Calculation for MiFID exemption to be reconsidered

The data energy companies will crunch to calculate if they need to get a licence to operate similarly to banks or investment firms will change, a financial authority said.

Commodities companies including energy companies were expected to calculate whether they breach two threshold tests to gain an exemption from being captured by the updated Markets in Financial Instruments Directive (MiFID II) based on 2016 data. But with the directive coming into force on 3 January 2017, companies would have had three days to calculate if they breached the tests and gain a MiFID licence if necessary – a likely impossible task.

Speaking at a hearing in Paris late last week, Catherine Sutcliffe of the European Securities and Markets Authority (ESMA), the body writing the standards for the directive, said the authority will reconsider the calculation.

This could lead to a more sudden liquidity impact on power and gas wholesale markets than expected if, for example, the authority decided to use 2015 data. Such a move could see energy companies move more quickly to restructure their trading activities to avoid breaching the thresholds.

ESMA said it was too early to say what the new proposed calculation will be based on.

Energy companies such as utilities are worried that being captured by the directive will greatly increase their costs to the point where they could no longer operate or would have to greatly scale down their trading activity.

Companies must have capital employed that is less than 5% for MiFID activities and a trading position in volume that is less than 0.5% of EU power, carbon and gas markets if they wish to be exempt from the directive. If either threshold is breached the company will be captured in the directive.

The calculations do not include hedging, intra-group trades or any liquidity obligations.

ESMA is running a consultation on its draft standards until 2 March. Fionn O’Raghallaigh