ESMA Opinion on position limits for RAPESEED contracts

3 May 2023
ESMA70-155-13070
ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - 1 OPINION on position limits on RAPESEED contract
I. Introduction and legal basis

On 28 March 2023, the European Securities and Markets Authority (“ESMA”) considered
that sufficient information was received to assess a notification received from the Autorité des Marches Financiers (AMF) under Article 57(5) of Directive 2014/65/EU on markets in financial instruments1 (“MiFID II”).
The notification relates to the exact position limits the AMF intends to set for the rapeseed
commodity derivative contracts in accordance with the methodology for calculation established in Commission Delegated Regulation (EU) 2022/13102 (“RTS 21a”) and taking into account the factors referred to in Article 57(3) of MiFID II.
ESMA’s competence to deliver an opinion on the position limits that competent authorities
intend to set is based on Article 57(5) of MiFID II.
On 10 August 2017, ESMA already issued an Opinion regarding the exact position limits
that the AMF intended to set for the RAPESEED commodity contracts. For the spot month, the position limits considered by the AMF in June 2017 were 25,000 lots at the start of the spot month and 7,000 lots over the last twelve trading session before expiry of the contract. For the other months’, the position limits considered were 25,000 lots for the twenty-one days before the expiry of the spot month and 20,000 over the rest of the other months’ period. In the opinion, ESMA concluded that the position limits considered by the AMF complied with the methodology established in Commission Delegated Regulation (EU) No 2017/5913 (RTS 21) and were consistent with the objectives of Article 57 of MiFID II.
The AFM reviewed these limits in light of the change in methodology for calculating position
limits following the entry into force of RTS 21a. As a consequence, in this opinion, ESMA is assessing whether the new position limits the AMF intends to set for the RAPESEED contracts comply with the methodology established in RTS 21a and are consistent with the objectives of Article 57 of MiFID II. ESMA understands that the new position limits will apply one month after the publication of this opinion and replace the previous position limits as determined by the AFM. 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 (OJ L 173, 12.6.2014, p. 349). 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 (OJ L 197, 26.07.2022, p.52) 3 Commission Delegated Regulation (EU) 2017/591 of 1.12.2016 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 commodity derivatives (OJ L 87, 31.3.2017, p. 479).
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) (“ESMA Regulation"), the Board of Supervisors has adopted this opinion.
II. Contract classification
Commodity base product: agricultural (AGRI)
Commodity sub product: grains and oil seeds (GROS) Commodity further sub product: rapeseed (RPSD) Name of trading venue: EURONEXT PARIS MATIF MIC: XMAT Venue product code(s): ECO, OCO
III. Market description by the competent authority
The MATIF rapeseed contract (also known as Euronext Rapeseed or European Rapeseed)
refers to rapeseed from any origin that can be delivered in Europe.
Over the last 5 years, rapeseed production in the European Union has averaged 18 million
metric tons per year, with France, Germany and Poland as the main producers (almost 70% of total EU production together). The Euronext rapeseed contract is considered as the benchmark for the European underlying physical market in rapeseed. Europe is a net importer and only exports rapeseed for an amount equivalent to less than 2% of deliverable supply.
100% of the European production is considered as respecting the minimum requirements
of the Euronext rapeseed contract, which are oil rate (40% minimum), moisture rate (9%) and impurities (2%). The underlying is delivered only in maritime delivery points (FOB incoterm) in 3 ports in France (Belleville, Mets and Frouard on the Moselle), in 4 ports in Germany (Bulstringen, Vahldorf and Magdeburg on the Mittellandkanal and Wuerzburg on the Main) and in one port in Belgium (Ghent on the Escaut).
In terms of market evolution, since 2021 the price of rapeseed has started to follow an
upward trend. Before that, the price was evolving between €300/mt and €550/mt with an average price of €375/mt. Russia’s invasion of Ukraine caused the price to sharply increase to a peak around €1,100/mt in April 2022 (+130% since mid-2021). However, since midMay 2022, the price of the Euronext rapeseed contract has declined by nearly 50% due to

the Black Sea grain deal and good production in Europe. Today, the market price is back to the August 2021 levels and daily volatility has returned to its usual level.
11. The underlying commodity does not qualify as food for human consumption as only
10% of total EU rapeseed supply is used for human consumption while the great majority of supply (80%) is used for the European biodiesel industry and the remaining 10% for animal feed.
12. Expiring months of futures are February, May, August and November. Ten consecutive
maturities are listed at any time. At expiry (around the 30th of the preceding month), the future contract is physically delivered, with nine silos located in France, Germany and Belgium. Options expire the 15th of the month preceding each maturity of future (or the following business day). The delivery of options being physical, their exercise results in the assignment of future contracts at the exercise price, i.e. at the strike price.
13. Trading on the MATIF rapeseed contract takes place in lots. One lot is equivalent to 50
tons.
IV. Proposed limit and rationale by the competent authority
Spot month position limit
Deliverable supply
14. Deliverable supply amounts to 114,752 lots.
15. The AMF has determined the deliverable supply in a 3-step process, described in the
following paragraphs:
16. First, the AMF estimated the yearly average of the total rapeseed production in Europe
and the yearly average of the quantity of rapeseed imported by Europe (based on statistics from the French Ministry of Agriculture over a five-year period based on the latest data available, i.e. 01/07/2017-31/06/2022) in accordance with Article 12(2)(b) of RTS 21a. This corresponds respectively to 17,820 Mt and 5,130 Mt for a total 22,950 Mt.
17. The AMF considered that 100% of the supplied quantity met the Euronext contract
specifications.
18. The result was then prorated to account for the duration of spot month contracts (3
months), multiplied by the equivalent number of unit (50 mt/lot): 114,752 lots.
19. Deliverable supply should be based on production, imports and storage capacity.
However, the AMF does not consider storage capacity as a deliverable quantity since, under

market practice, the amount of rapeseed in the storage at the end of the year should be equal to the initial quantity at the beginning of the same year, in order to compensate for a possible deterioration of production in the following season. The AMF therefore deems that the amount of rapeseed held in storages should not be considered as a usable quantity and included in the calculation of deliverable supply. Spot month position limit
20. The spot month definition includes 90 calendar days.
21. The spot month limit is split into two periods:
a. At the start of the spot month, the position limit is set at 25,000 lots which constitutes 21.8% of the deliverable supply; and b. Over the last twelve trading sessions before expiry of the contract the position limit decreases to 7,000 lots, which constitutes 6.1% of the deliverable supply. Spot month position limit rationale
22. 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.
23. The AMF has considered the following factors relevant for adjusting downwards the
baseline in accordance with:

Article 21(1) and more specifically 21(2)(e) of RTS 21a, to reflect macroeconomic or
other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity.

With respect to macroeconomic or other related factors, it should be noted that almost
half of the European Union rapeseed imports come from Ukraine. To that end, the Russian invasion of Ukraine and the closure of ports in the Black Sea led to a limitation of logistical capacities for nearly five months, putting the market under pressure. While the agreement on export corridors in the Black Sea has improved the situation, the scenario remains fragile.
Based on the above, the AMF has set the spot month limit at the start of the spot month
at 25,000 lots, which corresponds to 21.8% of the deliverable supply.
On top of the general position limit for most of the spot month described in the previous
paragraphs, the AMF has set a second lower position limit which applies only to the last twelve trading sessions before expiry to reduce delivery risk and ensure an orderly

settlement of the contract. During this period, the limit is set at 7,000 lots, which constitutes 6.1% of deliverable supply.
27. All the other potential adjustment factors set out in RTS 21a have been considered by
the AMF and were not regarded as material or relevant to require additional adjustments from the baseline.
28. Based on the above, the AMF considered that it was appropriate to set the spot month’
limit at the start of the spot month at 21.8% of the deliverable supply representing 25,000 lots, and to set the limit at 6.1% of the deliverable supply representing 7,000 lots for the last twelve trading sessions before the expiry of the spot month. Other months’ position limit Open interest
29. The open interest amounts to 113,342 lots.
30. The AMF has calculated the open interest based on the daily position reports received
from Euronext in accordance with Article 58 of MiFID II from January 2022 to December
2022. The AMF first aggregates positions by day, ISIN and position holder in order to have
net (either long or short) positions per ISIN, day and position holder. Then, the AMF computes (1) the total long positions (per day and underlying contract) by adding up all the long positions calculated at the previous step; and (2) the total short positions (per day and underlying contract) by adding up all the short positions calculated at the previous step.
31. The AMF finally calculates the daily open interest (per underlying contract) by taking
the greatest (in absolute terms) between the total long positions and the total short positions and then calculates an average of this value over a period of one year. Other months’ position limit:
32. The other months’ limit is split into two periods:
a. 21 days before the expiry of the spot month the limit is 32,000 lots which correspond to 28.2% of the open interest; and b. For the rest of the other months’ period the position limit is 25,000 lots, which corresponds to 22.1% of the open interest. Other months’ position limit rationale:

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 range between 5% and 35% of the open interest can be used for setting the other months’ limit.
The AMF has considered relevant to adjust the baseline downwards in accordance
with:

Article 21(1) and more specifically 21(2)(e) of RTS 21a, to reflect macroeconomic or
other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity, as described in paragraph 24 above.

For most of the other months, the AMF has decreased the position limit from the initial
baseline of 25% to 22.1% in light of the aforementioned adjustment factors to round-up the limit at 25,000 lots.
The AMF has decided to set a different limit for the other month’s during the last twentyone trading sessions before the expiry of the spot month to take into account the roll of spot
month position to other months. Rolling is the transfer of positions from one expiring contract to the next one. This strategy is followed by many participants who want to maintain exposure on the most liquid contract, usually the first contract to expire. As maturity approaches, spot month positions will decrease, while other month’s positions will temporarily increase. Once the maturity date has passed, the second maturity becomes the new first maturity (spot month), and all other month’s positions decrease.
Since the roll of positions is typically spread over the three to four weeks preceding the
expiry of the spot month, the other months’ limit is temporarily increased during the last twenty one trading days before the expiry of the spot month by 7,000 lots, a quantity equivalent to the maximum position limit allowed on the spot month during the last 12 days (so that this quantity on the expiring contract can be transferred to the other month’s contract before it becomes the new spot month).
All the other potential adjustment factors set out in RTS 21a have been considered by
the AMF and were not regarded as material or relevant to require additional adjustments from the baseline.
Based on the above, the AMF considered that it was appropriate to set the other month’
limit at 28.2% of the open interest representing 32,000 lots during the last twenty-one days before the spot month expiry and to set the limit at 22.1% of the open interest representing 25,000 lots for the rest of the other months’ period.

V. ESMA’s assessment
40. This Opinion concerns positions held in Rapeseed futures and options.
41. ESMA has performed the assessment based on the information provided by the AMF.
42. For the purposes of this Opinion, ESMA has assessed the compatibility of the new
position limits the AMF 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. Compatibility with the methodology for calculation of position limits established in RTS 21a in accordance with Article 57(3) of MiFID II
43. The AMF has set two position limits for the spot and two position limits for the other
months.
Spot month position limit
44. The calculation of the deliverable supply is based on average data over the last five
years. As four expiries are traded each year, the yearly available deliverable supply has been 25,000 lots 7,000 lots 5,000 10,000 15,000 20,000 25,000 Number of lots Spot months’ limit applying during the lifetime of a rapeseed contract Step 1 Applies during the spot month until the last 12 trading days Step 2 Applies during the last 12 trading days 21.8% 6.1% *Position limit as % of Deliverable Supply time

divided by four. The calculation of deliverable supply is consistent with Article 12(2)(b) of RTS 21a that sets out that “Competent authorities shall determine the deliverable supply (…) by reference to (…) (b) a one to five-year period immediately preceding the determination for an agricultural commodity derivative”.
45. The baseline figure for the spot month limit is 25% since, based on the specifications of
the Euronext rapeseed contract, the underlying commodity does not qualify as food intended for human consumption. ESMA considers that the assessment by which the contract is not within the scope of Article 11(3) of RTS 21a is relevant as the contract specifications refer to rapeseed for industrial use.
46. Setting different position limits for different times within the spot month period which
decrease on an incremental basis towards the maturity of the contract is consistent with Articles 11(2) of RTS 21a.
47. The gliding path limits are within the boundaries established in Article 16 of RTS 21a.
48. The baseline figure of 25% has been adjusted to reflect macroeconomic or other related
factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity. This downward adjustment is consistent with Article 21(1) of RTS 21a.
49. The position limit applicable to the last twelve trading days before the expiry of the spot
month has been adjusted downwards to 7,000 lots, i.e. to 6.1 % of the deliverable supply. This significant downward adjustment aims at reducing delivery risk and ensuring an orderly settlement of the contract. This downward adjustment is consistent with Article 21(2)(b)(iii) of RTS 21a. Other months’ position limit

The open interest has been calculated by the AMF on the position reports daily received
in accordance with Article 58 of MiFID II. The daily average open interest has been calculated adding the open interest from each identified related contract that can be aggregated. ESMA considers such aggregation sensible, as the contracts will be covered by the same limits. The daily average open interest has been calculated over one year, from January 2022 until December 2022. ESMA considers that such calculation of open interest by the competent authority provides an accurate and reliable figure and promotes convergence in the setting of position limits by competent authorities. ESMA also considers such approach consistent with Article 14 of RTS 21a.
For most of the other months’, the baseline figure of 25% has been adjusted downwards
to 25,000 lots, i.e. 22.1% of the open interest to reflect macroeconomic or other related factors that influence the operation of the underlying commodity market including the delivery, storage, and settlement of the commodity. This downward adjustment is consistent with Article 21(1) of RTS 21a. 25,000 lots 32,000 lots 5,000 10,000 15,000 20,000 25,000 30,000 Number of lots Other months’ limit applying during the lifetime of a rapeseed contract 22.1% 28.2% Step 1 Applies from furthest maturity of 3 Years except during the 21 trading days prior to the expiry of the spot month Step 2 Applies during the 21 trading days prior to the expiry of the spot month *Position limit as % of Open interest time
ESMA considers that temporarily adjusting the other months’ limit upwards during the
21 trading days preceding the expiry of the spot month is a reasonable approach to allow for the rolling of positions from the spot month contract to the other months’ contract and takes into account the objective characteristics of the market, as clarified in Recital 18 of RTS 21a.
Consequently, the position limits have been set following the methodology established
by RTS 21a.
Compatibility with the objectives of Article 57(1) of MiFID II
These position limits have been set following the methodology established by RTS 21a.
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. The AMF has given due consideration to the orderly delivery and settlement of the rapeseed contract by reducing the authorised position limit during the last twelve trading days before the expiry of the spot month. The limits set on the quantity of rapeseed each person may make or take delivery of should prevent any person from accumulating a dominant position such that persons are enabled to squeeze the market through restricting access to rapeseed and will support orderly pricing and settlement conditions.
Overall, the position limits set for the spot month and the other months 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 rapeseed market and the liquidity of Euronext rapeseed futures and options are not hampered.

VI. Conclusion
57. 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, 20 April 2023 Verena Ross Chair For the Board of Supervisors

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