1. (1)

   The net position of a person in a commodity derivative shall be the aggregation of its positions held in that commodity derivative traded on a trading venue, and in economically equivalent OTC contracts pursuant to Article 6.

2. (2)

   Where a person holds both long and short positions in any of the commodity derivatives referred to in paragraph 1, the person shall net those positions to determine its net position for that commodity derivative.

3. (3)

   Positions held by a non-financial entity in commodity derivatives that are objectively measureable as reducing risks in accordance with Article 7, as approved by the competent authority pursuant to Article 8, shall not be aggregated for the purposes of determining the net position of that non-financial entity.

4. (4)

   A person shall determine separately the net position it holds in a commodity derivative for both the spot month contracts and the other months' contracts.

1. (1)

   A parent undertaking shall determine its net position by aggregating the following positions in accordance with Article 3:

   1. (a)

      its own net position;

   2. (b)

      the net positions of each of its subsidiary undertakings.

2. (2)

   By way of derogation to paragraph 1, the parent undertaking of a collective investment undertaking or, where the collective investment undertaking has appointed a management company, the parent undertaking of that management company shall 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.

An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements.

1. (1)

   A position held by a non-financial entity in commodity derivatives traded on trading venues or in economically equivalent OTC contracts pursuant to Article 6 qualifies as reducing risks directly relating to the commercial activities of that non-financial entity where by itself, or in combination with other derivatives in accordance with paragraph 2 ("position in a portfolio of commodity derivatives"), the position meets one of the following criteria:

   1. (a)

      it 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;

   2. (b)

      it qualifies as a hedging contract pursuant to UK-adopted IFRS.

2. (2)

   For the purposes of paragraph 1, a qualifying risk-reducing position taken on its own or in combination with other derivatives is one for which the non-financial entity or the person holding the position on behalf of that entity:

   1. (a)

      describes the following in its internal policies:

      1. (i)

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

      2. (ii)

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

      3. (iii)

         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;

   2. (b)

      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.

1. (1)

   A non-financial entity holding a qualifying position in a commodity derivative shall apply for the exemption referred to in regulation 17 of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017.

2. (2)

   The person referred to in paragraph 1 shall submit to the competent authority the following information which demonstrates how the position reduces risks directly relating to the non-financial entity's commercial activity:

   1. (a)

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

   2. (b)

      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 their economically equivalent OTC contracts;

   3. (c)

      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;

   4. (d)

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

3. (3)

   The competent authority shall approve or reject the application within 21 calendar days after it has received the application and shall notify the non-financial entity of its approval or rejection of the exemption.

4. (4)

   The non-financial entity shall notify the competent authority 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 set out in point (b) of paragraph 2 and shall submit a new application for the exemption if it intends to continue to use it.