Top executives at LCH.Clearnet, NYSE Liffe, ICE Futures Europe and the London Metal Exchange have joined the council, as well as senior investment bankers. Steve Sparke, chairman of the FOA, will chair the body, and Anthony Belchambers, the FOA’s chief executive, also sits on it.

“This is a response to what we see as a massive agenda of regulatory change facing the industry over the next 12 to 18 months,” Sparke said. “It’s important that the industry is seen to be speaking with one unified voice on issues where there is broad agreement between all market participants. Having the exchanges and clearing houses involved in the council at the most senior level is critical.”

Overcoming differences

The FOA is the established industry body for European listed derivatives. Although the exchanges and clearing houses are members of it, the FOA has tended to represent mainly the interests of derivative users and intermediaries such as banks and trading firms.

About two years ago the FOA decided to reduce the influence of exchanges in its affairs and asked their representatives to step down from its board. At the time, banks and futures commission merchants (FCMs) were clashing with the exchanges about issues such as fees and did not want them to take part in those discussions.

“The industry recognises there are a number of issues where we need to speak with a common voice,” said David Peniket, president and COO of Ice Futures Europe and a member of the FOA council. “This initiative will provide a platform for that kind of dialogue.”

One derivatives banker welcomed the new council as a way to heal a “schism that had existed between the brokerage houses and exchanges for too long”. He said the council would make the European industry “look more similar to the way the Futures Industry Association in the US and Asia have moved forward on the industry agenda, where the exchanges have been very much at the forefront”.

Sparke said: “In the past we have had the occasional exchange representative on the FOA board, but … one exchange can’t speak for all of them. We wanted a better way to ensure there is a full industry voice to speak on these matters.”

The council includes Garry Jones, global head of derivatives at NYSE Euronext; Roger Liddell, chief executive of LCH.Clearnet; Martin Abbott, chief executive of the London Metal Exchange; and Peniket from Ice.

Representing banks are Peter McLady, head of global exchange services at Deutsche Bank; Jerome Kemp, global co-head of futures and options and head of OTC clearing at JP Morgan; and Bill Templer, co-head of exchange-traded derivatives at Morgan Stanley.

Several leading European derivatives exchange groups – above all Eurex, but also Nasdaq OMX, the London Stock Exchange group and Spain’s Meff – have not yet joined the council. However, more exchanges are likely to join, as well as two or three more banks and futures commission merchants, in the coming weeks.

The body’s work will be complementary to that of the FOA and the Federation of European Securities Exchanges.

“The FOA will continue to deal with a lot of the core issues that impact on our members, and will get into a lot of the detail,” said Belchambers. “There may be some issues that affect firms but where exchanges are neutral, and others that affect exchanges but not firms. But where we all need to act together, the council will provide a channel.”

Battles to fight

Top of the list of issues the council is likely to tackle are the threat of higher capital requirements for firms trading derivatives; political calls for a Tobin tax on financial transactions; and supervision of OTC markets.

The focus will mainly be on listed derivatives, but as the exchange-traded market is increasingly interconnected with the over-the-counter sector, the council will also deal with OTC issues.

Some of its efforts may involve lobbying the US Congress and regulators, to the extent that their decisions affect the European market.

“The US authorities seem to be moving a bit faster and more aggressively on regulation than those in Europe, but most of the things being done in the US are appearing somewhere or other in the European agenda too,” said Sparke. “It’s very hard to draw a line between the European and US regulatory agendas. Even though legislation may be in the US, it can impact Europe too.”

An example is the Lynch Amendment, included in the Wall Street Reform and Consumer Protection Act, passed by the House of Representatives in December. This would bar swap dealers and major swap participants from owning, collectively, more than 20% of a clearing organisation, or controlling more than 20% of its votes.

That would cramp the US ambitions of LCH.Clearnet and NYSE Euronext Liffe, to name but two European companies.

Another important focus is likely to be regulators’ wish to drive more OTC derivatives on to the exchanges and into clearing houses. Sparke said: “There is pretty broad agreement that politicians forcing the agenda for what can be cleared could cause problems – as experts we need to be able to tell the regulators what will work and what won’t.”

The immediate work for the council is to finalise its terms of reference and put together a work programme. One foundation meeting was held around Christmas time; the first proper meeting could be held in early February.