The OFT has decided not to undertake any work in the market for derivatives clearing, after inviting views earlier this year.

The OFT called for submissions on the broader issue of competition in this market in May after it concluded that ICE Clear Europe's regulatory provisions did not have a significantly adverse effect on competition.

In reaching its decision, the OFT considered both the submissions it received from interested parties, and recent developments in the market. It concluded that, whilst some potential concerns about the competition effects of vertical integration between derivatives exchanges and clearing the transactions on them were raised, no specific action is required at present because:

• Regulatory initiatives from both the US and EU suggest that now would not be an appropriate time for the OFT to take further action other than to monitor developments closely.
• The industry is characterised by rapidly changing market developments and product and technological innovation which further indicate action at this time is not appropriate.
• Consumers in derivatives trading in the majority are large, globally active companies which have demonstrated that they are able to react to market developments.

Whilst it has decided not to prioritise work in this area at present, the OFT will continue to monitor market developments closely.

NOTES

1. Clearing houses and investment exchanges wishing to operate in the UK have to obtain recognition by the FSA which conducts its own investigations into their suitability and makes recommendations to the Treasury. The OFT's report on whether there is a significantly adverse effect on competition is part of this wider process. The recognition process is specified in the Financial Services and Markets Act 2000 (FMSA). The OFT's duties are set out in s303.

2. In May 2008 the Financial Services Authority (FSA) granted recognition to ICE Clear Europe Ltd (ICE Clear) as a Recognised Clearing House for the purposes of FSMA. In this case the OFT concluded that the recognition of ICE Clear would not lead to a significantly adverse effect on competition and a further investigation by the Competition Commission was not required. See press release 61-08.

3. In addition to the OFT's duty under the FSMA to report on whether the regulatory provisions of clearing houses and investment exchanges seeking recognition have a significantly adverse effect on competition, it also has the following relevant powers:

• Under the FSMA, to investigate whether the regulatory provisions and practices of recognised investment exchanges and clearing houses have a significantly adverse effect on competition.
• Under Articles 81 and 82 of the EC Treaty, to take enforcement action if it has reasonable grounds to suspect that an investment exchange or clearing house has entered into anti-competitive agreements or is abusing a dominant market position which may affect trade between Member States.
• Under the Enterprise Act 2002, either to make a market investigation reference to the Competition Commission if it has reasonable grounds to suspect that any feature or combination of features of the relevant market prevents, restricts or distorts competition in the United Kingdom, or to conduct its own market study.