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In its original letter, ESMA asked the EC to clarify the definition of a derivative or derivative contracts under the European Market Infrastructure Regulation (EMIR). ESMA’s letter warned that currently this definition is not harmonised across the EU which could have a detrimental effect on the consistent application of EMIR. The EMIR definition of derivatives cross-refers to the list of financial instruments mentioned in the current Markets in Financial Instruments Directive (MiFID).
In its response, the EC stated: “With regard to the definition of commodity forwards that can be physically settled, I can inform you that this issue was discussed during the MIFID II negotiations. The European Parliament and the Council agreed to empower the Commission to further specify in a delegated act the derivative contracts referred to in point (6) of Section C of Annex I to MIFID II that must be physically settled, taking into account specific wording included in recital 8b of MIFID II.“
The Commission also invited ESMA, as a part of its preparation for its advice to the Commission under MIFID II, for which they will receive a mandate before the summer, to assess the status of physically settled commodity forwards. In addition, and in order to ensure the common, uniform and consistent application of MIFID, ESMA should also consider issuing guidelines in accordance with Article 16 of Regulation (EU) 1095/2010.
Full ESMA-letter, 14.2.14
Full EC response, 26.2.14