On 20 January 2011, the UK’s Office of Fair Trading (OFT) referred the contemplated acquisition by BATS Trading Limited (BATS) of its competitor Chi-X Europe Limited (Chi-X) to the Competition Commission (CC) for an in-depth investigation.
BATS and Chi-X are two of the largest European suppliers of alternative Multilateral Trading Facilities (MTFs), which allow investment banks, brokers, and dealers to trade pan-European equities through a single platform (as opposed to trading on traditional national exchanges, such as the London Stock Exchange (LSE)). These MTFs are relatively new following the Markets in Financial Instruments Directive (MiFID) in 2007.
The OFT’s reference decision is not yet available. Its press release states that BATS and Chi-X are the two largest MTFs for trading UK-listed equities, that their merger reduces the number of significant suppliers from three to two (the other being AIM), and that BATS and Chi-X have very similar service offerings. The press release also notes that evidence is mixed, and there have not been widespread customer complaints, but nevertheless the OFT concluded that there is a realistic prospect of a substantial lessening of competition.
The OFT’s review of BATS’ bid for Chi-X has occurred during a period in which European competition authorities are conducting several other financial platform investigations. The OFT is currently reviewing the proposed merger between two major traditional exchanges – Canada’s TMX and the LSE. Deutsche Börse’s parallel bid for NYSE Euronext will be reviewed instead by the European Commission - the parties are still in pre-notification discussions. The European Commission is currently reviewing the contractual arrangements between ICE Clear Europe, the leading clearing bank for credit default swaps, and nine of its member banks.
The Competition Commission may well ultimately clear the proposed combination of BATS and Chi-X. However, the in-depth investigation again demonstrates the competition authorities’ focus on financial services since the financial crisis. As EU Competition Commissioner Joaquín Almunia said in a speech on 16 May 2011: “Overseeing a few investment banks and specialised traders is simply not enough. We need to extend oversight beyond traders and banks to cover infrastructure owners, intermediaries, information service providers and possibly more.”