The Office of Fair Trading (OFT) has today announced that it has finally and unconditionally closed the case against the London Metal Exchange (LME). The case was opened in response to a complaint from Spectron Group plc where it was alleged that the operation of LME Select was anti-competitive.
Background: The original complaint was made in 2003. In August 2005, and in response to user requests, the LME made clear its plans to extend the opening hours of LME Select to cover Asian trading hours on 1 March 2006. The OFT subsequently imposed an Interim Measures Direction (IMD) on 27 February 2006 preventing the LME from doing this. While the IMD was withdrawn by the OFT wholly and unconditionally on 15 May 2006, the LME had already lodged an appeal with the Competition Appeals Tribunal (CAT) against this decision. In September 2006 the CAT found unequivocally in favour of the LME in its appeal for costs against the OFT’s imposition of an IMD.
Commenting on today’s announcement, Martin Abbott , LME Chief Executive said:
“We have always said that the allegations made in the complaint were wrong, without basis and partial. Our only purpose is to devote our energies to providing an orderly market that serves the interests of the international metals community. The long-drawn out nature of this matter has created material uncertainty in the market but today’s decision brings this to an end. Even though the OFT’s decision is long overdue it is very welcome.”
Background:
- The LME provides a global forum for managing the risk of future price movements in non-ferrous metals and plastics, offering an environment for exchange-based trading.
- The LME currently operates as a not for profit, member owned institution. Its contracts can only be traded by member firms and it equally supports and provides three trading platforms, which are owned by, and only available to, members. Trading on the LME is conducted via the Ring (an open-outcry trading floor), the telephone and LME Select, its electronic trading platform.
- The LME is the world’s premier non-ferrous metals market. It traded over 87 million lots in 2006, which equates to a value of approximately $8,100 billion dollars.
Time line of Developments
1) In LME notice 05/228, dated 3 August 2005; notice 05/275 dated 16 September 2005; and in notice 05/352, dated 23 November 2005 the LME announced its plan to extend the trading hours for LME Select to better synchronise with the important early morning trading in the Asian markets, and to do this with effect from 1 March 2006.
2) The OFT first received a complaint from Spectron Group plc on 1 July 2003 that the operation of LME Select by the LME was anti-competitive. The OFT consequently opened an investigation into the operation of LME Select since then.
3) Spectron and the OFT were aware of the LME's plans to extend the trading hours for LME Select since the beginning of August 2005. The plan to extend the trading hours was in response to requests from LME members.
4) On 2 February 2006, Spectron asked the OFT to take urgent action to stop the LME from extending LME Select trading hours. In making its request Spectron claimed that unless the OFT took urgent action to stop the LME, the extended trading hours for LME Select would seriously and irreparably harm Spectron's business.
5) On 27 February 2006 the OFT imposed an interim measures direction which prevented the LME from extending the opening hours of Select to cover Asian trading hours.
6) On 27 February Spectron wrote to its clients and informed them of a price increase, effective from 1 March 2006.
7) On 1 March Spectron (the sole complainant), wrote to its customers to say that it had told the OFT that it wanted to withdraw its request for interim measures.
8) In its notice to customers Spectron conceded that there was no public interest in the interim measures being maintained and that it was suffering no damage that required protection by interim measures. This was consistent with the representations made by the LME to the OFT prior to the OFT issuing the interim measures direction.
9) After the IMD was imposed the LME dedicated considerable time, effort and resource into getting the IMD withdrawn.
10) Notwithstanding negotiations with the OFT by 26 April 2006, the LME had no choice but to lodge an appeal against the interim measures direction with the Competition Appeal Tribunal (CAT). The deadline for appeal was 27 April.
11) On the evening of 26 April 2006 the OFT informed the LME that it was minded to withdraw the IMD. This was confirmed in writing by the OFT the following day.
12) On 15 May 2006 the OFT formally withdrew the IMD unconditionally, in its entirety and with immediate effect.
13) On 8 September the Competition Appeals Tribunal (CAT) handed down its judgment on the matter of costs in respect of the IMD. The appeal was heard before Marion Simmons QC (chairman) Peter Clayton and David Summers. The CAT found unequivocally in favour of the LME. The IMD was the first injunction the OFT has ever imposed under the Competition Act. It was given the power to impose injunctions approximately six years ago. The judgment was the first judgment of the CAT dealing with the question of costs in the context of an appeal against an injunction imposed by the OFT. It is of major significance to industry that the CAT determined that the OFT's conduct was below the standard which should be expected of such a body.
14) On 19 April 2007 and after a period of nearly four years, the OFT announced that it was finally to close the case.
