Activity

The UK’s Financial Conduct Authority (FCA) is set to implement significant changes to the regulation of commodity derivatives, a move that will further differentiate the UK’s approach from that of Europe, according to Carolyn Jackson, a partner at Katten. These changes, detailed in a policy statement issued in February 2025, are scheduled to come into effect in July 2026.
Key Changes to Position Limits:
From July 6, 2026, the responsibility for setting commodity derivative position limits will shift from the FCA to trading venues, such as exchanges. This diverges from the European model, where national regulators, with some coordination by the European Securities and Markets Authority (ESMA), are responsible for these limits.
Firms with existing position limit exemptions are required to re-apply to the relevant UK trading venues before their current exemptions expire on July 5, 2026. The period for these re-applications commenced on March 3, 2025.
Ancillary Activities Exemption (AAE):
Jackson also noted the FCA’s decision not to move towards a more guidance-based approach for the ancillary activities exemption (AAE). Despite earlier suggestions, the FCA has opted to retain the quantitative tests under the EU’s RTS 20. This leaves the UK somewhat behind the EU in AAE reforms, as the EU has introduced a de minimis €3 billion (£2.6 billion) threshold, replacing the market share test previously dictated by RTS 20.
Jackson believes this is a temporary stance, as the FCA seeks assurance from market participants that a qualitative, less prescriptive model for AAE regulation can provide the necessary legal certainty. The length of any further delay in AAE changes will depend on when the FCA gains this confidence from the market.
Continued Divergence Between UK and EU:
Overall, Jackson anticipates continued divergence between the UK and EU regulatory regimes for commodity derivatives. This is not necessarily driven by a desire for competitive advantage, but rather by the subtle differences in their respective markets and market participants.
Market Activity (May 2025 Data):
* ICE Futures Europe (London): Traded 17.3 million lots of commodity futures and options, a 13% increase from May 2024.
* London Metal Exchange (LME): Traded 16.2 million lots, a decrease of 12.8% compared to May 2024.
* European Energy Exchange (Germany): Reported 6 million lots of power and gas contracts, up 13.2% from May 2024.
* ICE Endex (Netherlands): Traded 5.6 million lots, a 1.3% increase from May 2024.
* Euronext: Traded 1.95 million lots of its main European wheat contract, a 15.3% decrease from May 2024.

Video courtesy of Interactive Brokers.

Video courtesy of Interactive Brokers.