Streetwise Professor

December 11, 2008

Miscellaneous Clearing News

Filed under: Derivatives,Economics,Exchanges — The Professor @ 11:32 pm

In a moment of clear thinking (pun intended), Britain’s antitrust authority, the Office of Fair Trading, has decided not to pursue further analysis of exchange ownership of clearinghouses:

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.

In the second item, contrary to a SWP prediction, ELX has chosen the Options Clearing Corporation to clear its futures business.   Since there was a large overlap between the ELX founders, and the group of firms that invested in the Clearing Corporation Formerly Known as BOTCC, I had predicted that ELX would choose the ClearingCorp.   My conjecture is that the purchase of the CCorp by ICE scuppered those plans.   Getting clearing services from a potential competitor, ICE, was probably not that appealing a prospect.   The whole CDS clearing issue was not on anybody’s radar screen when ELX was first mooted, and the banks invested in CCorp.   The CDS clearing thing took on a life of its own, and the ICE initiative made sense, and pushed the ELX to the back burner.

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