Commodity trading firms in the European Union must wait longer to see if they will be exempt from tougher rules after regulators and EU officials clashed over details of the so-called MiFID II reform.
It is the latest setback for the EU’s securities market reform, whose start date is already being pushed back a year to January 2018. Further disagreements over final details could make it harder for companies to get ready in time.
MiFID II includes rules for “ancillary services”, or exemptions for companies who don’t trade commodity derivatives as the main part of their business.
The bloc’s executive European Commission called in March for a more accommodative approach from regulators when deciding if an exemption from heavier capital requirements can be granted to a firm trading commodity derivatives.
A “business activity” test should be replaced with criteria looking at how much capital a company has invested in infrastructure, production or transportation operations for commodities, it said.
The EU’s markets watchdog ESMA has responded by saying the business-activity test was still valid.
A capital test was unlikely to ensure a level playing field for all market participants across different sectors, ESMA added in a statement. “A capital based test has significant drawbacks,” it said.
Nevertheless, the watchdog proposed metrics for a possible capital test as an alternative to the main business test, and left it to the European Commission to write a fully fledged capital test if it chose to do so.
“In the case where a capital test is introduced, ESMA proposes to allow entities choose between performing the original main business test based on trading activity or a capital test to avoid putting small and medium-sized entities at a disadvantage,” ESMA added.
With no revised rule to rubber stamp, the European Commission will likely meet the European Parliament and EU states to discuss the matter, which could take weeks to settle.
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