On May 7, the European Securities and Markets Authority (ESMA) issued final guidelines (Guidelines) clarifying the definition of physically settled commodity derivatives under the Markets in Financial Instruments Directive (MiFID) I. Because MiFID I is a directive and not a regulation, the definition of derivative, which includes physically settled commodity derivatives, has not been uniformly adopted by each of the national competent authorities. These national discrepancies have complicated a uniform application of the European Market Infrastructure Regulation (EMIR) because EMIR, in turn, defines a derivative in reference to the definition under MiFID. Without a single definition of “derivative”, EMIR, a regulation, cannot be implemented uniformly across the European Union. ESMA issued the Guidelines as a bridge measure until the European Commission issues its delegated acts in relation to the definition of derivatives under MiFID. II.

The Guidelines clarify the definition of derivative by specifying what is meant by “physically settled,” and that physically settled commodity forwards traded on a regulated market or a multilateral trading facility are included in the MiFID I definition. The Guidelines also clarify that the exemption applicable to physically settled commodity derivatives entered into for commercial purposes only applies to a limited number of energy transactions.

A copy of the Guidelines can be found here.