Clock is ticking on MiFID II

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Time is running out for energy companies that have to work out if they will be included or exempted by upcoming financial rules that will make some of them operate like banks.

The European Commission in December published long-awaited rules on the two tests that energy firms will have to carry out to see if they are in or out. Being captured or not by the Markets in Financial Instruments Directive (MiFID II) when it comes into force on 3 January 2018 will make a significant difference to energy firms’ trading costs.

All sorted then? Not really. Uncertainty remains, as market participants still do not have the crucial data on which to base the calculations.

Companies will be able to get an exemption if they can demonstrate that their speculative activity is a minor part of their main business by passing both a market size and a main business test. In the first one, a company’s position in an asset class such as gas or power derivatives must be under a certain commodity-specific threshold when compared with total market size.

The European Commission only provided a vague timeframe for when the total market size figures will be available, and said they will come from the European Securities and Markets Authority (ESMA) “in 2017”.

On their part, ESMA said that publishing this data is a “substantial data collection and cleaning exercise in a relatively short timeframe”, and that it “may not possible to gather and publish the whole data set”.

But the clock is ticking. In the UK, for instance, companies will have until the start date of MiFID to send a notification of exemption, but they will have to apply for investment firm status by 3 July to be sure their application is processed in time.

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