Canadian COMPETITION LAW

On June 20, 2011, the U.K. Office of Fair Trading, the U.K.’s competition regulator, announced that it was referring the proposed acquisition of Chi-X Europe Limited by BATS Trading Limited to the Competition Commission for further investigation.

In making the announcement, the OFT said:

“Both companies operate Multilateral Trading Facilities (MTFs) which enable market participants (investment banks, brokers and dealers) to trade pan-European equities through a single platform as an alternative to trading on national exchanges such as the London Stock Exchange (LSE). MTFs are relatively new, having mostly formed following the introduction of the European Markets in Financial Instruments Directive in 2007. Billions of pounds worth of equities are traded on these platforms daily.

After the LSE, the merger parties are the two largest MTFs for the trading of UK-listed equities. The merger reduces the number of significant suppliers of trading services for UK-listed equities from three to two. In addition the parties have very similar service offerings. Although the evidence is mixed, the OFT believes that there is a realistic prospect that, absent the merger, the parties would going forward have competed more strongly against each other, as well as competing against the LSE.

Ali Nikpay, OFT Senior Director and decision maker in this case said:

‘This case is not one in which we have encountered widespread customer complaints. However, we cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition. We have therefore referred the merger to the Competition Commission for a more detailed investigation so it can determine whether a substantial lessening of competition is probable.’”

Based on the OFT’s announcement, U.K. competition law regulators appear to have concerns that the proposed BATS/Chi-X transaction will result in the combination of the two largest alternative trading platforms for equities in the U.K. and as well based on an apparent concern arising from the product overlap (trading services) between the two exchanges.  It is not yet clear, however, whether the U.K. regulator perceives post-merger concentration issues for multiple products (e.g., clearing and auction services, in addition to equity trading services) or whether there is a risk that the transaction may be blocked altogether (as opposed to the imposition of a behavioural or structural remedy).

In this regard, this most recent stock exchange merger case follows the recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. last month to acquire the NYSE Euronext, following a decision by the U.S. Department of Justice to block the transaction altogether (see: NASDAQ OMX and IntercontinentalExchange Abandon Acquisition of NYSE Euronext).

The proposed BATS/Chi-X transaction also follows the recent plays for the TMX Group Inc. by the London Stock Exchange Group plc (see Competition Bureau Issues No Action Letter in TMX/LSE Deal) and the more recent all-Canadian hostile bid launched by the Maple financial consortium (see: Maple Group Launches Cdn. $3.7 Billion Hostile Bid for TMX Group Inc.).

While the Competition Bureau has issued a no action letter clearing the proposed TMX/LSE merger, it is not yet clear what competition issues might ultimately still prove to be an issue for the Maple bid for the TMX (which, like the proposed BATS/Chi-X deal, would involve the combination of the largest alternative stock exchange to the TSX).

For the OFT’s full news release see:

OFT Refers Equity Trading Merger to the Competition Commission

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