ESMA Opinion on position limits for EEX THE Gas contracts

2 June 2025
ESMA74-2124877886-17222
ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - 1 OPINION on position limits on EEX THE Gas contracts
I. Introduction and legal basis

1. Article 57(1) of Directive 2014/65/EU on markets in financial instruments (MiFID II) 1
   foresees that a commodity derivative other than an agricultural commodity derivative qualifies as a critical or significant commodity derivative when the size of the net open interest is at a minimum 300,000 lots on average over a one-year period. Critical or significant commodity derivatives are subject to position limits.
2. On 25 April 2025, the European Securities and Markets Authority (ESMA) considered that
   sufficient information was received to assess a notification received from the German Federal Financial Supervisory Authority (BaFin), under Article 57(5) of MiFID II. The notification is regarding the exact position limits BaFin intends to set for the EEX Trading Hub Europe (THE) Gas futures commodity contracts in accordance with the methodology for calculation established in Commission Delegated Regulation (EU) 2022/1302 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the application of position limits to commodity derivatives and procedures for applying for exemptions from position limits2 (“RTS 21a”) and taking into account the factors referred to in Article 57(3) of MiFID II.
3. ESMA’s competence to deliver an opinion is based on Article 57(5) of MiFID II. In
   accordance with Article 44(1) of Regulation (EU) 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) 3 (“ESMA Regulation"), the Board of Supervisors has adopted this opinion.
4. In this Opinion, ESMA is assessing whether the position limits BaFin intends to set for the
   EEX THE Gas futures commodity contracts comply with the methodology established in RTS 21a and are consistent with the objectives of Article 57 of MiFID II. 1 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU. 2 Commission Delegated Regulation (EU) 2022/1302 of 20 April 2022 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the application of position limits to commodity derivatives and procedures for applying for exemption from position limits. 3 Regulation (EU) 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC.

II. Contract classification
Commodity base product: energy (NRGY)
Commodity sub product: natural gas (NGAS)
Commodity further sub product: other (OTHR)
Name of trading venue: EUROPEAN ENEGERY EXCHANGE MIC: XEEE Venue product code : GoB
III. Market description by the competent authority
5. Natural gas is a hydrocarbon gas mixture consisting largely of methane and other
hydrocarbons, occurring naturally underground (often in association with petroleum). It is used as a source of energy for heating, cooking, electricity generation, fuel for vehicles and chemical feedstock in the manufacture of plastics and other organic chemicals.
6. The fundamentals of the gas markets are based on the supply and demand of gas in
Europe. On the supply side, the key drivers are the availability of gas production, transportation and storage (pipelines maintenance or outages). On the demand side, consumption is mainly driven by the weather (heating needs), by the production of power through natural gas and by industrial demand. The German wholesale market for natural gas is managed by Trading Hub Europe GmbH as the market area manager.
7. The German wholesale market for natural gas used to be split into two different but
overlapping transmission systems. In October 2021, the two former market areas merged into one single transmission system called THE. As a consequence, since 1 October 2021, there is only one future contract listed for the German market area.
8. The German gas market is one of the EU's most important markets, both in terms of size
and for its role as transit zone for neighboring countries. Furthermore, Germany holds the EU largest storage capacities. Gas fired power plants form the backbone of German power generation in times in which little or no energy can be generated with wind and solar power, because there is neither wind nor sunlight. Therefore, there is a strong correlation between gas prices and power prices in Germany.
9. Deliverable supply in Germany has been heavily impacted by the Russian invasion of
Ukraine. Whereas Russia was in 2021 Germany's most important supplier of natural gas with a percentage of 51% of overall supplies, this has since then declined to zero. The gap has been compensated by pipeline transmissions from Norway and by means of newly created floating LNG capacities. Privately owned Deutsche Regas operates one LNG

terminal and Deutsche Energy Terminal GmbH, established as a federally owned company, is currently running three LNG terminals with one more terminal to become operational in the course of 2025.
10. In 2022, when gas supplies in Germany were at risk of breakdown, the German ministry
of economics declared the “alert level” under Article 11(1)(b) of Regulation (EU) 2017/19384 . Since then, the situation has significantly improved as pipeline supplies from Norway and a new LNG infrastructure have replaced Russian imports. However, the alert level has not been rescinded yet.
11. The EEX THE futures contracts are for physical delivery through the transfer of rights
in respect of THE. Trading will cease, at the close of business, two business days prior to the first calendar day of the delivery month, quarter, season, or calendar. The latter maturities typically cascade into the shorter-term maturities. THE Future's price references to the End-of-Day spot settlement price on THE. The final settlement price is the settlement price determined on the last trading day of the respective Month Future.
12. The virtual trading point is operated by Trading Hub Europe. THE contracts are also
available on ICE Endex in Amsterdam but with a much lower open interest level. The trading unit is Euro/MWh and the contract volume unit is MW.
IV. Proposed limit and rationale by the competent authority
Spot month position limit
13. Deliverable supply amounts to 298,980,000 MWh.
14. Deliverable supply is expressed in megawatt hours (MWh) as the contracts available
for trading, and covered by this limit, have different lot sizes. Deliverable supply is calculated by adding Germany’s own gas production capacity, interconnectors and imports (including LNG), as well as gas storage for which the relevant withdrawal rate is taken into account.
15. As explained in the previous section, the 2022 Russia’s invasion of Ukraine has
changed the dynamics of the global gas supply as Russia, which was one of the main exporters of fossil fuels to the EU, has drastically reduced natural gas exports.
16. To capture the decrease of Russian supply of natural gas to the EU, for interconnectors
and imports, the calculation of deliverable supply is based on the physical flows observed over the 12-month reference period rather than on technical capacities. 4 Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010.

17. As regards interconnectors, the average volume of gas that has flown to Germany
    through pipelines over the reference period has been taken into account.
18. The deliverable supply was estimated based on the data provided by Eurostat, ENTSO￾G and GIE. It is composed of the following values and the time-period considered for the
    calculation is 1 December 2023 – 30 November 2024:

• Internal Production = 123 GWh/d5
• Storage facilities = 6,808 GWh/d6
• Interconnectors – entry pipeline from EU countries = 1,590 GWh/d7
• Imports of natural gas from non-EU countries = 1,243 GWh/d8 and imports of LNG = 202
  GWh/d).

19. The above sums to 9,966 GWh/d. Deliverable supply is expressed in MWh and
    calculated per month. Therefore, considering that one month is on average 720 hours (24hr x 30 days), the total deliverable supply in MWh is: (9,966/24)*1000) = 415,250 x 720 hours = 298,980,000 MWh. Spot month position limit
20. The spot month limit is set at 17,938,800 MWh, which represents 6% of the deliverable
    supply. This limit applies to EEX THE Natural Gas Futures.
    Spot month position limit rationale
21. In accordance with Article 11(1) of RTS 21a, the baseline for the spot month limit
    amounts to 25% of the deliverable supply. A standard range between 5% and 35% of the deliverable supply can be used for setting the spot month limit.
22. BaFin has considered the following factors relevant for adjusting the baseline
    downwards:
23. Article 18 of RTS 21a as the deliverable supply of physically delivered gas in the
    German delivery zone is also used as the deliverable supply for commodity derivatives traded at ICE Endex. 5 Source: https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nrg_cb_em&lang=en 6 Source: https://agsi.gie.eu/data-overview/DE 7 Source: https://transparency.entsog.eu/#/zones/data?from=2023-12-01&to=2024-11-30&zones= 8 Source: https://ec.europa.eu/eurostat/databrowser/view/nrg_ti_gasm__custom_15511502/default/table

• Article 21(2) and more specifically 21(2)(b) and 21(2)(e) of RTS 21a, to reflect
  bottlenecks in the gas transportation and delivery system in North-Western Europe which emerged after Russia’s weaponization of natural gas and the subsequent market volatility. A clear indicator for a still disrupted market is the fact that the declaration of the “alert level” is still applicable.
• Article 21(2) and more specifically Article 21(2)(c) of RTS 21a to reflect the structure,
  organisation and the operation of the market. This refers in particular to the volatility of the gas market, due to supply and demand dynamics, influenced by factors such as seasonality, storage and production levels.

24. All the other potential adjustment factors set out in RTS 21a have been considered by
    BaFin and were not regarded as material or relevant to require additional adjustments from the baseline.
25. Based on the considerations above, BaFin considered that it was appropriate to set the
    spot month limit at 6% of the deliverable supply, representing 17,938,800 MWh. Open interest
26. The daily average open interest average for the period 1 December 2023 – 30
    November 2024 for the THE Gas contracts is 279,235,000 MWh.
27. For the German THE natural gas market, the available contracts comprise solely
    futures referring to the future physical delivery of gas into the German THE transmission system.
28. The daily average open interest figures for the THE contracts are extracted from
    BaFin's daily position reporting system. The daily average open interest is calculated by adding the net open interest in each identified related contract that can be aggregated. The resulting figure is the daily net open interest of the relevant contract for the selected publication date. A daily overview of the contract open interest was made by repeating this process for each publication date from 1 December 2023 until 30 November 2024. Then an average was calculated resulting in the daily open interest figure based on a year, using the definitions as detailed in RTS 21a and the ESMA Questions and Answers on MiFID II and MiFIR commodity derivatives topics9 .
29. For a given trading day, EEX lists THE future contracts for the next 12 months, the next
    11 quarters, the next 11 seasons and the next 6 calendar years.
    9 In particular, please see the following ESMA Q&A: https://www.esma.europa.eu/publications-data/questions-answers/1276

Other months’ position limit
30. The other months’ limit is set at 53,054,650 MWh, which represents 19% of the overall open
interest. This limit applies to EEX THE Natural Gas Futures.
Other months’ position limit rationale
31. In accordance with Article 13(1) of RTS 21a, the baseline figure for the other months’
limit amounts to 25% of the open interest. A standard range between 5% and 35% of the open interest can be used for setting the other months’ limit.
32. BaFin has considered the following factors relevant for adjusting the baseline
downwards:

• Article 21(2) and more specifically 21(2)(b) and 21(2)(e) of RTS 21a, to reflect
  bottlenecks in the gas transportation and delivery system in North-Western Europe which emerged after Russia’s weaponization of natural gas and the subsequent market volatility. A clear indicator for a still disrupted market is the fact that the declaration of the “alert level” is still applicable.

33. All the other potential adjustment factors set out in RTS 21a have been considered by
    BaFin and were not regarded as material or relevant to require additional adjustments from the baseline.
34. Based on the above, BaFin considered that it was appropriate to set the other months’
    limit at 19% of the overall open interest, representing 53,054,650 MWh.
    V. ESMA’s assessment
35. This Opinion concerns positions held in EEX THE Natural Gas Futures.
36. ESMA has performed the assessment based on the information provided by BaFin.
37. For the purposes of this Opinion, ESMA has assessed the compatibility of the new
    position limits BaFin intends to set according to Article 57(4) of MiFID II with the objectives of
    Article 57(1) of MiFID II and with the methodology for calculation of position limits established
    in RTS 21a, in accordance with Article 57(3) of MiFID II.
38. The overall open interest in the THE Natural Gas contracts amounts to 279,235,000
    MWh which translates into 387,826 lots. In line with Article 57(1) of MiFID II, since the level of open interest exceeds 300,000 lots over a one-year period, the THE Natural Gas contracts qualify as critical or significant under Article 57(1) of MiFID II and are subject to position limits. The spot month and the other months’ limits can be set between 5% and 35% of the reference amount in accordance with Article 16 of RTS 21a.

Compatibility with the methodology for calculation of position limits established in RTS 21a in accordance with Article 57(3) of MiFID II
39. BaFin has set one position limit for the spot month and one position limit for the other
months.
Spot month position limit
40. The estimation of deliverable supply for natural gas is calculated by aggregating German
gas local production, the relevant imports and transmission from neighbouring countries, LNG imports and the average withdrawal rate from storage facilities. The figures used are provided by Eurostat, ENTSO-G and GIE. ESMA agrees with using data from those data-sources to calculate deliverable supply as these provide publicly available figures consistent at the European level.
41. Russia’s invasion of Ukraine has highly impacted EU energy markets and led to a
significant disruption of Russian natural gas supplies to the EU. In this context, ESMA considers it appropriate to take into account the average physical gas flows for imports and interconnectors observed over the last 12 months for the calculation of deliverable supply rather than relying on technical imports and on transmission capacities which may not reflect the changes in the gas market supply resulting from recent geopolitical developments. Position limit as % of Deliverable Supply Position limit as % of Open Interest 53,054,650 17,938,800 19% 6% 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 Other Months Limit Spot Month Limit Number of MWh Position Limits applying during the lifetime of a THE Natural Gas Contract

42. ESMA considers that the deliverable supply calculation’s methodology is consistent with
    Article 12(2) of RTS 21a that sets out that “Competent authorities shall determine the
    deliverable supply (…) by reference to the average monthly amount of the underlying commodity available for delivery based on the most recent available data covering: (a) a one year period immediately preceding the determination for a critical or significant commodity derivative; (…)”.

43. ESMA agrees that a downward adjustment to the baseline is justified under Article 18 of
    RTS 21a due to the fact that the deliverable supply is also used as deliverable supply for other commodity derivative contracts.

44. ESMA also considers that it is a reasonable approach to have further adjusted the spot
    month limit downwards to take into account existing constraints in the method of transportation and delivery of natural gas in accordance with Article 21(2)(b) as well as the macroeconomic or other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity, in accordance with Article 21(2)(e) of RTS 21a. In addition, ESMA also considers the additional downward adjustment to the baseline made in accordance with Article 21(2)(c) of RTS21a as justified to take into account the structure, organisation and the operation of the market. Other months’ position limits

45. The open interest has been calculated by BaFin extracting figures from its daily position
    reporting system. The daily average open interest has been calculated on a net basis adding the open interest in each identified related contract that can be aggregated. The daily average open interest has been calculated over a one-year period from 1 December 2023 until 30 November 2024. ESMA considers that such calculation of open interest by the competent authority provides the most accurate and reliable figure and promotes convergence in the setting of position limits. ESMA also considers such approach consistent with Article 14 of RTS 21a.

46. ESMA considers the downward adjustment made to the baseline as justified to reflect
    existing constraints in the method of transportation and delivery of natural gas in accordance with Article 21(2)(b) as well as the macroeconomic or other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity, in accordance with Article 21(2)(e) of RTS 21a. Compatibility with the objectives of Article 57(1) of MiFID II

47. ESMA has found no evidence indicating that the proposed position limits are not
    consistent with the objectives of preventing market abuse and supporting orderly pricing and settlement conditions established in Article 57(1) MiFID II.

48. Overall, the position limits set for the spot month and the other months appear to achieve
    a reasonable balance between the need to prevent market abuse and to ensure an orderly market and orderly settlement, while ensuring that the development of commercial activities in the underlying market and the liquidity of the THE Natural Gas contracts are not hampered.

49. Although the 2022 energy crisis has eased, largely due to reduced reliance on Russian
    gas and the diversification of supply sources by EU countries, ESMA notes that the geopolitical landscape remains uncertain. In addition, ESMA also notes that the figures provided by BaFin show that open interest on EEX has significantly increased over the last few months.

50. ESMA therefore invites BaFin to closely monitor developments in the THE Natural Gas
    contract and to assess on an-ongoing basis the relevance of the data underpinning the position limits. In case of any relevant changes in market fundamentals, including the calculation of deliverable supply or open interest, BaFin should notify ESMA of the revised position limits as soon as possible.
    VI. Conclusion

51. Based on all the considerations and analysis presented above, it is ESMA’s opinion that
    the spot month position limit complies with the methodology established in RTS 21a and is consistent with the objectives of Article 57 of MiFID II. The other months’ position limit also complies with the methodology established in RTS 21a and is consistent with the objectives of Article 57 of MiFID II. Done at Paris, 02 June 2025 Verena Ross Chair For the Board of Supervisors