519.Subsection (1) allows the Treasury to set recognition requirements by regulations.  Recognition requirements are the requirements which must be satisfied by an exchange or clearing house in order both to become recognised, and to remain recognised.
520.Subsection (2) provides that if the regulations made under subsection (1) contain provisions relating to the default rules of a recognised body, then the Treasury has to have the approval of the Secretary of State before making the regulations.  (The Secretary of State is responsible for insolvency matters.)
521.Subsection (3) defines default rules.  These are rules which provide for action to be taken to settle market contracts in the event of a default; for example, the rules may specify the means for establishing the price at which a bargain should be made.  These are necessary to protect against systemic risk in the financial markets.  If contracts could not be closed out in an orderly and speedy manner, a default by one market participant could spread quickly to large numbers of market participants.
522.Subsection (4) defines market contract by reference to Part VII of the Companies Act 1989 (or the corresponding Order in Northern Ireland). Market contracts in this context are those entered into by the exchange or clearing house or by the members of an exchange.
Commentary on Sections Part Xviii: Recognised Investment Exchanges and Clearing Houses Chapter I: Exemption Section 286: Qualification for recognition