Revocation of retained EU law Transitional amendments Amendments to the Markets in Financial Instruments Regulation (MiFIR) and the European Market Infrastructure Regulation (EMIR) 9. Simplifying the position limits regime
Commodity derivatives are derivatives whose value is derived from the price of an underlying commodity (for example, crude oil or metals).
	The MiFID II framework position limits regime restricts the maximum size of a net position that a person can hold in a commodity derivative contract that is traded on a trading venue, or in economically equivalent OTC contracts. Position limits were introduced with the objective of protecting against market volatility and preventing market abuse. They were intended to align with the G20’s 2011 commitment to give market regulators effective intervention powers to mitigate against market abuse in commodity derivatives markets.
	MiFID II also requires trading venues to establish and operate their own position management controls (for example, to monitor positions and require a person to terminate or reduce a position, if necessary, to ensure that markets function with integrity).
	Although the government supports the objective of position limits and remains signed up to the G20 commitment to promote fair and effective commodities markets, it is the government’s position that the scope of the current regime is disproportionate, duplicative, overly complicated, and unnecessarily prevents the build-up of liquidity.
	To simplify the regime and ensure that position limits apply to the correct contracts, the Act revokes the requirement for the FCA to apply position limits to all commodity derivative contracts that are traded on a trading venue and economically equivalent OTC contracts, and transfers responsibility for setting position limits from the FCA to trading venues.
	To ensure that appropriate regulatory oversight is maintained, the Act grants the FCA a power to develop a framework to outline how trading venues should apply position limits and position management controls. This will provide guidance on factors that venues should take account of when setting limits and granting exemptions, for example, under which conditions they should review the case for position limits in particular contracts. It also gives the FCA the ability to require trading venues to set position limits on contracts which pose a clear threat to market integrity, and the ability to intervene directly, where absolutely necessary.
	This approach is similar to the regime that was in place prior to the introduction of strict position limits in MiFID II. These changes will ensure a return to a model under which position limits are set more flexibly, as venues will have full visibility of all market positions and can respond accordingly. This is intended to enable liquidity to develop in these contracts, as well as making it easier for non-financial firms to find counterparties to accept the other side of hedging trades and therefore manage commercial risk. The changes will also ensure that protections which are necessary to protect market integrity can be kept in place, and that there will be a consistent approach to position limits governance across trading venues.