From January 2018, all firms that conclude derivatives for commodities on their own account within the EU will be considered securities firms.
Do you intend to conclude derivatives transactions on raw materials or energy sources in the coming year, and would you like to be subject to regulation as a securities firm? If so, then all you need to do is wait. Because as a matter of principle, from January 2018, all firms that conclude derivatives for commodities or emissions certificates on their own account within the EU will be considered securities firms. This will require application for permission and compliance with the relevant rules, such as qualification of management, the supply of capital, organisational facilities and risk-management procedures or reporting to financial-market supervisory authorities.
Of course, you are also free to discontinue trading with commodities derivatives. Alternatively, you have until 3 January 2018 to present the supervisory authorities in every Member State in which you conclude commodities derivatives transactions with a showing that you are subject to an exception. This presentation must be renewed each year.
The prerequisite to this presentation is a demonstration that the conclusion of commodities derivatives is ancillary to their main activity. This proof must not be directly included with the presentation, however, but must be presented to the financial-market authorities upon demand. Because the requirements for claims of this ‘ancillary activity exemption’ are subject to certain rules and rooted in data from the previous three years, among other things, calculations should be performed as closely as possible to the date of submission of the presentation, and not only when the supervisory authorities request it.
You will find remarks on calculations for purposes of demonstrating ancillary activity in our Newsletter of 20 July of this year. With regard to presentation of the exception, FCA in the UK, and FMA in France, have since defined the process and the forms that must be completed. The disclosures comprise the company name, LEI, contact data and the statement claiming the ancillary activity exemption. The main effort required in this connection thus does not consist in completing the presentation but rather in documenting the proof that must be submitted upon request.
The proof compares the scope of speculative transactions with the scope of all transactions in a particular commodity class (oil, gas, etc.). All transactions are considered speculative that are not, like EMIR, demonstrably designed to reduce the risk of business operations or used to finance the enterprise. In those cases, in which, within the scope of the EMIR process, all of a corporate group’s derivatives are recorded and documented as risk-mitigating transactions, the proof for MiFID II will readily succeed, as the numerator in the threshold calculation will be equal to zero. If market-traded derivatives are added, however, that are exempted from the clearing obligation under EMIR, then the calculation for MiFID II must be extended to include these transactions.
As a result, for most corporates, exemption from an obligation to register as a securities firm does not represent a major hurdle or time-consuming exercise – but it must be taken care of in a timely fashion. If you also intend to enter into contracts for derivatives on commodities, energy sources or emissions certificates in the coming year, then you should note 3 January 2018 as an important date on your calendar.
Source: KPMG Corporate Treasury News, Edition 73, November 2017
Author: Prof. Dr. Christian Debus, Partner, Finance Advisory, firstname.lastname@example.org
© 2019 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative (“KPMG International”), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.