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Legal Regulation of Exchange Trade in Oil and Oil Products in the UK
 
PIIS231243500022046-8-1
DOI10.18572/2410-4396-2019-1-89-95
Publication type Article
Status Published
Authors
Rustam R. Shakerov 
Affiliation: Kutafin Moscow State Law University
Address: Russian Federation, Moscow
Journal nameEnergy law forum
EditionIssue 1
Pages89-95
Abstract

In the UK, oil and oil products are traded at one of the world’s largest mercantile exchanges, the London Intercontinental Exchange (ICE Futures Europe), which is a part of the American Intercontinental Exchange (ICE) founded in 2002. The latter is known to all players in the commodity market as a transnational mercantile exchange for trading in various goods. At the London Intercontinental Exchange, almost 50% of the global volume of transactions in futures for oil and oil products in the world is settled. The activities of the Stock Exchange are regulated in accordance with the requirements of the United Kingdom Financial Services and Markets Act 2000 by the controlled Bank of England as well as by the Commodity Exchange Act. The author studies the procedure for conclusion of contracts for supply of oil and oil products, the types of contracts to be concluded, the requirements to the participants of exchange trade, the methods of control over the activities of the participants. It seems that the performed legal analysis can be useful both for subsequent scientific research and for further development of the legal regulation of exchange trade in oil and oil products in the Russian Federation.

Keywordsenergy law, legal regulation of exchange trade in oil and oil products in the United Kingdom, contractual regulation of exchange trade in oil and oil products
Received08.01.2019
Publication date01.03.2019
Number of characters23230
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1 The United Kingdom is among the 20 major producers of oil and oil products worldwide as well as one of the main exporters and importers of crude oil (in 2017, oil exports increased to 30 million tons) [1].
2 At present, settlement of transactions for the purchase and sale of oil and oil products is provided for in the country both through over-thecounter transactions (settled under the terms and conditions of the NBP 2015 or the ISDA contract) and through exchange trading.
3 In the UK, oil and oil products are traded on one of the largest mercantile exchanges in the world, the London Intercontinental Exchange (ICE Futures Europe) [2], which is a part of the American Intercontinental Exchange (ICE) founded in 2002. The latter is known to all players in the commodity market as a transnational mercantile exchange for trading in various goods.
4 On the London Intercontinental Exchange, almost 50% of the global volume of transactions in futures for oil and oil products is settled.
5 In the conclusion of a futures contract for oil or oil products, the buyer and the seller may agree to make a transaction on a specific day for the purchase of goods with a price that is set at the moment. In the conclusion of futures contracts for oil or oil products at the stock exchange, the parties use certain forms of contracts that are approved by the Stock Exchange.
6 Oil importers and exporters use futures to insure against the adverse effects of changes in the prices for oil and oil products.
7 The most popular grades of crude oil traded on the London Intercontinental Exchange are Brent Crude and West Texas Intermediate (WTI). Trading occurs at the electronic platform of the Stock Exchange known as the ICE platform. It is accessible through WebICE software [3]. The exchange trading opens at 01:00 a.m. and closes at 10:00 p.m.
8 The activity of the London Intercontinental Exchange is regulated by the Financial Services Authority (FSA) of the United Kingdom. The tasks of the Financial Services Authority include without limitation:
  • maintaining confidence in the financial system;
  • promoting public understanding of the financial system;
  • ensuring the required level of protection for the consumers of financial services;
  • eduction of the possibility of using business for the purposes related to financial crimes.
9 The key functions of this Authority are protection of the rights of the consumers of financial services and control over the legitimate settlement of exchange transactions.
10 The activities of the Stock Exchange are regulated in accordance with the requirements of the UK Financial Services and Markets Act 2000 by the controlled Bank of England as well as by the Commodity Exchange Act. In accordance with sections 5 and 5a of the Commodity Exchange Act, the basic rule shall be observed so that all contracts are available on the London Intercontinental Exchange platform throughout the trading day.
11 The activities of trading participants on the Stock Exchange that are registered in the UK are regulated in accordance with the requirements developed by the Financial Services Authority of the United Kingdom [4]. If participants are abroad, activities of these participants as participants of exchange trade are regulated in accordance with the requirements of the regulatory authorities of the jurisdiction of the country in which they are incorporated.
12 Each participant of the exchange trade shall settle transactions in accordance with the current rules of exchange trading. Therefore, the Stock Exchange also plays the part of a regulator [5]. For non-compliance with this requirement, the Stock Exchange may apply a disciplinary sanction to the participant.
13 Exchange transactions cannot be registered in the event of expiration of the contract as well as after the end of exchange trading. The Stock Exchange may require the participants of exchange trade to present evidence of the right to make the transaction both before and after its registration. In case violations of the terms and conditions of the transaction are detected, the Stock Exchange may refuse to register it.
14 Two types of exchange transactions may be distinguished:
15 1. Commodity futures exchange transactions (EFP, abbreviation for “exchange of futures for physicals”) which make it possible for exchange trade participants to register as the bidders for trade in futures related to forward transactions in energy raw materials (oil, diesel fuel, gasoline, fuel oil, propane, etc.).
16 In the financial field, the EFP is a transaction between two parties, in which the futures contract is exchanged for the actual physical good. This transaction involves exchange of information about the futures position concluded in private for the relevant position. The meaning of these transactions is to combine the positive aspects of the forward transaction (choice of counterparty, date and place of delivery, grade of the basis asset, etc., no basis) with the advantages of the exchange guarantee system mitigating the counterparty risk. It is important to note that when EFPs are listed on the stock exchange, the volume and the transaction refer to the current trading day, but the price is not announced to the market. The positive aspects mean that the buyer and the seller can choose for themselves more suitable terms and conditions of the transaction. Accordingly, the negative aspect may be that the buyer enters into a contract subject to the terms and conditions that are not entirely beneficial to it.

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1. Guidance ICE Futures Europe EFP, EFS, Soft Commodity EFRP and Basis Trade Policy – Electronic resource : https:// www.theice.com/publicdocs/futures/IFEU_EFP_EFS_Guidance.pdf
2. Guidance ICE Futures Europe Position Transfer Electronic source : https://www.theice.com/publicdocs/Position_  Transfer_Guidance.pdf
3. ICE Crude & Refined Oil Products – Electronic source : https://www.theice.com/publicdocs/ICE_Crude_Refined_  Oil_Products.pdf
4. ICE Futures Europe Complaints Resolution Procedures, April 2014 Electronic source : https://www.theice.com/publicdocs/futures/Complaints_Resolution_Procedures.pdf 
5. IPE/ETS Implementation date 2002, 7 December 2005, 10 April 2008, Launch of ICE Clear 2008, 7 June 2012, 24 September 2012, 10 June 2015, 3 January 2018.
6. IPE/ETS Launch of ICE Clear 2008, 3 September 2014, 3 January 2018.
7. Market Abuse Regulation (EU) No. 596/2014.
8. Oil and Gas Regulation 2018 United Kingdom/ International Comparative Legal guides Electronic source : https:// iclg.com/practice-areas/oil-and-gas-laws-and-regulations/united-kingdom
9. Part XVIII of the Financial Services and Markets Act 2000 – Electronic resource : www.legislation.gov.uk/ukp- ga/2000/8/contents
10. Aleksandr Belozertsev, Lamon Rutten et. al. Mercantile Exchanges in Europe and Central Asia. Means for Price Risk Management, Working paper prepared within the framework of cooperation with the World Bank, 2013 – Electronic source : https://aeaep.com.ua/tovarny-e-by-rzhy-v-evrope-y-tsentralnoj/ 
11. ICE Crude & Refined Oil Products brochure – Electronic source : https://www.theice.com/publicdocs/ICE_Crude_  Refined_Oil_Products.pdf

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