A calmer approach to position limits

As we edge ever-closer to MiFID II implementation, the position limits debate is once again underway in Europe. Under the new rules the UK regulator is required to impose position limits on all commodity derivatives listed on UK trading venues. In its Consultation Paper the FCA states: “The aim of the new regime governing commodity derivatives trading in MiFID II is to prevent market abuse and support orderly pricing and settlement to the benefit of those using the market.”

Some years ago, when the CFTC was looking at the same issue, memories of the financial crisis and the associated food and energy price spikes were still fresh in everyone’s minds. Hardly surprising, then, that the push for position limits was very much driven by a ‘peasants with pitchforks’ mentality, albeit ultimately diluted by commodity trading firms pushing back. It’s pleasing to see that the FCA appears to be taking a less impassioned approach by advocating for the firms themselves instead of individual consumers, recognising that “most users of these markets are financial services firms and those involved in the extraction, production, distribution, consumption and trading of the underlying commodities rather than individuals.” [p.17]

Let’s hope these good intentions don’t get distorted as the rule-making process trundles on.