"For ESMA, the most challenging task we face at the moment is obtaining and analysing the data needed to set the liquidity and transparency thresholds, because of two reasons:
These markets are currently not transparent and so the data available is necessarily limited and of varying quality
The vast scale and resource-intensive nature of the exercise
One of the elements that have attracted greater attention is transparency for bonds. Since transparency is linked to the notion of liquidity, which is not prevalent in European bond markets, the number of bonds that will be transparent is very small: less than 10%. ESMA proposed a classification of liquidity based on a “class of bonds” concept, built around issuance size. We are aware of the limitations this entails and the concerns it raises both in
the sell-and the buy-side and we are in the process of assessing which changes would be needed.
Our work in relation to commodity derivatives is another hive of activity. The EU is going into new, unchartered territory by implementing the most extensive position limits regime in the world. ESMA is mindful of the responsibility it has here to set a methodology which balances a unified approach with sufficient flexibility to avoid stifling markets, particularly illiquid ones, and new contracts. However, in the commodities world it is not just the instruments themselves which will be subject to new regulation.
Commodity firms will have to either curtail some of their ‘speculative’ trading activity or become authorised under MiFID II, since the exemptions they benefited from under MiFID I are substantially narrowed. Consequently, the ancillary activity exemption and the thresholds ESMA will set is the focus of interest. ESMA’s aim, in this regard, is to follow a principle of fairness: the exemption is intended to benefit commercial users and producers of commodities but to capture those firms which undertake pure financial trading that is not related to the hedging of their commercial operations. With that in mind, we will review the thresholds established in the Consultation Paper."
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