The US Commodity Futures Trading Commission has announced a series of restrictions on trading by US investors on the ICE Futures Europe market in London, setting up a potential jurisdictio
The US Commodity Futures Trading Commission has announced a series of restrictions on trading by US investors on the ICE Futures Europe market in London, setting up a potential jurisdictional clash with the UK’s Financial Services Authority, the market’s regulator.
In a statement, the CFTC said it had amended the so-called no-action relief letter under which ICE Futures Europe is permitted direct access to US customers. The new rules make direct access conditional on the adoption by ICE Futures Europe of equivalent US position limits and accountability levels on its West Texas Intermediary crude oil contract, which is linked to the New York Mercantile Exchange crude oil contract.
The US commodities market regulator has acted in response to pressure from US legislators, who believe that the recent spike in oil prices is mainly or partly due to the activity of speculators including hedge funds and large institutional investors. Members of Congress have also criticised the UK regulatory authorities, claiming that the FSA is inadequately equipped to investigate and punish market abuse.
Under the new rules, the commission says, ICE Futures Europe – a subsidiary of the US-based IntercontinentalExchange – will follow similar US hedge exemption requirements and will report violations of any such provisions to the CFTC. The London exchange accounts for some 30 per cent of the global market.
The US regulator says its action formalises the recently-announced information-sharing arrangement between the CFTC and the FSA by requiring ICE Futures Europe to provide the CFTC with detailed market information, equivalent to US standards, for surveillance purposes as a condition of direct access to US customers.
The CFTC says it will incorporate the London exchange’s data into its weekly Commitments of Traders report categorising traders and positions. The commission plans to apply the new conditions to any future requests for direct foreign access to US customers for contracts that cash settle against those listed on any US exchange, and says the access conditions must be satisfied by ICE Futures Europe within 120 days.
‘These new conditions for foreign access will provide the CFTC with additional oversight tools to monitor linked contracts,’ says acting chairman Walt Lukken. ‘This combination of enhanced trading data and additional market controls will help the CFTC in its surveillance of regulated domestic exchanges, while preserving the important benefits of our international recognition programme that has enabled proper global oversight during the last decade. This raises the bar for all future foreign access requests and will ensure uniform oversight of linked contracts.’
‘The Financial Services Authority, which has robust and appropriate requirements for the maintenance of market integrity and for the prevention of market abuse, has been and continues to be an invaluable partner as we work together to oversee our respective markets.’
In November 2006, the CFTC and the FSA signed a memorandum of understanding on market surveillance that provides for the sharing of large trader information with respect to linked contracts on a weekly basis and daily in the settlement week. This was expanded last month to include the provision of large trader information on a daily basis.
