The CC found that either merger would make it more difficult for other exchanges to compete with LSE in trading UK equities because of both bidders’ ownership or control over the future provision of clearing services to LSE. Any exchange attempting to compete with LSE and win the business of trading firms on the LSE would require access to LSE’s clearing services provider.
The CC found that the removal of DBAG or Euronext alone, as a result of either merger, would not be expected to result in a substantial lessening of competition in the provision of on-exchange trading services because of the competition provided by other exchanges in Europe and the USA.
In the case of DBAG, the CC believes that it is likely that it would introduce its own clearing services provider, Eurex Clearing AG, as LSE’s provider of clearing services. DBAG/LSE would then make it difficult for potential competitors to gain access to Eurex Clearing AG’s services, and hence potential competitors would be less able to compete at the trading services level.
Euronext has the largest shareholding in LSE’s current clearing services provider, LCH.Clearnet. It also has representation at Board level, and provides a substantial share of LCH.Clearnet’s total fee income. Following a merger, despite the governance arrangements currently in place for LCH.Clearnet, Euronext/LSE would have the ability and incentive to make it difficult for potential competitors to gain access to LCH.Clearnet’s services, and hence potential competitors would be less able to compete at the trading services level.
The CC expects that the LSE would continue to be regulated by the FSA following either merger.
The CC will now start discussions with interested parties concerning actions that could be taken to remove the anti-competitive effects of the proposed mergers. A summary of the CC’s provisional findings report, together with a notice of possible remedies to address the anti-competitive effect, have been published on its web site at www.competition-commission.org.uk/inquiries/ref2005/lse/index.htm. The CC has also published a consultation notice on an extension to the inquiry timetable by up to eight weeks.
The full provisional findings report will be published next week. Interested parties are also able to comment on the provisional conclusions before the CC publishes its final report.
The CC now invites responses from the main parties and other interested parties on possible remedies by 18 August 2005 and the provisional findings by 19 August 2005. Comments should be made in writing to:
Alan Shearman
Secretary to the LSE mergers inquiry
Competition Commission
Victoria House
Southampton Row
LONDON
WC1B 4AD
Or email: alan.shearman@competition-commission.gsi.gov.uk .
Background
- The proposed mergers were referred by the Office of Fair Trading (OFT) on 29 March 2005. The CC is seeking to establish whether they may be expected to result in a substantial lessening of competition within the UK market (or markets) for on-exchange trading services for equities, clearing services for equities trades, or any other market or markets, such as listing, settlement or information services.
- 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 LSE inquiry group (the Group) consists of four members of the CC: Jeremy Seddon (Group Chairman), Jayne Almond, Alan Gregory and Barbara Mills. The group was originally chaired by Professor Paul Geroski, but he withdrew because of ill health.
- 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 the CC and its procedures, including its policy on the provision of information and the disclosure of evidence, can be obtained from its web site at www.competition-commission.org.uk.
- Enquiries should be directed to Rory Taylor or Francis Royle on +44 (0)20 7271 0242 ( rory.taylor@competition-commission.gsi.gov.uk )
