Find out about key areas of our commodity markets regulation, including recognised bodies, warehousing, market abuse and actions we take.
Recognised Bodies
Recognised Bodies are exempt under the Financial Services and Markets Act 2000 (FSMA) from the requirement to obtain authorisation provided they remain within the boundaries of their exemption.
Recognised Investment Exchanges (RIEs) are one type of Recognised Body. RIEs are subject to the Recognition Requirements set out in secondary legislation, which is supplemented by our guidance within the FCA Handbook in the REC sourcebook[1].
The three RIEs that offer trading in commodity derivatives are a primary focus of our interaction with the commodity markets:
- ICE Futures Europe
- LIFFE
- London Metal Exchange (LME)
RIEs are considered front-line regulators of the markets they operate. They have each taken various steps to enhance market oversight[2] since the introduction of the Markets in Financial Instruments Directive (MiFID) in 2007.
Warehousing
The operation of warehouses licensed by RIEs is not a regulated activity. However, we have a formal interest in warehousing because of the role it plays in ensuring that those RIE derivatives contracts that incorporate warehouse arrangements are anchored to the price of the underlying product and have effective settlement arrangements.
RIEs have a contractual relationship with the warehouses and have terms and conditions by which the warehouses must abide.
Multilateral trading facilities
MiFID introduced the regulatory classification of Multilateral Trading Facilities (MTFs), which granted specific permission to investment firms or market operators to facilitate multilateral deals in investments on a trading venue.
This regime closely follows the existing FSA domestic regime for Alternative Trading Systems (ATSs). MTFs are subject to the FCA Handbook provisions for MTFs[3], which are set out in MAR 5.
Regulating market participants
MiFID firms active in the commodity derivative markets are subject to MiFID in the same way as other investment firms.
The exception is that MiFID firms whose main business consists exclusively of providing investment services or activities in relation to commodity derivatives (and that meet certain other conditions) can be exempted from certain capital requirements under the Capital Requirements Directive. This exemption is due to expire at the end of 2017.
We have bespoke arrangements for supervising specialist firms in the commodity markets, particularly energy market participants[4] (EMPs) and oil market participants[5] (OMPs). These arrangements are concessions to the full firm supervision regime and focus on the prudential treatment of firms.
Our conduct of business requirements[6] still apply, subject to certain derogations[7] if the firm is not a MiFID firm.
Market abuse
The FSA published its Code of Market Conduct (the Code) in 2001. The scope of the Code was linked to ‘qualifying investments admitted to trading on a prescribed market’, which from the outset included all RIEs, including those which offered trading in commodity derivatives.
Since the implementation of MiFID in 2007, commodities RIEs have been treated as Regulated Markets, which in turn brought them under the scope of the Market Abuse Directive (MAD).
We concluded our first enforcement action[8] in commodities as the FCA in 2013.
We previously took enforcement action as the FSA on several occasions in relation to commodity market behaviour.
