MiFID 2 How Position Limits Affect Metal Trading Strategies

8/17/2019 MiFID 2 How Position Limits Affect Metal Trading Strategies

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MiFID 2: how

position limitsaffect metaltrading strategiesGlobal Mining & Metals

March 2016


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3 MiFID 2: how position limits affect metal trading strategies Global Mining & Metals

ContentsPosition limits: potential ramications 2

What could it mean? 3

How could this affect the forward curve? 4

How could this impact trading? 6

What next? 10


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1MiFID 2: how position limits affect metal trading strategies Global Mining & Metals

Executive summary

The Markets in Financial Instruments Directive 2 regulation

(MiFID 2) will represent a series of potential challenges for

both nancial and non-nancial entities engaged in commodity

derivatives upon its proposed1 introduction on 3 January 2018.

A key aspect of the regulation is the introduction of an ambitious

position limits regime that will apply across energy, metals,

agriculture, freight and related derivatives. If implemented as

proposed, this regime will dwarf any other in force globally.

Although precise rules have yet to be nalized by European

lawmakers, there is little analysis on how MiFID 2 position limits

may affect underlying revenues and trading strategies, beyond the

internal controls needed to comply.

This paper provides a brief introduction on how this may affect

trading and future physical ows. Focusing on metals trading, it

sketches out what this may mean for both affected non-nancial

rms (NFs) and existing MiFID-regulated entities that do not qualify

for exemptions under the regime.

Here are some salient points to consider:

► Only trades by NFs will be exempt from position limits if clearly

demonstrable as hedges within the normal course of business.

► A requirement to aggregate positions across entities, both

within and outside the European Economic Area (EEA), may

require signicant spend on IT.

► Less trading could subsequently reduce liquidity along theforward curve and increase bid-ask spreads.

► Limits may curtail speculative positioning and the ability to

capitalize on time, product or geographical arbitrages.

► Limits may indirectly impact warehousing, with possible knock-

on effects on nancing.

These points should not be considered complete or

certain to materialize, but they offer a starting point to

contemplate MiFID 2’s potential commercial impact from

position limits.

1 This paper does not consider the potential ramications from the United Kingdom’s referendum on continued EU membership in June 2016,

which may affect how MiFID I I is subsequently applied.


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Position limits: potentialramicationsThere are several attributes in relation to MiFID 2 position limits

that are likely to impact trading behavior. As more complete

guidance in the form of Level 3 text is still to be released by the

relevant regulatory authorities, these remain subject to change.

Potential challenges may be found where:

► Trading is restricted by position limits on cash

and physically settled contracts within the EEA.

This may impact:

► Contracts with different tenors: These restrictions will

see limits divided between front contracts (i.e., when

the next immediate contract reaches maturity) and all

other tenors.

► Use of nancial derivatives: While some netting may

be allowed, MiFID 2 does not permit netting nancial

derivative with non-MiFID instruments, potentially

disrupting trading strategies.

► Hedging commercial activities: Certain trading activities

may qualify for exemption if demonstrable as hedging in

line with European Market Infrastructure Regulation (EMIR)

principles.2 Only non-MiFID regulated entities will be eligible

to apply for exemption from position limits, potentially

excluding nancial entities with a legitimate interest in

hedging output, as an example.

► Use of exchange and over-the-counter (OTC) contracts:

Exchange and selected OTC contracts will be within scope

if either cash settled or physically settled for non-hedging

purposes.3 From a position limits perspective, this will only

include OTCs deemed “economically equivalent” (i.e., “EE

OTCs”) to exchange traded contracts,4 for the purpose of

aggregating and netting position limits.

► Position limits are aggregated among subsidiaries at thegroup level (see below diagram): Besides representing added

compliance costs, without careful structuring, this may affect

positions held by non-EEA subsidiaries settled within the EEA.

► The ultimate beneciary of any transaction must be made

known: Although only MiFID-regulated entities will have an

obligation to report their positions to the regulator on a regular

basis, the details of the ultimate beneciary will need to be

conveyed by the reporting party to the trade (e.g., bank).

In summary, position limits will apply to all in-scope instruments

traded in EEA markets, regardless of whether the entity is located

within the EEA or a so-called “third country.”

While rms with a legitimate and demonstrable interest in hedging

should qualify for exemptions (unless a MiFID-regulated entity),5

certain non-EEA NFs trading within the EEA may struggle to

demonstrate they would not be MiFID-regulated were they to be

based in the EEA from a hypothetical standpoint — with this being a

requirement for “third country” rms trading in EEA markets.

Aggregation and position limits: example

2 This includes trades qualifying for hedge accounting under IFRS.3 MiFID regulations, Annex 1, Section C denes the nancial instruments within scope — this is included in the appendix.4 Where similar contract specications exist, excluding post-trade settlement procedures, and whose economic outcome is “highly correlated” with a contract on a trading

venue. ESMA intend to narrowly dene this to guard against circumvention of position limits.5 Being “MiFID-regulated” brings a broad suite of onerous regulatory obligations for a rm and is distinct from the direct application of position limits, which apply to all rms

regardless of their MiFID status if they are trading in instruments subject to this regime.

Parent A

0 lots

Subsidiary B

+40 lots

Subsidiary C

+30 lots

Subsidiary D

–10 lots

Assumptions

► Group wide net position limit = 50 lots

► Each entity 100% owned by parent

Results

► No single entity in breach (


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What could this mean?

Operating costs

NFs may see costs rise to update IT infrastructure and wider

internal controls, for either companies registered within or

settling transactions through th6e EEA. This may concern:

► Accurately aggregating cross-group exposures across

subsidiaries, so traders understand their overall position limit

“headroom” for in-scope instruments

► Distinguishing and tracking trades designed to hedge

commercial risk exposure, which may prove exempt from

position limits

Guidance from the European Securities and Markets Authority

(ESMA) suggests risk-mitigating transactions among producers,

processors and end-users will be exempt from position limits.6 This

is subject to caveats while several issues remain unclear, including

the frequency such applications need to be made to the National

Competent Authority7 (NCA) should the underlying nature or

purpose of such transactions change or evolve.

However, it remains contingent on demonstrating a derivative

position is hedging such risk. This may prove difcult when appliedacross multiple geographies, subsidiaries, maturities, variations in

physical underlying and so forth. This also applies should hedging

be at the macro/portfolio level or anticipatory in nature. It is

expected most rms can make such a distinction to support such

an exemption, consistent with EMIR regulations.

In any event, a rm will need to account for trades made by

entities within its control, both within the EEA and those outside

that trade through an EEA-based exchange.8 It will be through

such disclosures that an NCA can then determine if a rm is

compliant with position limits in aggregate, imposing further

limits under certain exceptional circumstance should it be deemed

appropriate.

Both of these scenarios entail signicant complexity as operations

increase in scale. Quantifying these costs and the time needed

for implementation remain conditional on the idiosyncrasies of

each company’s IT architecture and the scope and breadth of its

trading activities.

Metals and minerals

MiFID 2 will impose position limits on any cash or physically settled

metal, coal or freight derivative traded through either a regulated

exchange, a Multilateral Trading Facility (MTF)9 or Organized

Trading Facility (OTF)10 within the EEA (Venues). This will also

apply to OTCs deemed economically equivalent.

London Metal Exchange-based (LME) contracts will be included,

as well as potentially computer-based platforms where bid-askvolumes are tendered (e.g., thermal coal; iron ore) should they be

EEA-based or settled. The latter depends to some extent on what

platforms are ultimately recognized as OTFs, something not yet

known. MiFID 2 position limits will not affect transactions by EEA-

based entities on other exchanges (e.g., CME, SHFE).

Other less liquid commodities (e.g., ferroalloys) may be less likely

to be affected should no exchange or platform exist to facilitate

trades (i.e., those executed entirely bilaterally).

Contracts for metal products such as concentrates or mattes

may not be captured by MiFID 2. Though such transactions may

reference prices on a relevant Venue and thus be consideredto be replicating the underlying, MiFID 2 is mindful of such OTC

contracts not being used to circumvent net position limits on

designated instruments. How this anti-avoidance measure is

applied by NCAs remains to be seen.

This may introduce a mismatch insofar as hedging price exposure

throughout the supply chain, unless these positions can be

demonstrated to correspond with hedging the underlying, and

thus be classied as such following the relevant guidance drawn

from EMIR, which includes under IFRS accounting.11

Insofar as wider implications from these regulations are

concerned, these can be classied under the following categories:

► Impact on the forward curve and price discovery

► Potential effects on trading

► Possible approaches within a post-MiFID 2 environment

6 Based on the “change in the value of assets, services, inputs, products, commodities or liabilities that the non-nancial entity or its group owns, produces, manufactures,

processes, provides, purchases, merchandises, leases, sells, or incurs … in the normal course of its business” (Article 7, 1(a), Chapter 6: commodity derivatives — RTS 20:

draft regulatory technical standards on criteria for establishing when an activity is to be considered to be ancillary to the main business,” EC).7 An example would be the Financial Conduct Authority for the United Kingdom.

8 Although only MiFID-regulated rms (e.g., banks) will be required to report their positions to the NCA (e.g., on behalf of an NF).9 Operated by an investment rm or entity which brings a series of buyers/sellers of nancial instrument(s) together, resulting in contract-based transactions.10 Neither a regulated market or MTF but that which brings multiple buyers/sellers together with interests in bonds, structured nance products, emission allowances, or

derivatives, resulting in contract-based transactions. Specic venues remain to be dened but extended to exchange traded derivatives as well as OTCs.11 But extended to exchange traded derivatives as well as OTCs.


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How could this affect theforward curve?Within commodities, MiFID 2 was ostensibly designed to limit

speculative activity, though both bid-ask spreads and overall

volatility may increase within forward curves to the potential

detriment of end users.

Implementing the required IT and business changes described

above and remaining compliant could prove costly, affecting

operating margins and protability. This may impact, to varying

degrees, all but the smallest of particpants. At one extreme,some may determine it remains unviable to continue trading

MiFID instruments on EEA markets.

Concurrently, position limits will be split between those deliverable

for a given front contract, with remaining maturities collectively

grouped into a separate category. This applies to each metal

contract rather than overall metal exposure.

The table below provides some initial context into current base

metal open interest volumes.

Base position limits for spot-month contracts are expected to be

around 25% of deliverable supply, which is assumed to reect

monthly volumes of available supply averaged over the preceding

12 months.12 These limits can be varied to between 5%–35% by the

relevant NCA to ensure orderly price settlement and liquidity while

guarding against any entity holding a dominant position.

For all other maturities, this is based on 25% of total open interest

across all maturities, subject to the same adjustment by therelevant authority. In the event rolling these maturities into spot-

month positions engenders any issue with delivery, then spot limits

may be tapered down until eventual maturity.

12 ”Reference to the average monthly amount of the underlying commodity available for delivery over the one-year period immediately preceding the determination,” Draft

RTS 21, Article 10; “Regulatory technical and implementing standards, MiFID II/MiFIR, 28 September 2015.”

Open interest (OI) across main base metal exchangesLME SHFE* CME Group

Total OI Lot size(tonnes)

Total metal(tonnes)


Total metal(tonnes)


Total metal(tonnes)

Total global

metal

(tonnes)

Aluminium 1,093,282 25 27,332,050 783,358 5 3,916,790 142 25 3,550 31,252,390

Copper 441,963 25 11,049,075 751,602 5 3,758,010 182,597 11 2,063,346 16,870,431

Zinc 421,771 25 10,554,275 433,706 5 2,168,530 24 25 600 12,713,405

Lead 181,469 25 4,536,725 29,806 5 149,030 – – – 4,685,755

Nickel 310,410 6 1,862,460 470,808 1 470,808 – – – 2,333,268

Tin 20,990 5 104,950 4,036 1 4,036 – – – 108,986

Note: data between 23–27 November 2015 and sourced from the respective exchanges.

*SHFE = Shanghai Futures Exchange


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This does not consider total daily volumes traded, which may serve

as a crude proxy for deliverable supply and can be signicant

relative to annual production levels. This is illustrated by Q3 2015

ows reported on the LME below:

Hypothetical illustration on impact to cash-and-carry trades

The impact on the forward curve will thus be contingent on

where these limits are set and how variable they prove over

time. Guidance has been provided for circumstances warranting

intervention,13 though an NCA will retain ultimate discretion.

Should limits be set toward the bottom end of their range, it may

impact efforts to improve price formation and liquidity beyond

three months.

Examples on how position limits may impact liquidity include an

existing cash-and-carry trade prior to maturity. This is where a

counterparty may be unable to enter into new positions despite

having neutral pricing exposure, potentially inhibiting trading, as

illustrated below.

With such constraints, this could lead to higher prices toward

the back-end of the curve to sufciently incentivize longer-dated

positions relative to foregoing any short-term optionality.

Equally within the front-month period, it does raise concerns

on whether liquidity may become “lumpy,” with responsiveness

curtailed to preserve exibility. This may exacerbate any price

swings and result in bid-ask spreads widening accordingly. It couldalso impact the cost of rolling over a position.

13 Section 7.3, “Final Report — ESMA’s Technical Advice to the Commission on MiFID II and MiFIR,” December 2014.

Q3 2015 daily LME volumes

YTDQ3 2015 daily LME volumes

Lots traded Lot size(tonnes)

Total metal(tonnes)

Aluminium 249,315 25 6,232,875

Copper 168,446 25 4,211,150

Zinc 119,369 25 2,984,225

Lead 53,088 25 1,327,200

Nickel 82,071 6 492,426

Others 9,261 N/A N/A

Buy 5tonnes

Buy 5tonnes

► One-month copper price:US$ 5,000/t

► 12-month copper price:US$7,000/t

► 11-month storage, interest andinsurance cost: US$500/t

► Position limit: 5 tonnes forfront delivery and all othermaturities, respectively

Trading strategy

► Buy front contract and sell

12 months

► Buy/sell 5 tonnes

► Prot = tonnes×margin

► ×(7,000–5,000–500) =US$7,500

Position limit

► Front contract: limit =5 tonnes = met

► Other maturities: limit =5 tonnes = met

► Spot copper price: US$4,500/t

► Nine-month copper price:US$6,750/t

► Nine-month storage, interestand insurance cost: US$400/t

► Position limits unchanged

Trading strategy

► Repeat strategy in time = 0

► Potential prot for 5 tonnes =US$9,250

Position limit capacity

pre-trade

► Front contract = 0 tonnes

► Other maturities = 5 tonnes

Position limit

► Front contract: limit =5 tonnes = met

► Other maturities: limit =10 tonnes = fail

Buy 5tonnes

Buy 5tonnes

Note: numbers are purely for illustrative purposes.

×

Source: HK Exchange nine-month results as of 30 September 2015.

At time = 0 months At time = 3 months later


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How could this impacttrading?We can broadly categorize potential impacts within three areas:

► Trading strategies

► Financing

► Risk management

Trading strategiesBy aiming to curtail speculation, these measures may constrainthe ability to act or anticipate market movements beyond given

position limits, if trading on an EEA-based Venue.

This may impact the earnings of marketing arms to varying

degrees, unless steps can be taken to avoid such limits (e.g.,

trading through Venues outside of the EEA). These earning losses

may be offset by trading upside from pricing volatility.

Further ramications are subject to conjecture and depend on

the denition of economic equivalency, whereby EE OTCs

can be netted off with contracts traded on recognized Venues.

While MiFID 2 recognizes EE OTCs as contracts with similar

characteristics to those on exchanges, it is clear on the need for

applying this in limited circumstances14 to prevent questionable

trades from circumventing position limits.

What follows will also be contingent on such transactions not

being considered as a hedge,15 which could vary across entity and

transaction structure. This is likely to be an area where an NCA will

need to provide further guidance on how such distinction is made,

given some of the permutations below.

It should be noted where trading is conned to non-MiFID

instruments only (e.g., intermediate metal products or other

OTCs that are not MiFID-regulated), then position limits will not

apply. Should other risks be manageable, ranging from pricing to

counterparty risk, this may encourage an increase in positionswithin other areas of the metal value chain.

Metal and mineral grades

Position limits could affect trades between grades of metals or

minerals, with mismatches between recognized MiFID instruments

and OTCs not deemed economically equivalent. An example

may concern the purchasing and blending of different coals to

capitalize on any price difference relative to a nished blend (see

diagram on page 7.) It should be noted this assumes API coal

contracts, including those physically settled, may be treated as

MiFID instruments,16 which may not apply to non-API coals.

It is uncertain whether these transactions can thus be netted

off within any position limit, representing a gray area where

further clarication is required. If not, it may create a potential

disadvantage unless these trades are undertaken and settled

outside the EEA.

14 Paragraph (6), p.405, RTS 21: draft regulatory technical standards on methodology for the calculation and the application of position limits for commodity derivativestraded on trading Venues and economically equivalent OTC contracts; Chapter 6: commodity derivatives, ESMA.

15 Note: hedging will only benet NFs (and not existing MiFID-regulated entities) toward offsetting any position limit.16 As such transactions may not qualify as being for “commercial purposes” given the arbitrage being acted upon, they may have regard to derivative instruments which are

cash-settled and cleared through recognized clearing houses.


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17 Insofar as supplier, form (e.g., cathode, briquette, ingot), specication, dimensions, etc.

This issue of asymmetric netting may also extend to OTCs based

on similar traded contracts, but with differences in product

specication17 or delivery arrangements relative to those on

Venues. This highlights where added guidance could help from

NCAs should subtle differences exist with an OTC otherwise

considered economically equivalent.

A hypothetical example would be non-LME-grade nickel cathode

contracts. Unless considered economically equivalent or a

hedge, should a sale be agreed with a customer, with price to bedetermined 30 days after delivery, and with a short LME nickel

contract taken to correspond with time of delivery (to lock in a

spread), it is likely only the LME contract would be recognized for

the purpose of position limits.

Geography

Position limits will not apply to non-EEA exchange contracts, which

may encourage traders to store metal in warehouses approved by

such exchanges (e.g., Shanghai Futures Exchange (SHFE)) where

these warrants can then be traded. It may also see non-exchange

storage continue to develop in the EEA, with sales subsequently

arranged bilaterally rather than through the transfer of exchange

warrants, to the detriment of volumes on Venues like the LME.

This is signicant, as it could diminish open interest on trading

Venues by which position limits are established, undermining

future liquidity. It may become self-fullling, with lower volumes

reducing the size of future position limits, pushing volumes away

from EEA Venues to preserve trading ows among NFs.

Illustration on mismatch between OTCs and MiFID instruments — coal blending

1. Customer 2. Spot coal prices 3. Blending 4. Economics

► Order placed to buy 10 tonnes ofAPI 5 5,500kcal coal

► 5,900kcal* = USUS$100/t

► 5,500kcal = USUS$80/t

► 5,100kcal* = US$50/t

► Buys 5t of 5,900kcal

► Buys 5t of 5,100kcal

► Blending=5,500kcal

► Sells 10t of API 5

► Buying coal costs: (5x100)+(5x50) = US$750 (US$75/t)

► Blending costs: US$10 (US$1/t)

► Sales price: US$800 (US$80/t)

► Prot = 800–760 = US$40

Note: Ignores freight cost and assumes other specication characteristics are identical for simplicity.* Non-API coal

Trading exposure vs. position limits

► Trading exposure: (5t 5,900kcal coal+5t 5,100kcal coal)–(10t 5,500kcal coal) = 0 net exposure

► Under MiFID 2: non-API coal may not be deemed economically equivalent = short 10t API 5 until settled

► May affect ability to enter into future trades between blends


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It may also limit trades that capitalize on spread differences

between exchanges, among both EEA and non-EEA entities,

should this involve using instruments covered by MiFID 2. An

example would concern copper trades between the LME and SHFE

aimed at capitalizing on any prevailing spread. In this case, SHFE

positions would not be included in any net position calculations.

This should not affect producers who can divert output to an

exchange offering a premium relative to its competitors. Althoughsubject to other variables (e.g., freight prices), if liquidity on EEA

exchanges is insufcient to absorb physical metal, this may make

non-EEA alternatives more attractive.18 EEA end users may then

need to offer additional premiums to secure supply of desirable

metal specications.

Volatility

An increase in price volatility is likely should the implementation

of MiFID 2 on commodity trading reduce overall trading liquidity.

Subject to bid/ask spreads remaining unchanged, this may benet

NFs trading within their position limits, with wider uctuations

within forward curves representing upside from tradingoptionality.

While NCAs will have sight of position limits at the end of each

trading day, Venues are expected to continuously monitor intra-

day movements to ensure NFs remain compliant. This will help

prevent excessive intraday positions being undertaken, while

reinforcing the need for suitable IT systems to determine trading

“headroom” prior to transacting.

Financing Access to trade nance is unlikely to be affected, regardless of

whether an entity’s operations fall under MiFID 2. Existing MiFIDregulations already apply to EU nancial institutions, which has

prompted a reduction in the availability of trade nance as banks

balance increased costs against return on equity requirements.

With Dodd-Frank affecting US lending capacity, both non-US and

non-EU banks are likely to have growing capacity (though varying

in appetite) to support such activities in future.

Financing warehousing warrants among trading rms should

also remain unaffected, unless these warrants are subsequently

used to settle futures contracts, which may count toward a

position limit. If so, depending on if such contracts are transacted

on- or off- exchange, and whether the latter are deemed

economically equivalent, they could affect physical ows and

nancing arrangements within the EEA.

If non-exchange warranted metal sold forward are deemed tobe economically equivalent to selling an LME warrant, then

storage locations should remain a function of prevailing nancing

terms available and other trading considerations (e.g., reducing

market visibility of stocks, proximity to customers). This is given

the parity of treatment with on-exchange contracts for position

limit purposes.

If not, then any outcome may be more mixed. On the one hand,

bypassing position limits may favor non-exchange based storage,

retaining trading exibility through direct sales to customers.

However, it is unclear if banks are prepared to nance such

inventories in the future on the same terms as those supervised by

recognized exchanges. This may change with LME Shield (detailsbelow) though could prove more expensive.

A separate, knock-on effect is whether such inventories could

continue to be treated as liquid assets for accounting purposes

among trading rms. On-exchange, all futures are cleared through

a clearing house, providing certainty over cash realization. Off-

exchange, it may prove difcult to justify inventories as readily

marketable, insofar as having a “buyer of last resort” available,

unless substantial market liquidity exists on Venues, while

volumes remain within position limits. This could affect future debt

covenant or credit rating treatment.

On the other hand, it could draw more volumes onto MiFID-

regulated exchanges to combat these issues. Such warrants

should help secure inventory nancing, though a downside would

be revealing such inventories to the market, which may affect the

forward curve and the value of other unhedged positions.

In practice, whether either materializes will still depend on

precisely where position limits are set and what instruments

are considered economically equivalent, but this highlights

how maintaining nancing and liquidity could potentially alter

such strategies.

18 This will also depend on a series of other factors besides price (e.g., exchange rate, warehousing rules, legal enforcement).


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Risk managementShould liquidity become constrained across the curve, and/or

bid-ask spreads increase, then value-at-risk models (or any other

stochastic “at risk” models) will need to be reassessed. With these

dependent on historical volatility to determine risk limits, the

implementation of MiFID 2 could represent a structural break with

past experience, potentially reducing the effectiveness of such

risk management tools without adjustment as the “new normal”is established.

If non-exchange warehousing becomes increasingly prominent,

then structuring agreements where risk can clearly be apportioned

between warehouse owner, lender and borrower will be important.

This surrounds title over any metal, while incorporating safeguards

to prevent multiple pledging of warrants. Though unlikely to be

problematic within the EEA, this could affect non-LME storage

strategies in emerging markets, with less rigorous inspection or

enforcement systems.

The latter may be assisted by LME Shield, which launched in pilot

form during December 2015. This is intended to provide a trackingsystem of non-LME stored metal. Though it is unclear how this will

be implemented in practice, it is unlikely to be any cheaper than if

stored within the LME’s network.


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What next?

The options available with regard to responding to position limits

can be divided broadly along three lines:

► Remaining active within EEA markets but complying with

MiFID 2 requirements

► Avoiding MiFID 2 position limits by diverting transactions

outside of the EEA

► Focusing trading strategies around non-MiFID instruments

For companies choosing to remain trading within EEA markets and

compliant with MiFID 2 position limits, solutions will depend on the

makeup of an entity’s operations.

Other themes that may arise from MiFID 2 position limits being

implemented include:

► How will this affect return on equity among trading houses, the

level of competition and underlying liquidity for commodities

among EEA-based trading Venues?

► Can price-neutral transactions still qualify as hedging should

OTCs not deemed to be economically equivalent be involved?

► Is sufcient trading liquidity present to divert transactions

outside of the EEA?

► Will this provide a basis for non-European exchanges

to continue expanding both their market share and

product offering?

► Will European trading venues seek to establish a separate,

physical platform based in Asia?

These questions are beyond this paper’s scope but reinforce how

MiFID 2 may signicantly alter the landscape around commodity

trading and ows of global physical metal in future.

ContributorsKarim Awad

Senior strategic analyst — Mining and

Metals, UKI

Tel: +44 20 7951 9474

Email: [email protected]

Shane Henley

Commodities Markets — Director, UKI

Tel: +44 20 7951 9501


For more information please contact:

Andrew Woosey

Commodities Markets — Partner, UKI

Tel: +44 20 7951 8117


Lee Downham

Metal and Mining Global Transaction Leader

Tel: +44 20 7951 2178



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Appendix: MiFIDnancial instrumentsThe below highlights those instruments recognized under the

MiFID directive, with (5), (6), (7) and (10) applicable to those

trading commodities:

► Transferable securities

► Money-market instruments

► Units in collective investment undertakings

► Options, futures, swaps, forward rate agreements and any

other derivative contracts relating to securities, currencies,

interest rates or yields, or other derivatives instruments,

nancial indices or nancial measures which may be settled

physically or in cash


other derivative contracts relating to commodities that must

be settled in cash or may be settled in cash at the option of one

of the parties (otherwise than by reason of a default or other

termination event)

► Options, futures, swaps, and any other derivative contract

relating to commodities that can be physically settled providedthat they are traded on a regulated market and/or an MTF

► Options, futures, swaps, forwards and any other derivative

contracts relating to commodities, that can be physically

settled not otherwise mentioned in C.6 and not being for

commercial purposes, which have the characteristics of other

derivative nancial instruments, having regard to whether,

inter alia, they are cleared and settled through recognized

clearing houses or are subject to regular margin calls

► Derivative instruments for the transfer of credit risk

► Financial contracts for differences


other derivative contracts relating to climatic variables, freight

rates, emission allowances or ination rates or other ofcial

economic statistics that must be settled in cash or may be

settled in cash at the option of one of the parties (otherwise

than by reason of a default or other termination event), as well

as any other derivative contracts relating to assets, rights,

obligations, indices and measures not otherwise mentioned in

this Section, which have the characteristics of other derivative

nancial instruments, having regard to whether, inter alia, they

are traded on a regulated market or an MTF, are cleared and

settled through recognized clearing houses or are subject to

regular margin calls


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Area contacts

Global Mining & Metals

Leader

Miguel Zweig

T: +55 11 2573 3363E: [email protected]

OceaniaScott Grimley

T: +61 3 9655 2509

E: [email protected]

China and MongoliaPeter Markey

T: +86 21 2228 2616


Japan Andrew Cowell

T: + 81 3 3503 3435


Africa Wickus Botha

T: +27 11 772 3386


Commonwealth of

Independent States Evgeni Khrustalev

T: +7 495 648 9624


France, Luxemburg,Maghreb, MENAChristian Mion

T: +33 1 46 93 65 47


IndiaAnjani Agrawal

T: +91 22 6192 0150


United Kingdom and

IrelandLee Downham

T: +44 20 7951 2178


United StatesAndy Miller

T: +1 314 290 1205


CanadaBruce Sprague

T: +1 604 891 8415


BrazilAfonso Sartorio

T: +55 11 2573 3074


ChileMaría Javiera Contreras

T: +562 2676 1492


Service line contacts

Global Advisory Leader

Paul Mitchell

T: +61 2 9248 5110


Global Assurance Leader

Alexei Ivanov

T: +7 495 228 3661


Global IFRS LeaderTracey Waring

T: +61 3 9288 8638


Global Tax Leader

Andy Miller

T: +1 314 290 1205


Global Transactions Leader

Lee Downham

T: +44 20 7951 2178


How EY’s Global Mining & Metals Network can

help your business

With a volatile outlook for mining and metals, the global mining and

metals sector is focused on margin and productivity improvements, while

poised for value-based growth opportunities as they arise. The sector also

faces the increased challenges of maintaining its social license to operate,

balancing its talent requirements, effectively managing its capital projects

and engaging with government around revenue expectations.

EY’s Global Mining & Metals Network is where people and ideas come

together to help mining and metals companies meet the issues of todayand anticipate those of tomorrow by developing solutions to meet these

challenges. It brings together a worldwide team of professionals to

help you succeed — a team with deep technical experience in providing

assurance, tax, transactions and advisory services to the mining and

metals sector. Ultimately it enables us to help you meet your goals and

compete more effectively.

Documents

MiFID 2 How Position Limits Affect Metal Trading Strategies