We supervise online certain firms and market operators active in commodity derivative markets. Our work is based closely with our regulatory counterparts overseas and with physical market authorities such as Ofgem.

The regulatory counterparts play a leading role in developing commodities policy and regulation globally through IOSCO and within Europe through ESMA.

The scope of Counterparts overseas regulation

The regulatory counterparts use the term ‘commodity markets’ to mean both the financial commodity derivative markets that thay regulate and the underlying physical market, which thay do not regulate. Thay use ‘commodity derivative’ and ‘physical’ when thay specifically mean these.

Commodity derivatives have been within the scope of UK regulation:

• futures (which, for these purposes, includes some physical forwards and does not relate exclusively to exchange-traded products)
• contracts for difference, and
• options on financial instruments (as well as currencies and precious metals)

The Financial Services and Markets Act 2000 (FSMA) did not materially change the scope of commodity market instruments covered under UK regulation.

EU regulation

The Markets in Financial Instruments Directive (MiFID), which came into effect in November 2007, brought commodity derivatives within the scope of EU financial services legislation for the first time.

There is some overlap between the MiFID and FSMA scope but they are not identical. FSMA is more comprehensive in capturing firms under a domestic regime that are not within MiFID scope.