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Markets and Securities Services | Issue 46
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a position will count as “risk reducing” for these
purposes if (among other things) it qualifies as
a hedging contract under International Financial
Reporting Standards (IFRS).
Position reporting
The second limb of the position control
regime is position reporting, which imposes
reporting requirements on trading venues
and investment firms as “position holders”,
obliging them to make both daily and weekly
reports of their positions.
Investment firms and market operators
operating a trading venue must produce and
publish a weekly report showing the aggregate
positions held by different categories of persons
in the different commodity derivatives traded
on their trading venues, once certain thresholds
are exceeded. The report must be sent to the
competent authority and to ESMA, and ESMA
shall proceed to a “centralised publication”
of the information included in those reports.
There has been some sensitivity about the fact
that this is a public report, although it is an
aggregate report. So, in theory, it should not be
possible to find out a particular counterparty’s
position, although this might vary, depending
on the volume of trading.
The reports will be detailed, as they must specify
the number of long and short positions in
specified categories, changes since the previous
report, the percentage of the total open interest
represented by each category and the number of
persons holding a position in each category. ESMA
submitted to the Commission draft-implementing
technical standards (ITS 4 and ITS 5) to determine
the format of the reports on 11 December 2015.
These are yet to be finalised so it is not yet certain
what the final format of the report will be.
In addition to the weekly report, a private,
confidential report must be sent to the
competent authority “at least daily”, showing a
complete breakdown of the positions held by all
persons, including the members or participants
and the clients thereof, on that trading venue.
To ensure compliance with the position limits and
position management controls regime imposed
by Article 57, firms have to report to the trading
venue on “at least a daily basis” details of their
own positions in commodity derivatives and
economically equivalent OTC contracts and,
notably, “those of their clients and the clients
of those clients until the end client is reached”.
Finally, there are additional reporting
requirements for transactions that take place
outside a trading venue. Investment firms
must submit to the competent authority a
report ”at least daily” of trades undertaken
outside a trading venue, showing a complete
breakdown of their positions in commodity
derivatives traded on a trading venue as well
as economically equivalent OTC contracts.
Similar to the requirement to report to the
trading venue, the requirements apply to firms’
own positions as well as of those of “their
clients and the clients of those clients until the
end-client is reached”.
The position reporting requirements raise a
number of significant issues for asset managers,
notably the practical issues of obtaining
position information along the chain to the
“end-client” and the issues of data protection
and confidentiality. As yet, these have not
been fully resolved. In ESMA’s Final Report
and Draft ITS issued in December 2015, the
confidentiality issues raised by the market were
noted, although they were not addressed in the
ITS because the empowerment in the Level 1
text is limited in scope and does not extend to
confidentiality. ESMA intends further work in
this area and to provide additional guidance.
However, this has not yet been issued. So the
questions on how to obtain consents or waivers
of confidentiality, if they are available and
whether they can they be relied on, remain.
We may see more guidance from ESMA in this
important area in the autumn, which will be
welcome as firms will face a real challenge
obtaining information from end-clients on
positions when the firm and end-client could
be separated by several intermediaries.
Peter Chapman
Senior Associate
Clifford Chance LLP
Jeremy Elliot
Senior Professional Support Lawyer
Clifford Chance LLP