Update

Exchange & Clearing House Issues

	Eurex

Options exercise/assignment problems

The Exchange worked through a range of issues with its Clearing Committee and has agreed to adopt a number of recommendations which will enable its members to manage the operational risk associated with the exercise/assignment process more effectively. There are a couple of outstanding issues which the Exchange plan to discuss further with their Clearing Committee – they are (i) the introduction of optional functionality that would allow 4 eyes sign off of OTM exercises and, (ii) the introduction of a review period (~ 20mins) immediately before the exercise deadline to allow firms to review their own positions and associated instructions.

Overall, the response from the Exchange to try and resolve their members' concerns on this issue has been very well received.

Access to trade log data in the event of a dispute

The FOA has had some preliminary discussions with the Exchange on the subject of members' access to trade log information in the event that there is a dispute between a member and the Exchange. Such a dispute could result from a client stop being triggered in error, in the eyes of the member firm. For the member firm to ascertain whether the error was indeed down to the Exchange's matching engine or in fact was linked to the member's own order routing system, the member would need to have access to the relevant data for its investigation. The FOA has been asked to clarify the Exchange's procedures in such a situation and hopes to be in a position to deliver such clarity shortly. Members wishing to discuss this issue further should contact Hugo Jenkins.

	NYSE Euronext.liffe

Management of conflicts of interest when facilitating arbitrage in softs between Euronext.liffe and ICE Futures (NYBOT).

In December, the Exchange wrote to a number of its members, who are active in softs commodity contracts, to inform them of their policy on managing the conflicts which can arise when executing arbitrage orders between London and New York. This letter suggested that firms may wish to consider using a client disclosure document which the FOA had produced following consultation with its members. For a copy of the disclosure document, click here.

	Options exercise/assignment problems

The FOA met with the Exchange in November to discuss how the options exercise/assignment process and functionality could be improved. The resulting business requirements are subject to an impact assessment from IT Development and a further meeting is scheduled with the Exchange on 29 th Feb. to discuss a possible timetable for implementation of agreed changes. Further details will be issued by the FOA in due course.

A meeting with LCH.C SA is also scheduled for 29 th Feb. with a similar objective.

	LME

Lending Guidance – an explanatory note for firms and their clients

It was agreed at the January meeting of the FOA's Metals Working Group that the FOA should produce a short explanatory document which would explain the reasons why the LME has lending guidance rules and how they operate. This document will be aimed at those compliance officers who are not familiar with the LME and firms' clients.

LME Matching Performance

FOA members will be aware that the naming & shaming of those LME member firms who do not meeting certain matching performance thresholds commenced in November last year. Firms should note that the FSA continues to take a close interest in this issue and, to this end, will be monitoring firms' performance.

LME specific give-up agreements

As members will be aware, the FIA's EGUS service currently has a number of LME specific give-up agreements within the system. Following discussions with the Exchange, it was decided that two issues needed to be addressed. Firstly, Category 4 LME members must name the Administrative Clearer Party on a give-up agreement and currently this is not accommodated within EGUS. Secondly, the Exchange voiced concern over the naming of two Executing Brokers where one such Party is not an LME member. They would rather see the non-LME member executing broker named as Order Passing Broker (OPB). The FOA in conjunction with the FIA have agreed to make the necessary changes to EGUS to facilitate the execution of give-up agreements by Cat. 4 members. The OPB change is still the subject of discussion with EGUS users.

Firms wishing to obtain further information on this issue can contact Hugo Jenkins.