COMMISSION DECISION   of 13 July 1987   relating  to a proceeding under Article 85 of the EEC Treaty  (IV/31.764 - Baltic International Freight  Futures Exchange Limited)   (Only the English text is authentic)   (87/408/EEC)
THE  COMMISSION OF THE EUROPEAN COMMUNITIES
,
Having regard to the Treaty establishing the European Economic Community,
Having regard to Council Regulation N° 17 of 6 February 1962, first Regulation implementing  Articles 85 and 86 of the Treaty(1), as last amended by the Act of Accession of Spain and Portugal,  and in particular Article 2 thereof,
Having regard to the notification and application for negative clearance submitted on 31 December  1985 by the Baltic International Freight Futures Exchange Limited concerning the Articles, Rules  and Regulations of the Association,
Having regard to the summary of the notification published(2) pursuant to Article 19 (3) of  Regulation N° 17,
After consulting the Advisory Committee on Restrictive Practices and Dominant Positions,
(...) [...]    Whereas:
I. THE FACTS       (1)The Baltic International Freight Futures Exchange Limited (BIFFEX) was incorporated on 21  January 1985 by Anderson Man Ltd, Cargill Investor Servieces Ltd, Coley and Harper Ltd, and  Merrill, Lynch, Pierce, Fenner & Smith (Brokers and Dealers) Ltd. Its purpose is the establishment  and running of a market dealing in freight futures contracts in London which provides facilities  for shipowners, charterers and users of shipping transport in general, to protect themselves  against adverse price movements in freight rates. BIFFEX enables them to agree to buy or sell  standardized freight futures contracts.
Agreements made on the Exchange are based upon, and settlement price is fixed by reference to, the  Baltic Freight Index. This index is comprised of 13 of the most important dry-bulk cargo freight  routes being chartered on the international market. It provides a continually calculated measure of  world freight rate movements weighted to reflect the relative importance of the voyages included.  Each day a panel of Baltic Exchange Members submits the spot rate which they consider applicable to  each voyage for the relevant cargo. The secrecy of this information allows known fixture rates to  be included; the panel members are unaware of each other's contribution. Computerized assessment of  the information provides for a daily index which reflects each day's spot market rate movements.
The contract currently traded on the market is on ocean freight rates for dry cargo. A second  contract introduced on 10 February 1986, was suspended for an indefinite period on 19 December of  the same year. It was based on the Baltic Tanker Index, similarly compiled by taking a number of  medium-sized dirty tanker voyages. Bids and offers are quoted in 'index points' of 1,0 with a value  of $ 10 per lot. The contract price is a multiple of the minimum price fluctuation, i.e. one-half  of one index point. There is no physical delivery of an underlying cash commodity. Contracts can be  liquidated by an offsetting purchase or sale at any date prior to maturity. Positions which are  held until contract maturity are automatically settled in cash, based on an average of the relevant  Baltic Index over the last trading days of the month.
BIFFEX offers a market for trading by the 'open outcry' method. In addition, it provides the  advantage that the performance of any transaction concluded on the floor is guaranteed by a  clearing house.
(2)All contracts traded on BIFFEX must be registered with the International Commodities Clearing  House Limited (ICCH), an independent service company which provides clearing and settlement  facilities for BIFFEX. ICCH has a substantial capital and reserves and is wholly owned by six  clearing banks. The principal functions of ICCH are to maintain and organize daily clearing of all  contracts traded and to provide a guarantee for due fulfilment of contracts, in accordance with the  rules of BIFFEX, to clearing members in whose names such contracts are registered.
(3)The figures annexed set out a comparison of the trading volumes for 1986 for Dry Cargo  Contracts which are traded on BIFFEX and INTEX (the International Futures Exchange, situated in  Bermuda), and the volumes for the Tanker Freight Contract in 1986.
(4)The operation of the Exchange is administered by a board of directors which is responsible for  the supervision of members and the functioning of the Exchange, and which passes resolutions in  respect of various technical matters. The board appoints a committee which is responsible for  admission to, and the rules of, the association.
The market is furthermore subject to the surveillance of the Bank of England.
(5)There are two classes of membership of the BIFFEX: the first class of members are floor  members whose number may not exceed 30. Only floor members may trade on the floor. The second class  are ordinary members, with a maximum of 70. A detailed statement of the criteria for each class of  membership in force may be obtained from the secretary of the BIFFEX. In order to quality for floor  membership, an applicant must be a firm or a company and meet certain financial requirements. It  must maintain a properly established office in or sufficiently close to the City of London for the  control and execution of its business on the BIFFEX and have a continuing interest in trading on  the floor and maintain sufficient trading staff on that floor, to the extent required by the board  of directors.
There are, currently, 28 ordinary members. N° financial requirements are imposed upon them. These  members may be firms, companies or individuals, and must have a continuing interest in the activity  of the Exchange.
The fulfilment of the relevant criteria may be continually monitored.
Members may transfer their membership provided that the transferee is elected as a member.  Proposed changes in the directorship of a member, like any circumstances that might have the effect  of changing the control of the member, must be notified to and accepted by the board.
(6)An appeal procedure applies if the board refuses an application for membership, refuses to  grant permission for a transfer of membership, or refuses to approve a change in the directorship,  partnership, nature of business, legal status or beneficial ownership of a member.
The board may be requested to reconsider its decision. In case of confirmation, the applicant or  member may appeal to a commissioner appointed by the directors of the Baltic Exchange from a list  of persons suitably qualified, which list may include the chairmen of the Stock Exchange and the  Committee of London Clearing Bankers and others, but excluding persons connected with trades  carried on by members of the member associations of the London Commodity Exchange Company Limited,  members of BIFFEX or of the Grain and Feed Trade Association Limited.
The board may also expel or suspend a member: the exercise of that power is accompanied by the  same safeguards as those mentioned above.
Independently of the rules and in accordance with English law, each member remains free to bring  proceedings before the ordinary courts.
(7)Each floor member is entitled to - and must, if the board so requires - apply for a trading  licence valid for one calendar year.
N° contract may be made on the floor other than by a licensed floor member who is a clearing  member or a party to a clearing agreement under the terms of which the clearing member guarantees  the performance of all contracts made by the non-clearing floor member or of its obligation in  respect of contracts made on the floor and allocated to it.
Any member may become a clearing member upon application to ICCH and to the board, provided that  it satisfies specific requirements as to its net worth. The clearing members must register all  their contracts with the ICCH and deposit with the ICCH an amount fixed for each open contract  ('margin') and afterwards continually adjusted in consideration of their trading position.
Licensed floor members may nominate individuals as their floor traders, subject to approval by the  Membership and Rules Committee, with a possibility of appeal to the board. Contracts may be  executed on the floor only by duly-appointed floor traders.
(8)The majority of the members of BIFFEX are either shipping companies, ship brokers or companies  involved in the commodity business. Most members will not only use BIFFEX on their own account but  will also act as brokers for clients, representing all sections of the international freight and  shipping industry, both from the shipowners' and from the charterers' side.
However, the board may limit the trading right of a licensed floor member to transactions with  other licensed floor members, if the member's net worth does not exceed a certain amount.
Each contract with a client gives rise to a matching contract on the floor. There is no condition  as regards commissions charged to the clients by a member.
II. LEGAL ASSESSMENT       (9)The notified Articles, Rules and Regulations of the Baltic International Freight Futures  Exchange Limited are to be considered as agreements within the meaning of Article 85 of the EEC  Treaty.
(10)There are clear criteria for membership. Those requirements, together with the disciplinary  powers given to the Board, allow members to maintain confidence in the financial and business  standing of each other. Any dissatisfied member or applicant has the possibility of requesting  consideration and may appeal against the decision which it contests. As an ultimate resort an  appellant would have recourse to the ordinary courts under English law.
In order to maintain the ability of the clearing house to guarantee the performance of every  transaction carried out on the floor, each licensed floor member entering an exchange contract must  be a clearing member or a party to a standard clearing agreement; standard clearing agreements,  however, do not cover matters relating to remuneration.
As regards transactions between members and between members and non-members, commissions are  freely negotiated.
(11)The publication in the Official Journal of the European Communities pursuant to Article 19 (3) of Regulation N° 17 did not bring in any representations from third parties.
(12)The notified Articles of Association, Rules and Regulations do not contain any clauses which  constitute appreciable restrictions of competition within the common market. Therefore, the  Commission, on the basis of the facts in its possession, has no grounds for action under Article 85  (1). Consequently, the Commission is able to issue a negative clearance pursuant to Article 2 of  Regulation N° 17.
On the basis of the facts in its possession the Commission has no grounds for action  under Article 85 (1) of the EEC Treaty in respect of the Articles, Rules and Regulations of the  Baltic International Freight Futures Exchange Limited.
This Decision is addressed to the Baltic International Freight Futures Exchange  Limited, whose registered office is at 14/20 St Mary Axe, London EC3A 8BU, United Kingdom.