FAQs - Final Rules for the Revised UK Commodity Derivatives Position Limits Framework

As of 6 July 2026 (some rules took effect from March 2025), all final rules of the new FCA commodity derivatives position limits framework will come into effect. In addition, responsibility from the regime will transfer from the UK regulator, the Financial Conduct Authority ("FCA") to UK trading venues to set position limits.

These reforms, which will apply in the UK only, evidence further regulatory divergence between the UK and EU on commodities derivatives regulation.

The below FAQs provide a reminder to market participants of the principal changes under the new regime.

What are the drivers for reform?

The position limits regulatory regime operates to set limits on the maximum size of positions which an entity can hold in certain commodity derivatives. These position limits apply to contracts traded on trading venues and their economically equivalent OTC contracts. The position limits regime established under MIFID II aims to, amongst other things, mitigate the risk of market abuse and manipulation.

Back in December 2020, the FCA published a supervisory statement clarifying that the position limit regime only applied to (i) commodity derivative contracts that are physically deliverable or (ii) which are agricultural derivative contracts. These reforms now provide further revision to the position limits regime. Under the new rules, the application of position limits will be limited to critical commodity derivatives contracts defined by reference to a set of criteria.

When consulting on the new rules, the FCA stated that: "the MiFID II position limits regime has proven to be too broad in scope as it requires the establishment of position limits for [too many] commodity derivatives. The breadth of the scope of the regime was often cited as a source of compliance cost and complexity. Market participants stressed that its broad scope hindered the ability of liquidity providers to serve markets efficiently. This has caused market inefficiencies with little evidence of the risk mitigation that the regime sought to provide."

What are the new regulatory requirements?

1. Transferring power for setting position limits

The principal change under these reforms is that the primary responsibility for setting position limits will transfer from the FCA to the trading venues (see UK Financial Services and Markets Act 2023).  Trading venues will need to satisfy the FCA that the limits they propose will meet the criteria and standards set out in the new FCA rules, so there will be a significant degree of compliance and oversight. The FCA will retain powers (to be used in exceptional circumstances) to intervene in markets and impose position limits itself.

The number and types of criteria  that trading venues should have regard to when developing their position limit setting methodology reflect the wide range of commodities and markets they apply to. Many of the criteria are in the UK version of Commission Delegated Regulation (EU) No 2017/591 (referred to in the Handbook as MiFID RTS 21) remain relevant; but the FCA has proposed some changes. In particular:

• the FCA has included in the criteria an assessment of the liquidity of the market and ability of market participants to unwind their positions, including during times of market stress; and
• the ability to make or take delivery, including during times of stress, together with the existing factor looking at the characteristics of the underlying market.

The trading venues will have discretions which they can exercise, for example, in relation to data collection and reporting of OTC positions held by members/clients.

2. Scoping of the position limits regulatory regime

Position limits will need to be reviewed at least annually and whenever there is a significant change in deliverable supply, the open interest or any other change that significantly impacts the market.  The precise level of position limits must be transparent, non-discriminatory, published on a trading venue’s website and specify how they are applied. MAR 10.2.1M R(7) of the FCA Handbook is clear that trading venues must consult relevant participants prior to setting or modifying a position limit unless it is not reasonably practicable to do so, in accordance with its rules

The application of position limits will be limited to a narrower set of critical commodity derivatives contracts. A set of criteria has also been agreed for the criteria for determining which commodity derivative are critical. The criteria include:

• the settlement method at expiry;
• the size of the derivative market compared to the size of the underlying physical market, and the robustness of the reference price used to settle contracts;
• the type of underlying market, and the impact on end-users of disorderly trading; and
• the absolute size of the derivative market.

The FCA has clarified that not all the criteria need to be met for a commodity derivative contract to be deemed critical, but the criteria will be considered comprehensively. Based on this criteria, the FCA has identified 14 critical contracts for which position limits will apply.

These contracts are: LME Aluminium, LME Copper, LME Lead, LME Nickel, LME Tin, LME Zinc, IFEU London Cocoa Futures, IFEU Robusta Coffee Futures, IFEU White Sugar Futures, IFEU UK Feed Wheat Futures, IFEU Low Sulphur Gasoil Futures, IFEU UK Natural Gas Futures, IFEU Brent Crude Futures and  IFEU T-West Texas Intermediate (WTI) Light Sweet Crude Futures.

All the critical contracts above, except WTI Light Sweet Crude Futures, are already subject to existing position limits as set out in the FCA's supervisory statement.

For new contracts designated as critical contracts, the FCA has stated that it will "maintain an approach where we will publish an initial notice with our intention to add a new contract to the critical list. We are maintaining a 45-day consultation period to invite feedback. After the consultation period, we will then consider responses before finalising our decision."

Helpfully, the FCA has clarified that it is not setting a date by which position limits in the new critical contract must be in place. It will determine the effective date on the basis of discussions with the relevant trading venue and market participants – this will ensure sufficient time is provided for positions to be managed in an orderly manner before the limit applies.

3. Related Contracts under the position limits regime

• Related contracts fall within scope of the position limits regime because they are closely related to critical contracts, and if outside the scope of position limits, would challenge the effectiveness of a regime if those contracts could pose similar risks to those posed by critical contracts themselves i.e. a firm might try to influence the pricing and settlement of a critical contract through positions taken in other related contracts.
• Related contracts are defined by a set of detailed set of rules included in MAR 10.2.1A – 10.2.1D of the FCA Handbook. The FCA's new rules specify the types of contracts which must be included in scope where it is uncontentious that there is a direct pricing link.
• Those contracts include options on critical contracts, minis and spreads where one of the legs is a critical contract (and options, minis and spreads on related contracts). Further, relevant trading venues must consider whether there are other contracts that should be added to the list of related contracts because (a) they are capable of influencing the pricing or settlement of a critical contract; or (b) could be used to circumvent the position limit regime because they provide a comparable economic exposure to a critical or related contract.
• Position limits will apply to a market participant’s net positions in the critical contract and all related contracts. The FCA has clarified that "trading venues should not permit netting – where such netting exacerbates the risk arising from large positions to the orderly pricing and settlement of transactions." Trading venues may only identify contracts as related when they are traded on the same trading venue as the relevant critical contract. As such, position limits will apply only to related contracts traded on the same trading venue as the critical contract.
• It is acknowledged by the FCA that "some market participants prefer not to provide trading venues with flexibility in relation to aggregation and netting, we consider in certain exceptional circumstances it may be appropriate – any decisions not to net certain contracts would be reviewed by us".

4. Position management controls – Accountability thresholds

• An accountability threshold is "a specific type of position management control that enables supervisory actions by trading venues when a position is above the threshold. In some cases, the appropriate course of action would be to gather additional information from the participant while allowing it to continue to hold a position above the threshold. In others, it would be to require the participant to reduce the position". UK recognised investment exchanges already operate accountability thresholds for certain commodity derivatives. However, there is no legislative requirement to do so in the existing regulatory framework. This will now change when the new rules take effect.
• According to the FCA, accountability thresholds "provide trading venues with an early warning mechanism to identify growing positions, understand whether risks are emerging and determine whether any further action is necessary to manage that risk. Compared to position limits, which cannot be breached, accountability thresholds are a flexible tool to monitor markets and we remain of the view that they help to maintain market integrity in critical contracts."
• The new FCA rules now require that that trading venues must establish accountability thresholds for all critical contracts and their related contracts. The FCA has agreed that they would operate in conjunction with position limits. The FCA has also mandated that different accountability thresholds should be established for (a) spot months (a spot month contract is a commodity derivative contract, usually a future, relating to a particular commodity whose maturity is the next to expire under the trading venue rules) and (b) other months; and that trading venues should consider whether multiple thresholds should be set at different points within the spot month and/or other months to reflect the greater risk from large positions as the contract nears expiry. The calibration of those accountability thresholds should factor in the features and risks of the market they apply to.
• The FCA has implemented the requirement to operate accountability thresholds in the spot month, where the risk of abusive practices is highest. For other months, the FCA has offered some operator discretion. The relevant trading venue would need to assess, for each critical contract, whether or not an accountability threshold was an appropriate additive measure, to manage risks for the market in question. Position limits will apply, as they do currently, to both spot and other months.

5. Position reporting

• The final rules do not prescribe, as the original FCA consultation did, the specific circumstances which will trigger OTC reporting. Instead, trading venues to have the power to obtain OTC position data. Trading venues will need to consider the risks that positions in OTC markets pose to their markets, with reference to their fair and orderly trading obligations.
• Trading venues will need to satisfy the FCA that they are deploying their regulatory toolkit appropriately. Note that in certain in certain markets, such as metals, the relevant recognised investment exchange has already established periodic reporting requirements in relation to OTC positions.

6. Exemption ceilings and Exemption notifications

Going forward, trading venues will have responsibility for granting and monitoring exemptions.

• Trading venues will need to consider establishing a limit on the size of a participant’s exempt positions, known as an "exemption ceiling". The purpose of a ceiling is to ensure that high regulatory expectations apply to trading venues when granting exemptions. The ceiling would mitigate the risk that large exempt positions, if left unchecked, undermine the protections provided by the position limits regime.
• The types of factors which a trading venue will need to consider to determine the level of the exemption ceiling include (i) the participant's current and anticipated activity over the year ahead (i) their creditworthiness, risk management approach and experience.
• The FCA's view is that "positions which are exempt, such as those established by non-financial firms using commodity derivatives to hedge their commercial risk, do not generally pose the same risk posed by speculative positions that are equivalent in size. However, if left unmonitored they may become too large to be managed properly and expose the market to undue risk where they need to be partly or entirely unwound."

New exemptions are proposed and some existing exemptions have been revised:

• Hedging exemption: The current hedging exemption for non-financial firms has been retained but with some changes to ensure its use is consistent. Trading venues will be expected to set a framework (in line with MAR 10.2.7 R (2) and MAR 10.2.8 G of the FCA Handbook) that uses appropriate pre-defined metrics to assess whether a position is capable of being unwound in an orderly manner, such as the size of the position relative to the open interest in the relevant market taking into consideration market conditions, including market liquidity. Trading venues would be expected to deny an application for an exemption where it assesses that such positions could not be liquidated in an orderly way.
• Passthrough exemption: This exemption is new. It is aimed at financial institutions providing risk-mitigation services to non-financial firms hedging their commercial risk. It provides similar relief to an exemption available in other jurisdictions, for example in the US under CFTC rules. In this scenario, a commodity derivative admitted to trading on the UK trading venue to which the position limit applies, would not count towards the financial institution's aggregate position. The process by which the non-financial firm confirms that the positions are for hedging activities is subject to detailed rules.
• Liquidity provider exemption: This exemption is new and applies to trading firms fulfilling their obligations under the rules of a trading venue to provide liquidity. It consolidates the supervisory approach taken in 2020 by the FCA not to enforce position limit breaches in these circumstances.

What are next steps?

The rules will come into force on 6 July 2026. The FCA commenced rules that enable trading venues to receive and process applications for exemptions from position limits from 3 March 2025. Exemptions granted under the current regime will continue to apply until 5 July 2026.