Competition: Commission consults on commitments by ISDA and Markit on credit default swaps

On 28 April 2016, the Commission announced that it is seeking comments from interested parties on commitments offered separately by the International Swaps and Derivatives Association Inc. ("ISDA") and by the information service provider Markit to address the Commission's competition concerns about licensing of data and indices on credit default swaps ("CDS") for the purpose of exchange trading. CDS are a type of derivative contract designed to transfer the risk of default linked to a debt obligation. CDS are used by investors both to hedge risks and as investments in themselves and can be traded privately, "over the counter", or on an exchange trading platform, in which case supply and demand is matched anonymously on a trading platform. Trading platforms need access to “Final Price" data showing the prices from auctions to determine the settlement price of credit derivatives trades following a corporate default. These Final Price data are used to price CDS after the default of a reference entity. ISDA holds proprietary rights to Final Price data, while Markit owns CDS indices that attract liquidity.

In April 2011 the Commission opened investigations concerning the CDS information market and CDS clearing. The investigation on the CDS information market focused on Markit, which is the only service provider that the 16 investment banks that act as CDS dealers were providing essential information to. In 2013 the Commission extended its ongoing investigation to include ISDA, since the Commission found preliminary indications that ISDA, as a professional organization of financial institutions involved in the over-the-counter trading of derivatives, was involved in a coordinated effort by investment banks to breach competition rules. In 2015 the Commission decided to close its investigation regarding the investment banks, but continued the investigation regarding ISDA and Markit.

The Commission's preliminary view is that ISDA and Markit refused to license to exchange trading platforms certain data and indices used by the industry for the pricing of CDS, in breach of competition rules. According to the Commission, this may have blocked or delayed the emergence of an effective market for exchange traded credit derivatives, which would enable effective competition with investment banks, who dominate the over–the-counter trading of CDS.

In order to address the Commission's concerns, ISDA has offered to license all its rights in the Final Price on fair, reasonable and non-discriminatory ("FRAND") terms and to submit to a binding third-party arbitration procedure in the event of a disagreement on the FRAND terms and conditions. In addition, ISDA offered to prevent member investment banks’ influence on its licensing policy by transferring decision rights from its Board to its CEO. Finally, ISDA proposed to stop unilateral termination of access, unless this is the only appropriate solution. Markit offered to grant access to its iTraxx and CDX indices on FRAND terms and to submit to a third-party arbitration procedure in the event of a disagreement on the FRAND terms and conditions. Finally, Markit proposed to reduce investment banks' influence by precluding them from negotiations on the merits of individual licensing requests. The commitments of both parties would apply for ten years and be monitored by an independent trustee. Interested parties may submit comments within one month from the date of publication. Source: Commission Press Release 28/04/2016

Competition: International Chamber of Commerce publishes Leniency Manual and Proposal for One-Stop-Shop for Leniency Markers

On 27 April 2016, the International Chamber of Commerce ("ICC") Task Force on Cartels and Leniency published the ICC Leniency Manual ("Leniency Manual") and a Proposal for a One-Stop-Shop for Leniency Markers ("One-Stop-Shop Proposal"). Both of these publications represent first steps towards a convergence of leniency regimes.

The Leniency Manual aims to demystify the leniency application process and provide guidance to companies for filing local and multi-jurisdictional leniency applications. The Leniency Manual starts with an outline of the generic leniency application process and then delves into the specific filing requirements in many countries worldwide. Each country-specific chapter of the Leniency Manual includes a short description of the leniency application process in the country as well as a list of issues that the leniency applicant should consider.

The One-Stop-Shop Proposal seeks to create a one-stop-shop marker system, providing a mechanism for applicants to apply for leniency with a marker application before a single agency, thereby avoiding conflict with another applicant and becoming "first-to-file" in another jurisdiction. This would enable a successful applicant to reserve its place in the queue in all jurisdictions participating in the system by applying for the marker in only one of them. The purpose of a one-stop-shop mechanism is to facilitate international cooperation among competent authorities and to increase the legal safety of leniency applicants. According to the ICC, the one-stop-shop for leniency markers could be implemented through the International Competition Network ("ICN"), while letting individual jurisdictions decide whether they wish to participate. Source: The ICC Leniency Manual and Proposal for a One-Stop-Shop for Leniency Markers

Competition (Finland): Finnish Ministry of Employment and Economy publishes interim working group report on potential antitrust reforms in food supply chain

On 2 May 2016, the Finnish Ministry of Employment and the Economy ("MEE") published an interim working group report on the possibilities to introduce new rules to the Finnish Competition Act 948/2011 ("Competition Act") for the agricultural and food sectors. In August 2015, MEE appointed a working group ("Working Group") to assess the need for reform of the Finnish Competition Act. As part of this mandate, the Working Group evaluated whether Finnish antitrust rules could be amended to support the profitability of Finnish food producers.

In its review, the Working Group found that the bargaining power of some actors in the food supply chain may lead to unfair contract terms and practices. This concerns both agreements between food producers and the food industry and the grocery retail and agreements between the food industry and the grocery retail. However, the Working Group does not recommend introducing new rules to the Competition Act for the agricultural and food sectors. Rather, it proposes focusing on contracting practices and industry self-regulation, which should be the primary means to solve problems in the food supply chain. According to the Working Group, the Competition Act is not best placed to address these problems because its objective is to promote the functioning of markets and the interests of consumers, rather than protecting individual market players. Further, the Working Group notes that it is not possible to introduce national competition rules on the agricultural and food sectors that are more lenient than the corresponding EU rules. Therefore, instead of introducing new rules, the Working Group only proposes some technical changes to the existing provision in the Competition Act that exempts certain arrangements between companies in the agricultural sector from the scope of prohibition against anticompetitive agreements.

In addition to its recommendations on the agricultural and food sectors, the Working Group will review other aspects of the Competition Act. It will present its final proposals for the reform by the end of February 2017. Source: Finnish Ministry of Employment and the Economy Press Release 02/05/2016 (in Finnish) and Interim Report of the Working Group Assessing Reform of Competition Act 20/2016 (in Finnish)

Merger control: Commission conditionally approves acquisition of Neptune Oriental Lines by CMA CGM

On 29 April 2016, the Commission conditionally approved the acquisition of the Singaporean container liner shipping company Neptune Oriental Lines ("NOL") by the French competitor CMA CGM S.A. ("CMA CGM"). CMA CGM is the world's third largest container shipping group that is active worldwide; it has a fleet of 470 vessels serving 450 commercial ports. It operates 170 shipping lines. NOL is the largest container shipping company in Southeast Asia. It operates at ports in over 50 countries worldwide through its brand American President. Both companies offer their services on many trade routes though cooperation agreements with other shipping companies known as consortia. Usually, consortia members decide on capacity setting, scheduling and the list of ports of call, which are all important parameters of competition. Consortia with the same members operating across several trade routes are often grouped into alliances. CMA CGM is a founding member of the Ocean Three Alliance ("O3 Alliance") whereas NOL is a member of the G6 Alliance ("G6 Alliance").

The Commission investigated the effects of the transaction on competition for container liner shipping services on seventeen trade routes connecting Europe with the Americas, the Middle East, the Indian Subcontinent, the Far East as well as Australasia & Oceania. It found that the proposed transaction, as initially notified, would have created links between two previously unconnected consortia in the O3 Alliance and the G6 Alliance. This could have resulted in anti-competitive effects on the route between Northern Europe and North America and on the route between Northern Europe and the Middle East by enabling the merged entity to influence capacity and prices through the consortia, to the detriment of shippers and consumers. The Commission also investigated limited vertical links that arose from CMA CGM's activities in container terminal services required by container liner shipping companies. However, the Commission did not identify any competition concerns in this respect because the companies had limited market shares in most upstream markets and the increment brought about by the transaction on the downstream markets was small.

In order to address the Commission's concerns, CMA CGM offered to eliminate the link that the transaction would have created between the O3 Alliance and the G6 Alliance by removing NOL from the G6 Alliance by 31 March 2017. During the remaining period of NOL's membership, a monitoring trustee will ensure that no anti-competitive information is shared between the G6 Alliance and the merged entity. This will eliminate potential additional links between the two previously unrelated consortia. The Commission found that the proposed remedies sufficiently addressed its competition concerns. Accordingly, it concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. Source: Commission Press Release 29/04/2016

Public procurement (Sweden): Umeå and Skellefteå violated the procurement rules by forming a joint municipal committee

On 21 April 2016, the Administrative Court in Umeå ("AC") found Umeå and Skellefteå municipalities guilty of having conducted an illegal direct award of contracts by forming a joint committee for certain IT services. The joint committee, which is a part of the organization in the municipality of Umeå, is responsible for certain parts of both municipalities' IT operations. The AC ordered the municipalities to pay a procurement fine of SEK 140 000 each.

The ruling against Skellefteå concerned the cooperation agreement between the two municipalities. The AC concluded that the cooperation agreement in effect meant that Skellefteå had procured a service from Umeå and that the agreement constituted an illegal direct award of contract. The AC found that neither the provision on utilizing internal resources (the so-called Teckal rules) nor the European Court of Justice's judgment on inter-municipal cooperation (the so-called Hamburg cooperation) applied to the municipalities' cooperation.

The ruling against Umeå concerned call-offs from Umeå's existing framework agreement for the purpose of meeting the needs of the joint committee. In its judgement, the AC rejected the idea that it was not possible to meet Skellefteå's needs through the framework agreement with Umeå municipality. That necessitated a material change of the framework agreement, as the number of suborder entitlements had been increased. Therefore, the AC found the call-off from the existing framework to be an illegal direct award of contract. Source: Swedish Competition Authority Press Release 28/4/2016, Administrative Court in Umeå Judgment (Umeå) 21/4/2016 and Administrative Court in Umeå Judgment (Skellefteå) 21/4/2016

In addition, kindly note the following merger control decisions by the Commission which are published on the website of the Commission’s Directorate-General for Competition:

  • Commission approves acquisition of EconGas by OMV
  • Commission approves acquisition of sole control over Royal Reesink by private equity group Gilde
  • Commission approves Echo Prime joint venture by Griffin, LVS II Lux XX and Redefine Properties
  • Commission approves acquisition of a real estate property portfolio in London by APG, DV4 and QDREIC
  • Commission approves acquisition of Railpool by Pacific Mezz and Oaktree
  • Commission approves acquisition of sole control over DONG by the Kingdom of Denmark