OPINION: Position limits - a question of balance

The UK’s financial markets will all receive a belated festive present on January 3, 2018, a Markets in Financial Instruments Directive II (MiFID II) parcel that, when the wrapping comes off, will contain new regulations and compliance measures.

One of these is position limits, which will restrict permissible holdings in a market’s instruments, commodities or derivatives. In other words, a ceiling on the size of a large market position that one party can hold. Regulation and compliance carries costs for financial firms but, in the wake of the 2008 financial crash, politicians around the world have tasked regulators to strengthen the increasingly interconnected global financial system. Rules and measures also need to be as uniform as possible to avoid ‘regulatory arbitrage’ windows. In the United States, the Dodd-Frank regulations cover 28 commodity contracts on position limits; but European regulators are planning on having limits for many more contracts. The UK’s Financial Conduct Authority (FCA) has estimated that positions on 1,900 commodity derivatives will need to be monitored from 2018. Accordingly, the FCA has come up with position limits for the UK; its proposals have been agreed by the London Metal Exchange...

Published

Martin Hayes

December 13, 2017

15:30 GMT

London