MiFID II rules impose “inappropriate” regulations on EU ETS compliance companies that risk hampering market liquidity, business groups said Thursday, urging EU institutions to request changes.

EU finance authority ESMA last month released its final version of rules due from 2017 to further regulate commodity trade in an effort to guard against market abuse.

A joint statement from almost 20 industry groups including Eurelectric, IFIEC and IETA said the new calculations still risked that ETS compliance firms would need a costly MiFID licence and be required to hold prescribed capital levels.

This is despite the regulator substantially raising the thresholds for exempting carbon trading, by such an extent that ICIS Tschach analysts said there was little chance of any compliance firms needing a license.

The business groups said that industrial firms may find themselves needing a MiFID license because EMSA had not excluded from its tests EUAs traded for compliance reasons only.

The business groups also disputed the criteria for the “main business” exemption test, where total trading of any commodity is deemed to represent the main business of the company.

They said this risked capturing industrial companies that had substantial assets other than their trading, and that the regulator should allow an option to use an alternative test based on capital that ESMA had initially proposed last year.

“As a result of the rules adopted by ESMA, many industrial groups would either reduce substantially their activity in the market, or move trading outside Europe, where this is possible,” the statement said.

The European Commission has three months to scrutinise the proposal, if they approve the rules member states and the EU Parliament are given an additional month to pass judgement.

By Ben Garside – ben@carbon-pulse.com