The Competition Commission (CC) has provisionally cleared the anticipated acquisition by BATS Global Markets, Inc of Chi-X Europe Limited.
Both companies operate Multilateral Trading Facilities (MTFs) which enable market participants (investment banks, brokers and dealers) to trade equities through a single platform as an alternative to trading on national exchanges such as the London Stock Exchange (LSE).
In a summary of its provisional findings published today, the CC has concluded that customers of both exchanges would have the power to prevent any attempt by the merged company to raise trading fees or worsen service quality, by taking - or threatening to take - their business elsewhere or even potentially sponsoring new entry by a competitor as has happened previously in this sector.
Chairman of the BATS/Chi-X Inquiry Group, Malcolm Nicholson said:
The customers of both these exchanges are in a particularly powerful position to combat any attempt by the merged company to raise trading fees, reduce service quality or otherwise exploit any loss of competition.
Any MTF needs a critical mass of customers to be successful in order to provide the liquidity that will then in turn attract other customers. The two exchanges share a very similar customer base and so are dependent on retaining the business of a limited number of large financial institutions. Such institutions could quickly spot any rise in costs or fall in service quality and would have the ability to take their business elsewhere with relative ease.
They could also credibly threaten to sponsor a new competitor in response to any deterioration in the merged exchange’s performance. Some of these customers are also shareholders of the two exchanges and can influence the management. They have every incentive as customers of the services provided to ensure a competitive marketplace. The major customers have also expressed no concerns about the deal.
Although Chi-X and BATS have up to now targeted their efforts at winning business from the LSE, these are relatively new businesses and so the merger of two such similar operations could significantly reduce competition. However, our provisional view is that their customers have sufficient power to maintain competition in the market.
The summary of the provisional findings report and other details on the investigation are available on the CC website at: www.competition-commission.org.uk/inquiries/ref2011/bats_chi_trading/index.htm
The CC will publish the full provisional findings report shortly. The CC will now consider responses to the provisional findings before publishing its final verdict, which it must do by 2 December 2011.
The CC would like to hear from all interested parties about the provisional findings, in writing, by 10 November 2011. To submit evidence, please email BATSGlobalChix@cc.gsi.gov.uk or write to:
Inquiry Manager (BATS/Chi-X)
Competition Commission
Victoria House
Southampton Row
LONDON
WC1B 4AD
Background
- The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.
- The members of the BATS/Chi-X inquiry group are: Malcolm Nicholson (Group Chairman), Carolan Dobson, Richard Farrant and Ian Jones.
- The Office of Fair Trading (OFT) referred the case to the CC on 20 June. The CC is required to report by 2 December 2011.
- The Enterprise Act 2002 empowers the OFT to refer to the CC completed or proposed mergers for investigation and report which create or enhance a 25 per cent share of supply in the UK (or a substantial part thereof) or where the UK turnover associated with the enterprise being acquired is over £70 million.
- The CC has a 24-week period in which it is required to publish its report, which may be extended by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.
- Further information on this inquiry, including the terms of reference and other key documents, as well as on the CC and its procedures, including its policy on the provision of information and the disclosure of evidence, can be obtained from the CC website at: www.competition-commission.org.uk.
