S.L. 370.36 Art. 3Position limits in commodity derivatives and position management controls in commodity derivatives and derivatives of emission allowances.

(1) The competent authority shall, in line with the calculation methodology determined by ESMA in the regulatory technical standards adopted in accordance with Article 57(3) of

MiFID, set and apply limits on the size of a net position which a person can hold at all times in agricultural commodity derivatives and critical or significant commodity derivatives that are traded on trading venues, and in economically equivalent OTC contracts:

Provided that commodity derivatives shall be considered to be critical or significant where the sum of all net positions of end position holders constitutes the size of their open interest and is at a minimum of 300,000 lots on average over a one-year period.

(2) The limits referred to in sub-regulation (1) shall be set based on all positions held by a person and those held on his or her behalf at an aggregate group level in order to:

(a) prevent market abuse;

(b) support orderly pricing and settlement conditions, including preventing market distorting positions, and ensuring, in particular, convergence between prices of derivatives in the delivery month and spot prices for the underlying commodity, without prejudice to price discovery on the market for the underlying commodity.

(3) The position limits referred to in sub-regulation (1) shall not apply to:

(a) positions held by, or on behalf of, a non-financial entity, and which are objectively measurable as reducing risks directly relating to the commercial activity of that non-financial entity;

(b) positions held by, or on behalf of, a financial entity that is part of a predominantly commercial group and is acting on behalf of a non-financial entity of the S.L.370.36 DERIVATIVES AND REPORTING

predominantly commercial group, where those positions are objectively measurable as reducing risks directly relating to the commercial activity of that non-financial entity;

(c) positions held by financial and non-financial counterparties for positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as referred to in point (c) of the fourth sub-paragraph of Article 2(4) of MiFID;

(d) any other securities as referred to in point (c) of point 1 to the Second Schedule of the Investment Services Act which relate to a commodity or an underlying asset as referred to in point 10 of the Second Schedule to the Investment Services Act.

(4) Position limits shall specify clear quantitative thresholds for the maximum size of a position in a commodity derivative that persons can hold.

(5) The competent authority shall set position limits for critical or significant commodity derivatives and agricultural commodity derivatives that are traded on trading venues, based on the calculation methodology laid down in the regulatory technical standards adopted by the European Commission pursuant to Article 57(3) of MiFID. Such position limits shall include economically equivalent OTC contracts.

(6) The competent authority shall review the position limits referred to in sub-regulation (1) where there is a significant change on the market, including a significant change in deliverable supply or open interest, based on its determination of deliverable supply and open interest, and reset those position limits in accordance with the calculation methodology laid down in the regulatory technical standards adopted by the European Commission pursuant to Article 57(3) of MiFID.

(7) The competent authority shall notify ESMA of the exact position limits it intends to set in accordance with the methodology for calculation as established by ESMA in the regulatory technical standards issued for that purpose in accordance with Article 57(3) of MiFID.

(8) The competent authority shall modify the position limits in accordance with ESMA’s opinion or provide ESMA with justification why the change is considered to be unnecessary:

Provided that where the competent authority imposes limits contrary to an ESMA opinion, it shall immediately publish on its website a notice fully explaining its reasons for doing so. S.L.370.36 DERIVATIVES AND REPORTING [

(9) Where:

(i) agricultural commodity derivatives based on the same underlying product and sharing the same characteristics are traded in significant volumes on trading venues in more than one jurisdiction; or

(ii) critical or significant commodity derivatives based on the same underlying commodity and sharing the same characteristics are traded on trading venues in more than one jurisdiction; and the largest volume of trading takes place in Malta, the competent authority (as the central competent authority) shall set the single position limit to be applied on all trading in those derivatives. The competent authority shall consult the European regulatory authorities of other trading venues on which those agricultural commodity derivatives are traded in significant volumes or on which those critical or significant commodity derivatives are traded, on the single position limit to be applied and any revisions to that single position limit: Provided that where the competent authority and the European regulatory authorities of the other trading venues do not agree, they shall state in writing the full and detailed reasons why they consider that the requirements prescribed in sub-regulations (1) to (3) are not met. ESMA will settle any dispute arising from a disagreement between competent authorities in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010.

(10) Where:

(i) agricultural commodity derivatives based on the same underlying product and sharing the same characteristics are traded in significant volumes on trading venues in more than one jurisdiction; or

(ii) critical or significant commodity derivatives based on the same underlying commodity and sharing the same characteristics are traded on trading venues in more than one jurisdiction; and the largest volume of trading does not take place in Malta, and the competent authority disagrees with the setting of the single position limit by a European regulatory authority which qualifies as a central competent authority, it shall state in writing the full and detailed reasons why it considers that the requirements laid down in sub-regulation (1) to (3) are not met: Provided that ESMA shall settle any dispute arising from a disagreement between competent authorities in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. S.L.370.36 DERIVATIVES AND REPORTING

(11) Where the MFSA is the competent authority of the trading venues in the case of:

(i) agricultural commodity derivatives that are based on the same underlying product and that share the same characteristics are traded in significant volumes; or

(ii) critical or significant commodity derivatives that are based on the same underlying commodity and that share the same characteristics; are traded, it shall put in place cooperation agreements with the European regulatory authorities of the position holders in the derivatives mentioned in points

(i) or (ii), which shall include the exchange of relevant data, in order to enable the monitoring and enforcement of the single position limit.

(12) Where the MFSA is the competent authority of the position holders in:

(i) agricultural commodity derivatives that are based on the same underlying product and that share the same characteristics are traded in significant volumes; or

(ii) critical or significant commodity derivatives that are based on the same underlying commodity and that share the same characteristics;

which are traded on a trading venue, it shall put in place cooperation agreements with the European regulatory authorities of such trading venues where the derivatives mentioned in points (i) or (ii) are being traded, which shall include the exchange of relevant data, in order to enable the monitoring and enforcement of the single position limit.

(13) An investment firm or a market operator operating a trading venue which trades in commodity derivatives or derivatives of emission allowances shall apply position management controls, including powers for the trading venue to:

(a) monitor the open interest positions of persons;

(b) obtain information, including all relevant documentation, from persons about the size and purpose of a position or exposure entered into, information about beneficial or underlying owners, any concert arrangements, and any related assets or liabilities in the underlying market including, where appropriate, positions held in derivatives of emission allowances or positions held in commodity derivatives that are based on the same underlying and that share the same characteristics on S.L.370.36 DERIVATIVES AND REPORTING [ other trading venues and in economically equivalent OTC contracts through members and participants;

(c) request a person to terminate or reduce a position, on a temporary or permanent basis, and to unilaterally take action to ensure the termination or reduction of the position where the person does not comply with such request; and

(d) require a person to provide, on a temporary basis, liquidity back into the market at an agreed price and volume with the express intent of mitigating the effects of a large or dominant position.

(14) The position limits and position management controls shall be transparent and non-discriminatory, specifying how they apply to persons and taking account of the nature and composition of market participants and of the use they make of the contracts submitted to trading.

(15) The Maltese investment firm or market operator operating the trading venue shall inform the competent authority of the details of position management controls. The competent authority shall communicate the same information as well as the details of the position limits it has established to ESMA.

(16) The competent authority shall not impose limits which are more restrictive than those adopted pursuant to sub-regulations

(1) to (3) except in exceptional cases where they are objectively justified and proportionate taking into account the liquidity of the specific market and the orderly functioning of that market.

(17) The competent authority shall publish on its website the details of the more restrictive position limits it decides to impose in accordance with sub-regulation (18), which shall be valid for an initial period not exceeding six months from the date of their publication on the website. The more restrictive position limits may be renewed for further periods not exceeding six months at a time if the grounds for the restriction continue to be applicable. If not renewed after that six-month period, they shall automatically expire.

(18) Where the competent authority decides to impose more restrictive position limits, it shall notify ESMA. The notification shall include a justification for the more restrictive position limits:

Provided that where the competent authority imposes limits contrary to an ESMA opinion, it shall immediately publish on its website a notice fully explaining its reasons for doing so.

(19) The competent authority shall impose administrative penalties and other administrative measures in terms of regulation 7 for the infringements of position limits set in accordance with this regulation to: S.L.370.36 DERIVATIVES AND REPORTING

(a) positions held by persons situated or operating in Malta or abroad which exceed the limits on commodity derivative contracts the competent authority has set in relation to contracts on trading venues situated or operating in Malta or economically equivalent OTC contracts;

(b) positions held by persons situated or operating in Malta which exceed the limits on commodity derivative contracts set by European competent authorities in other Member States or EEA States.

(20) Notwithstanding the provisions of any other law, the provisions of this regulation shall also apply to persons as referred to in regulation 3(1) (a), (d), (f), (g), (m), (p), (r) and (aa) to (ee) of the Investment Services Act (Exemption) Regulations that are exempt from the licensing requirement established under article 3 of the . Investment Services Act in accordance with the said regulation