2

Subject to paragraph (4), options—

a

to which paragraph (1) does not apply;

b

which relate to commodities;

c

which may be settled physically; and

d

either—

i

to which paragraph 5 or 6 of Section C of Annex I to the markets in financial instruments directive, the text of which is set out in Part 1 of Schedule 2, applies, or

ii

which in accordance with Article 38 of the Commission Regulation (the text of which is set out in Part 2 of Schedule 2) are to be considered as having the characteristics of other derivative financial instruments and not being for commercial purposes, and to which paragraph 7 of Section C of Annex I to the markets in financial instruments directive applies.

3

Subject to paragraph (4), options—

a

to which paragraph (1) does not apply;

b

which may be settled physically; and

c

to which paragraph 10 of Section C of Annex I to the markets in financial instruments directive (read with the Commission Regulation) applies.

4

Paragraphs (1)(e), (2) and (3) only apply to options in relation to which—

a

an investment firm or credit institution is providing or performing investment services and activities on a professional basis,

b

a management company is providing, in accordance with Article 5(3) of the UCITS directive, the investment service specified in paragraph 4 or 5 of Section A, or the ancillary service specified in paragraph 1 of Section B, of Annex I to the markets in financial instruments directive, or

c

a market operator is providing the investment service specified in paragraph 8 of Section A of Annex I to the markets in financial instruments directive.

5

Expressions used in paragraphs (1)(e), (2) and (3) and in the markets in financial instruments directive have the same meaning as in that directive.