UK’s Financial Conduct Authority: Statement About Broker-Operated Systems Trading Physically Settled Gas And Power Forwards

Physically settled gas and power forwards that are traded on multilateral trading facilities (MTFs) are ‘financial instruments’ for the purposes of MiFID[1], and ‘OTC derivatives’ or ‘OTC derivative contracts’ for the purposes of EMIR.[2]

There is currently no common view among market participants on the correct characterisation of trading taking place on broker-operated systems offering a market in these products. We are aware that greater clarity is necessary for market participants to consider the application of new regulatory obligations under EMIR.

We are in discussions with brokers offering a market in gas and power forwards about the appropriate classification of their systems. The brokers are currently reviewing the functionalities offered by their systems to ensure clear distinctions between the MTF and non-MTF services they provide.

This review and implementation of any changes must be finalised before 16 December 2013. By the end of this period, brokers must be able to satisfy the Financial Conduct Authority (FCA) that they have taken all necessary steps, including the implementation of any systems changes, to differentiate between their MTF and non-MTF services.

In light of this review, we will not expect market participants to characterise trading in gas and power forwards that takes place before 16 December 2013 in a way different to their existing interpretations.

[1] The Markets in Financial Instruments Directive (2004/39/EC)
[2] The Regulation on OTC derivatives, central counterparties and trade repositories (648/2012/EU)