European, UK & Gibraltar Regulatory Review of Crypto-Assets and financial services

Part 2: Some thoughts on ‘derivative’ cryptocurrency contracts and European financial services laws

1. Unwanted attention?

This week saw the FBI seizure of the 1broker domain for alleged unlawful securities swaps activities and dealing in regulated retail commodity trading.

These case(s) explore a number of interesting points for those working on packaging cryptocurrencies and other digital assets within more complex ‘derivative’ like structures.*

*NB: The use of the term derivative here is meant in the widest sense and not in the strict legal sense, since whether something is a regulated ‘derivative’ contract is a technical question that depends on the structure of the product and the jurisdictional definition in each case. For example, the US and EU do not have exactly the same definitions of what constitute regulated ‘derivatives’ and ‘commodities’.

For the layperson it is worth highlighting an important distinction that is at the heart of these regulatory issues. A digital asset may be entirely unregulated in its simple form, such as is bitcoin in many jurisdictions. See here for example: for an overview of some key ways in which bitcoin is characterised for English law and tax purposes.

However, when a person allows derivative contracts to be put in place in respect of that unregulated underlying asset, the packaging or creation of bilateral assets and liabilities related to movements in the unregulated underlying can be a regulated activity.

Whether such products or transactions are regulated ‘derivative’ contracts or transactions is therefore the key issue.

2. Executive summary

1) Many crypto related transactions and packaged digital asset products involve the creation of derivative contracts;

2) The key issue is whether those products are regulated derivative products;

3) The mere bundling of digital assets together does not make them a regulated derivative contract

a) this means that a smart contract that entitled the possessor to ownership of a number of other digital assets (such as an index basket token) is not, in itself, thereby a regulated commodity contract.

b) BUT depending on the structure, such a product could be a regulated collective investment scheme or Alternative Investment Fund (within Europe).

4) Likewise, a cryptocurrency pair contract that enabled physical possession of the underlying within a relatively short time-frame may also benefit from specific exemptions for certain derivative products that involve physical delivery.

3. The cases against 1broker

The Securities & Exchange Commission (SEC) complaint alleges that 1pool (1Broker) is in breach of a number of securities law requirements in its offer of contracts for differences:

“On the 1broker.com website, the Defendants market the security-based swaps as “CFDs” — which is an acronym for “contracts for difference.” Through these CFDs, 1Broker accountholders can participate in the price movements of securities and other assets without actually owning the underlying asset. For example, an accountholder can purchase a long or short position in a CFD that tracks the price of the stock of a publicly-traded U.S. company. Then, depending on whether the stock price goes up or down, the value of the CFD will also go up or down. 1Broker is the counterparty on every CFD, meaning it takes the opposite position of the accountholder on every CFD. For example, if the accountholder takes a long position, 1Broker takes the corresponding short position. Because the values of the CFDs are tied to the values of underlying securities, market indices, or other financial assets or benchmarks, they are security-based swaps under the federal securities laws. Absent certain exceptions (which do not apply here), the federal securities laws require that offerings in security-based swaps be registered with the SEC and that the transactions be executed on a registered national exchange. Likewise, 1Broker — which acted as a dealer in the CFDs — was required to register with the SEC. Because neither the CFDs nor 1Broker was registered and because the transactions were not executed on a national exchange, the Defendants violated the federal securities laws. Brunner, who controlled 1Broker and directed its activities, was a culpable participant in 1Broker’s violations.”

There are a number of other complaints by the SEC including that 1broker failed to “determine whether accountholders met certain discretionary trading thresholds. The unregistered sale of security-based swaps is legal when the sales are limited to “eligible contract participants” — which are high-net-worth individuals and certain types of sophisticated and/or regulated entities. The sales of 1Broker CFDs were not so limited.”

The US Commodities Future Trading Commission (CFTC) also brought a complaint –focusing on the alleged unlawful offer of retail commodity products without being suitably licensed:

“From at least February 2016 through the present (the “Relevant Period”), Defendant 1pool Ltd. (“1pool”) through the actions of its officers, employees, or agents, including but not limited to Defendant Patrick Brunner (“Brunner”) (together, “Defendants”) conducted a business in the United States in a manner that violates the Commodity Exchange Act and Commission Regulations: namely, for the purpose of soliciting or accepting orders from non-eligible contract participants (“non-ECP”) for the purchase or sale of commodities on a leveraged or financed basis that do not result in actual delivery of the commodities to the customer (“retail commodity transactions”).”

Without wishing to prejudice 1brokers defence, it is certainly not helpful to them that they appear to have marketed their packaged swap products as a regulated derivative contract since it is commonly known and acknowledged (and legally specified in European law) that CFD’s are a regulated derivative contract.

4. The European legal position

Within the European Economic Area the primary law that deals with whether a packaged product is a regulated derivative contract is the Markets In Financial Instruments Directive (MiFID) and associated legislation — these consist of a directive (MiFID 2) and a regulation (MiFIR). There is also subsidiary regulation such as the Commission Delegated Regulation 2017 that provides further guidance on in and out of scope derivative contracts.

Derivatives are defined in MiFID 2 as follows:

“(49) ‘derivatives’ means derivatives as defined in Article 2(1)(29) of Regulation (EU) No 600/2014;

(50) ‘commodity derivatives’ means commodity derivatives as defined in Article 2(1)(30) of Regulation (EU) No 600/2014;”

Following the breadcrumbs from there takes you to the following:

“(29) ‘derivatives’ means those financial instruments defined in point (44)© of Article 4(1) of Directive 2014/65/EU; and referred to in Annex I, Section C (4) to (10) thereto;

(30) ‘commodity derivatives’ means those financial instruments defined in point (44)c) of Article 4(1) of Directive 2014/65/EU; which relate to a commodity or an underlying referred to in Section C(10) of Annex I to Directive 2014/65/EU; or in points (5), (6), (7) and (10) of Section C of Annex I thereto;”

In a beautifully circular fashion you must take another fews leaps to find out what the hell they are defined as! (see further 8 below for detailed definitions) and even then the term derivative itself is not defined.

In my opinion it could cover CFD’s, options and futures in cryptocurrencies and many other digital assets, for example one definition covers:

“Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash”

This is drafted very widely so as to be able to cover almost any underlying asset the regulator sees fit to cover. However, it is necessary for ESMA to finally publish guidance on which cryptocurrency derivative contracts are within scope and the legal foundation for that since it is not clear that cryptocurrencies and other digital assets are within any of the following categories: “securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures”

It is also important to note that any operator of a platform (trading venue) that enables participants to trade in regulated financial instruments (including regulated derivatives) must normally be regulated under MiFID as either:

1. A regulated market (RM)- i.e. a stock exchange
2. A multi-lateral trading facility (in many ways they are functionally equivalent to an RM but different rules apply to them and like an RM they offer non-discretionary order matching); or
3. An organised trading facility (can exercise discretion in order matching).

The requirements differ for each type of trading venue but all require significant regulatory capital and have regulatory oversight of their activities. Unlike unregulated trading venues, they must establish “transparent rules and procedures for fair and orderly trading, and establish objective criteria for the efficient execution of orders”.

a. UK Financial Conduct Authority

The UK regulator has also issued guidance and a warning on the risks associated with engaging in regulated derivative contracts related to unregulated cryptocurrencies:

“We are aware of a growing number of UK firms offering so-called cryptocurrencies and cryptocurrency-related assets. As indicated in our Feedback Statement on DLT, cryptocurrencies are not currently regulated by the FCA provided they are not part of other regulated products or services.

Cryptocurrency derivatives are, however, capable of being financial instruments under the Markets in Financial Instruments Directive II (MIFID II), although we do not consider cryptocurrencies to be currencies or commodities for regulatory purposes under MiFID II. Firms conducting regulated activities in cryptocurrency derivatives must, therefore, comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations.

It is likely that dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities in relation to derivatives that reference either cryptocurrencies or tokens issued through an initial coin offering (ICO), will require authorisation by the FCA. This includes:

• cryptocurrency futures — a derivative contract in which each party agrees to exchange cryptocurrency at a future date and at a price agreed by both parties
• cryptocurrency contracts for differences (CFDs) — a cash-settled derivative contract in which the parties to the contract seek to secure a profit or avoid a loss by agreeing to exchange the difference in price between the value of the cryptocurrency CFD contract at its outset and at its termination
• cryptocurrency options — a contract which grants the beneficiary the right to acquire or dispose of cryptocurrencies

If you are unsure whether your firm requires authorisation, the FCA’s general guidance on the regulatory perimeter in PERG may be helpful. We also encourage you to seek expert advice if you have any remaining questions.

…If your firm is not authorised by the FCA and is offering products or services requiring authorisation it is a criminal offence. Authorised firms offering these products without the appropriate permission may be subject to enforcement action.”

5. What types of packaged digital asset products are not regulated derivative product?

The answer to this question may differ between the US and the EU, however we note that the CFTC makes reference to the lack of physical delivery in the description of the 1broker products:

A. US Position*

*The author is not a US securities lawyer and so this is only intended to summarise latest events in that space. For a good overview of US securities law in the cryptocurrency sector we suggest you follow Jake Chervinsky and Conor O’Hanlon. This podcast with Pomp (well worth a follow) is also particularly informative: https://twitter.com/coinsources/status/1045317487691149313

The CFTC has stated that virtual currencies are a commodity within the meaning of section 1a(9) of the Commodities Exchange Act (CEA) and the courts appear to support this view. A platform that offers cryptocurrencies to retail investors on a leveraged, margined, or financed basis (a “cryptocurrency retail commodity transaction”) therefore falls within the jurisdiction of the CEA and is required to register with the CFTC as a licensed domestic futures exchange or a foreign board of trade, unless it qualifies for an exemption from registration such as the actual delivery exemption. A contract of sale for a digital asset would need to result in “actual delivery” of the purchased cryptocurrency to the customer within 28 days after the execution of the transaction. Leaving aside an interesting discussion of whether all cryptocurrencies should be considered as commodities, the focus of this article is the impact on leveraged or packaged digital asset products and the ability to rely upon exemptions.

The CFTC recently sought feedback on the interpretation of this physical delivery exemption:

“The Dodd-Frank Act added CEA section 2(c)(2)(D) to address certain judicial uncertainty involving the Commission’s regulatory oversight capabilities. The Commission has long held that certain speculative commodity transactions involving leverage or margin may have indicia of futures contracts, subjecting them to Commission oversight. However, judicial decisions emerged that called into question the Commission’s oversight over certain leveraged retail transactions in currencies and other commodities. In 2008, Congress addressed this judicial uncertainty by providing the Commission with more explicit authority over retail foreign currency transactions in CEA section 2(c)(2)©.These new statutory provisions established a two-day actual delivery exception for such transactions. Two years later, Congress provided the Commission with explicit oversight authority over all other ``retail commodity transactions’’ in CEA section 2(c)(2)(D).As noted, these new statutory provisions established an exception for instances when actual delivery of the commodity occurs within 28 days……In connection with its retail commodity transaction oversight, the Commission previously issued a proposed interpretation of the term ``actual delivery’’ in the context of CEA section 2(c)(2)(D), accompanied by a request for comment. In that interpretation, the Commission provided several examples of what may and may not satisfy the actual delivery exception. After reviewing public comments, the Commission issued a final interpretation in 2013 (the “2013 Guidance’’).”

The 2013 Guidance explained that the Commission will consider evidence ``beyond the four corners of contract documents’’ to assess whether actual delivery of the commodity occurred. The Commission further noted that it will “employ a functional approach and examine how the agreement, contract, or transaction is marketed, managed, and performed, instead of relying solely on language used by the parties in the agreement, contract, or transaction.’’ The 2013 Guidance also included a list of relevant factors the Commission will consider in an actual delivery determination and again provided examples of what may constitute actual delivery.

Under the 2013 Guidance, the only satisfactory examples of actual delivery involve transfer of title and possession of the commodity to the purchaser or a depository acting on the purchaser’s behalf. Among other things, mere book entries and certain instances where a purchase is `”rolled, offset, or otherwise netted with another transaction’’ do not constitute actual delivery.

…Relevant factors in this determination include the following: Ownership, possession, title, and physical location of the commodity purchased or sold, both before and after execution of the agreement, contract, or transaction, including all related documentation; the nature of the relationship between the buyer, seller, and possessor of the commodity purchased or sold; and the manner in which the purchase or sale is recorded and completed.’

…The Commission interprets the term virtual currency broadly. In the context of this interpretation, virtual or digital currency: Encompasses any digital representation of value (a`digital asset’’) that functions as a medium of exchange, and any other digital unit of account that is used as a form of a currency (i.e., transferred from one party to another as a medium of exchange); may be manifested through units, tokens, or coins, among other things; and may be distributed by way of digital ``smart contracts,’’ among other structures.However, the Commission notes that it does not intend to create a bright line definition at this time given the evolving nature of the commodity and, in some instances, its underlying public distributed ledger technology (``DLT’’ or ``blockchain’’).

…Consistent with the interpretation above, the Commission provides the following non-exclusive examples to further clarify the meaning of actual delivery in the virtual currency context [see further 7 below].”

Clearly in the context of cryptocurrency exchanges, more thought is required as to whether actual delivery requires withdrawal to a privately managed wallet (or a third party wallet) or whether it can be satisfied by some form of clear allocation to the relevant customer (i.e. actual possession of cryptocurrency in a wallet that you have the private key to is not always required).

We note the CFTC are also considering reducing the physical delivery exemption to 2 days for cryptocurrencies.

B. European law analysis

As can be seen from the MiFID definitions below, just one of the definitions of a regulated derivative contract is in principle very wide:

“Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash”

It is a matter of legal and linguistic irony that the definition of the term ‘derivative’ must itself be derived and is not clearly specified.

As there is no technical definition of ‘derivative’ under European law it follows that the definition is more of a market term i.e. those things that the markets generally consider to be derivatives are likely derivatives and those they do not are unlikely to be derivatives absent clear regulatory guidance on the same.

Clearly, a contract that enabled a person to enter into a bilateral arrangement with another persons so as to trade, hedge or speculate on changes in an underlying digital asset could easily fall within the wide scope and would likely be considered by market operators as a derivative contract.

However, a contract (including of course a smart contract) that allowed a person access to the underlying digital assets would not normally be considered a derivative contract within the meaning of that term in the financial markets. More is required for such a contract to be a regulated derivative contract and it relates to secondary activity between the parties that are trading (we are not allowed to say betting) against movements in price over time of the underlying.

In respect of the definition of ‘derivative contracts, we note that ESMA (the European Securities and Markets Authority) is primarily responsible for providing clarity on these definitional matters at the European level, for example see:

“Under EMIR the clearing obligation applies to OTC derivative contracts. The power to determine the classes of derivatives subject to the clearing obligation has been given to ESMA to ensure, amongst other things, one single uniform and consistent application of this obligation across the Union. If competent authorities adopt different classifications of what constitutes an OTC derivative contract, the clearing obligation would not apply in a uniform manner across the Union, contravening the objectives of EMIR”

However, I have not found been able to find anything from ESMA that is on point in seeking to determine the boundary issues that would be relevant for this article.

ESMA has however issued guidance and changed the restrictions related to the offer of binary contracts and CFD’s to retail customers in Europe — this includes a significant reduction in the leverage that is permitted to be offered to retail customer on cryptocurrency CFDs by regulated platforms (new maximum of 2:1 — bitmex would be very different if it conformed to this):

“The agreed measures include:

1. Binary Options — a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2. Contracts for Differences — a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.”

The Delegated Regulation (COMMISSION DELEGATED REGULATION (EU) 2017/591 of 1 December 2016) is also helpful in determining the meaning of commodity derivative contracts.

For a good examination of the potential applicability of MiFID to cryptocurrency derivatives and commodities see the recent paper written by the Autorité des marchés financiers (AMF) in which they conclude:

“In conclusion, a cash-settled derivative whose underlying is a cryptocurrency can be considered to be a financial contract. Consequently, the regulations applicable to the marketing of financial instruments in France apply to cryptocurrency derivatives.”

Like the CFTC, the AMF appear to decide that cryptocurrencies meet the definition of commodities and therefore absent a specific exemption they are in scope of MiFID. They do however leave open the possibility that actually settled (and not cash settled) derivative contracts are out of scope.

6. Example of an out of scope Digital Asset Contract

An example of a type of product that should not fall within the definition of a regulated derivative contract for MiFID purposes:

• Operator A creates a smart contract token (Index Token)
• Index Token will parametrically purchase, sell (and thereby rebalance) other digital assets (such as BTC and ETH) on a defined and regular basis
• Person B purchases X Index Token (with cryptocurrency)
• The value for the purchase of X Index Token is used to purchase the underlying digital assets in accordance with the rules of the Index Token smart contract
• Person B sells the Index Token to Person C

In the above case, the Index Token functions as master key to a number of other tokens (a vault with mini-vaults inside if you like). The fact that a number of unregulated digital assets are bundled together does not thereby transform the product into a regulated derivative contract since Person B owns/controls the actual underlying assets, as represented by their control of the private key to the Index Token and their ability to transfer ownership/control to Person C as they wish. Functionally, and in this case legally, it is no different to Person A or B buying the same proportion of underlying digital assets in separate transactions. The Index Token merely simplifies the process and enables the holder to manage their allocations to the underlying according to pre-defined rules.

[As noted above, depending on the way in which the Index Token is structured the operator (Operator A) might be considered as a collective investment scheme operator but this will turn on the facts related to the degree of pooling of purchaser assets and/or the degree of ongoing control exercised by Operator A over those assets (and a corresponding lack of control over the underlying assets by any purchasers).]

Spot FX Exemption

Similar to the US position, and as noted by the AMF above, even if a product is considered a derivative contract there are exemptions where physical delivery takes place.

The spot FX contract is the most basic foreign exchange transaction in which one currency is exchanged for another at the current market rate (spot exchange rate). Settlement of the contract is done within a specified number of days. The difference between the date of the deal and the date of settlement represents the time required to arrange the transfer of the funds, as well as the time difference between the currency exchanges involved. To enter into a spot deal the client must specify the amount, the two currencies involved, and which currency would be bought or sold. An FX Spot transaction will not be a financial instrument and will be excluded from MiFID II if under its terms delivery is scheduled to be made within a specified number of trading days. The number of trading days depends upon the type of contract as set out below:

• 2 trading days for trades between “major currencies”: the major currencies for these purposes are euro, US dollar, Japanese Yen, Pound Sterling, Australian dollar, Swiss franc, Canadian dollar, Hong Kong dollar, New Zealand dollar, Singapore dollar, Norwegian krone, Mexican peso, Croatian kuna, Bulgarian lev, Czech koruna, Danish krone, Hungarian forint, Polish zloty and Romanian leu.
• For other currencies, the longer of 2 trading days or the period generally accepted in the market as the standard delivery period for the relevant currency pair.
• Where the contract’s main purpose is the sale or purchase of a transferable security or a unit in a collective investment undertaking, the period generally accepted in the market for the settlement of that security or unit as the standard delivery period or 5 trading days, whichever is shorter.

However, a contract will not be a FX spot transaction if, irrespective of its terms, there is an understanding between the parties that delivery would be postponed and not performed within the periods set out above. In addition, FX swaps are excluded even if they involve physical delivery and thus could fall within MiFID as regulated instruments if they are deemed to be commodity derivatives:

“(13) A contract for the exchange of one currency against another currency should be understood as relating to a direct and unconditional exchange of those currencies. In the case of a contract with multiple exchanges, each exchange should be considered separately. However an option or a swap on a currency should not be considered a contract for the sale or exchange of a currency and therefore could not constitute either a spot contract or means of payment regardless of the duration of the swap or option and regardless of whether it is traded on a trading venue or not.” (Commission Delegated Regulation 2017)

[“An FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward)”, Wikipedia].

If certain fiat currency contracts can benefit from an exemption then it is obvious why the same logic should apply to similar cryptocurrency contracts (including those that provide for physical delivery). More guidance is needed from ESMA as to the scope of this exemption for cryptocurrency contracts and also on the boundary issues to be considered for digital asset swap contracts that permit leveraged positions in the underlying but that involve physical delivery within a relatively short-time frame (as per the CFTC consultation). Without such guidance, it is difficult for unregulated operators to understand what is acceptable without a MiFID licence making policing this sector that much harder.

In addition, it must be noted that it is not yet clear under EU law as to which type of digital assets are determined to be commodities.

What is clear is that if the crypto packed product involves cash settlement relating to movements in underlying cryptocurrencies then this is very likely sufficient criterion for a contract to be classified as a regulated financial instrument under MiFID. If, however, a contract offers the possibility of physical delivery of the underlying, it will only necessarily be a regulated financial instrument when traded on a regulated trading venue in the EU. In between, lies a lot of grey…

***

7. CFTC Examples:

Example 1: Actual delivery of virtual currency will have occurred if, within 28 days of entering into an agreement, contract, or transaction, there is a record on the relevant public distributed ledger network or blockchain of the transfer of virtual currency, whereby the entire quantity of the purchased virtual currency, including any portion of the purchase made using leverage, margin, or other financing, is transferred from the counterparty seller’s blockchain wallet to the purchaser’s blockchain wallet, the counterparty seller retains no interest in or control over the transferred commodity, and the counterparty seller has transferred title of the commodity to the purchaser. When a matching platform or other third party offeror acts as an intermediary, the virtual currency’s public distributed ledger must reflect the purchased virtual currency transferring from the counterparty seller’s blockchain wallet to the third party offeror’s blockchain wallet and, separately, from the third party offeror’s blockchain wallet to the purchaser’s blockchain wallet, provided that the purchaser’s wallet is not affiliated with or controlled by the counterparty seller or third party offeror in any manner.

…

Example 2: Actual delivery will have occurred if, within 28 days of entering into a transaction: (1) The counterparty seller has delivered the entire quantity of the virtual currency purchased, including any portion of the purchase made using leverage, margin, or financing, into the possession of a depository (i.e., wallet or other relevant storage system) other than one owned, controlled, or operated by the counterparty seller (including any parent companies, partners, agents, affiliates, and others acting in concert with the counterparty seller) that has entered into an agreement with the purchaser to hold virtual currency as agent for the purchaser without regard to any asserted interest of the offeror, the counterparty seller, or persons acting in concert with the offeror or counterparty seller on a similar basis; (2) the counterparty seller has transferred title of the commodity to the purchaser; (3) the purchaser has secured full control over the virtual currency (i.e., the ability to immediately remove the full amount of purchased commodity from the depository); and (4) no liens (or other interests of the offeror, counterparty seller, or persons acting in concert with the offeror or counterparty seller on a similar basis) resulting from the use of margin, leverage, or financing used to obtain the entire quantity of the commodity purchased will continue forward at the expiration of 28 days from the date of the transaction.

..

Example 3: Actual delivery will not have occurred if, within 28 days of entering into a transaction, a book entry is made by the offeror or counterparty seller purporting to show that delivery of the virtual currency has been made to the purchaser, but the counterparty seller or offeror has not, in accordance with the methods described in Example 1 or Example 2, actually delivered the entire quantity of the virtual currency purchased, including any portion of the purchase made using leverage, margin, or financing, and transferred title to that quantity of the virtual currency to the purchaser, regardless of whether the agreement, contract, or transaction between the purchaser and offeror or counterparty seller purports to create an enforceable obligation to deliver the commodity to the purchaser.

…

Example 4: Actual delivery will not have occurred if, within 28 days of entering into a transaction, the agreement, contract, or transaction for the purchase or sale of virtual currency is rolled, offset against, netted out, or settled in cash or virtual currency (other than the purchased virtual currency) between the purchaser and the offeror or counterparty seller (or persons acting in concert with the offeror or counterparty seller).

8. MiFID Definitions:

Derivatives:

©

any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures;

The full description is in the Annex:

(4)

Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash;

(5)

Options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

(6)

Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled;

(7)

Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this Section and not being for commercial purposes, which have the characteristics of other derivative financial instruments;

(8)

Derivative instruments for the transfer of credit risk;

(9)

Financial contracts for differences;

(10)

Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF;