On September 29, the European Securities and Markets Authority (ESMA) published a consultation paper (ESMA/2014/1189) (Consultation Paper) concerning the adoption of guidelines clarifying the definitions of “derivative” and “derivative contract” under the current Markets in Financial Instruments Directive (2004/39/EC) (MiFID). The guidelines proposed by ESMA in the Consultation Paper are the result of different approaches having previously been taken by EU Member States in their implementation of MiFID, which has given rise to different interpretations between EU Member States as to what constitutes a derivative or derivative contract, with certain financial instruments being excluded by certain EU Member States. This is particularly the case regarding physically settled commodity forwards (Commodity Forwards), which are the focus of the Consultation Paper.

While previously noted as a concern, the practical implications of this lack of consistency in interpretation across EU Members States has become pertinent following the implementation of the European Markets Infrastructure Regulation (EMIR) which refers to the definitions of derivative and derivative contract contained in MiFID when considering whether and how the reporting, clearing and margin requirements in addition to other relevant obligations contained in EMIR are applied.  

ESMA considers it essential that EMIR is applied consistently across EU Member States and the purpose of the Consultation Paper is to produce guidelines that ensure a consistent approach concerning Commodity Forwards is universally included in its application in all EU Members States. This will allow a common approach across the European Union from the date these guidelines are effective until MIFID is superseded by the Markets in Financial Instruments Directive II (2014/65/EU) in 2017. 

Responses to the Consultation Paper must reach ESMA by January 5, 2015. All responses should be submitted online here.