A position of responsibility

As the MiFID II implementation date draws closer, implications for US firms continue to emerge. One area raising questions in the listed derivatives space is around position reporting and commodity position limits. Under MiFID II, EU investment firms are required to submit position reports to the regulators. Position limits under MiFID II are applicable to a “person” which is, presumably, the end client.

However, in a recent Q & A that discussed position reporting, ESMA stated that while entity-by-entity reporting is encouraged, it recognized that an investment firm may not be able to disaggregate an end client’s positions, and there is no obligation for a non-investment firm to provide disaggregated positions. For a non-investment firm such as a US FCM with a client omnibus account at an EU broker, if the positions are reported at the aggregated omnibus level, and exceed a position limit, will it be considered a substantive position limit violation? What steps will an FCM need to take to avoid a regulatory problem if confronted with this scenario?

We can only wait for additional guidance from the regulators regarding the interplay between position limits and position reporting to clarify the scope of responsibilities for non-investment firms impacted by MiFID ll.

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