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UK competition watchdog mulls clearing probe

14 May 2008  |  4252 views  |  0 Digital Abstarct

The UK's Office of Fair Trading (OFT) has called for feedback from "interested parties" on whether it should launch a competition investigation into clearing and settlement in the derivatives market.

The call comes after the competition watchdog approved plans by US market operator IntercontinentalExchange to set up a clearing house in London, called ICE Clear Europe.

In a statement the OFT says it "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".

But the watchdog says it acknowledges that "some competition concerns have been expressed about clearing and settlement".

"The OFT would welcome views from interested parties that would inform the OFT's prioritisation decision as to whether to undertake any work looking at clearing and settlement in the derivatives market," says the statement.

The OFT says any submissions should be sent by 30 June 2008 and should include "a view on why the OFT is best placed to act".

ICE said yesterday that the UK's Financial Services Authority (FSA) has approved its plans to establish its own clearing operation in London. The US exchange is now expected to terminate its existing clearing agreements with LCH.Clearnet and launch the clearing house in July.

Nyse Euronext-owned Liffe has also disclosed plans to its own clearing house and renegotiate its existing agreement with LCH.Clearnet. The London-based derivatives exchange is looking to create a new central counterparty (CCP), called LiffeClear. LCH.Clearnet will continue to provide risk management and guarantee functions for the market.

Earlier this year London Stock Exchange (LSE) chief executive Clara Furse criticised plans by ICE and Liffe to establish their own clearing operations in London and distance themselves from LCH.Clearnet and called on UK regulators to act to prevent a "domino effect" of spreading anti-competitive behaviour in the exchange clearing business.

Furse expressed concern over the way that some exchanges are introducing the so-called "vertical silo" model of clearing in Europe, where exchanges own their post-trade operations, thereby ensuring user lock-in from execution to settlement.

She said the decision whether to refer ICE's plans to set up a clearing house to the competition commission is "pivotal and will reverberate far beyond the ICE market".

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