Note by the London Metal Exchange on the
statutory immunity for Recognised Investment Exchanges and clearing
houses for their regulatory functions
The draft Bill largely continues the current
regulatory regime for investment exchanges and clearing houses
whereby Recognised Investment Exchanges (RIEs) have regulatory
duties derived from statute, to maintain fair and proper markets.
The RIEs are the front-line regulators against market manipulation
and other abuse.
The LME fully supports this regime. Market abuse
can be effectively deterred only by the exchanges. The FSA is,
necessarily, too distant from the markets to act to deter manipulation
and to stop it in its tracks. The FSA can act after the event
and discipline those found to have manipulated the market: but
by then substantial damage could have been inflicted on the market,
market participants and market users.
The LME is determined to carry out its regulatory
responsibilities. In doing so, however, it is subject to a substantial
risk of litigation. The financial strength of the market participants
and the financial stakes involved could threaten the commercial
viability of the Exchange.
The FSA enjoys statutory immunity for its regulatory
actions taken in good faith. The LME's proposal is to limit immunity
for RIEs and RCHs to regulatory actions taken in good faith to
fulfil their statutory regulatory obligations under the new legislation.
It would therefore do no more than treat consistently any given
regulatory actions whether taken by an Exchange/Clearing House
or the FSA.
The draft Bill proposes limiting immunity to
actions from the Exchange's members. This would substantially
restrict the LME's capacity and effectiveness with which it is
able to fulfil its regulatory functions. The danger of suit from
customers of the Exchange, approved warehouses and employees of
member firms (none of whom are members of the Exchange) is far
greater than from our members.
We understand that there may be some concern
about giving commercial organisations statutory immunity or that
immunity in these cases may remove civil rights. We believe these
concerns to be misplaced. Under our proposal, immunity from civil
suit would be heavily circumscribed. Exchanges would still be
open to legal challenge that particular actions had been taken
for commercial, not regulatory purposes or were taken in bad faith.
Exchanges would still be subject to judicial review. Currently
the LME is in the unique position of being subject to civil suit
and judicial review for the same regulatory action.
8 March 1999