting applies, a trading venue operator may consider the following factors as part of its monitoring and oversight:

1. (1)

   historic and anticipated position sizes and risk management capabilities of the individual markets or participants;

2. (2)

   the extent and quality of the individual member or participant’s engagement with the trading venue operator and response to its inquiries;

3. (3)

   where a contract is physically deliverable, the complexity of the delivery process and a position holder’s expertise in taking delivery of the underlying commodity; and

4. (4)

   how an individual member or participant’s positions compare with other position holders.

2A trading venue operator must notify the FCA prior to implementation of each of the following and their subsequent modification:

1. (1)

   the risk assessment framework, additional reporting and market risk analysis;

2. (2)

   accountability thresholds;

3. (3)

   governance arrangements to be followed for adoption and continuing review of position limit setting, the risk assessment framework, accountability thresholds and market risk analysis, including allocation of senior management responsibility, policies for managing conflicts, systems and controls, and board oversight;

4. (4)

   the methodology for and setting of position limits and accountability thresholds, including the identification of related contracts and positions not eligible for netting;

5. (5)

   the list of related contracts, related OTC contracts and, where relevant, related overseas commodity derivative contracts;

6. (6)

   policies and procedures relating to:

   1. (a)

      the granting of exemptions in MAR 10.2, including the approach to the setting of exemption ceilings; and

   2. (b)

      position limit breaches, including resolution and access to enforcement tools; and

7. (7)

   arrangements for the sharing of information with relevant CCPs.

2A trading venue operator (A) must exercise reasonable endeavours to identify and determine:

1. (1)

   any related OTC derivative; or

2. (2)

   any commodity derivative traded on an overseas trading venue:

   1. (a)

      which provides a comparable economic exposure to a critical contract or related contract traded on a trading venue A operates, including where its underlying has the same commodity for delivery at a location specified in the critical contract; or

   2. (b)

      the settlement price of which is linked to or capable of materially influencing the settlement price of a critical contract or related contract traded on a trading venue A operates.