The United Kingdom Competition Commission said it has provisionally found that the acquisition of the largest all-electronic trading facility in Europe by BATS Global Markets would not significantly block competition.
The commission said that the merger of Chi-X Europe with BATS’ own BATS Europe would not preclude brokers, banks or other financial firms from creating a new multilateral trading facility that would be an effective competitor.
It is “our view that there were no barriers that would prevent entry and expansion to overcome any competitive detriment that might otherwise result from the merger,” the regulatory body said. “In the circumstances under consideration, such entry and expansion would be likely, timely and sufficient.”
BATS, in response, said the merger would create a “stronger competition” in United Kingdom equities trading.
“We are pleased by the Competition Commission’s provisional findings, which if reflected in the final report, will clear the way for the creation of an even stronger competitor to Europe’s incumbent exchanges,” Joe Ratterman, chairman and chief executive officer of BATS Global Markets, said.
The commission is expected to publish its final report by December 2, the statutory deadline for completion of its inquiry.
BATS and Chi-X have said they expect the transaction will be completed by the end of this year.
This is the last regulatory clearance required for the acquisition to take place, assuming the commission sustains the provisional findings in its final report.
Through September, Chi-X had handled 18.6% of equities trading, by value, in Europe, according to the World Federation of Exchanges. The London Stock Exchange Group had 20.1%.
But Chi-X’s trading is spread across multiple European markets. In London, the LSE dominates, handling more than twice as much volume as Chi-X (see chart). BATS Europe trails by a wide margin in both London and across the continent.
Here’s how world markets would line up, statistically, if both the BATS acquisition of Chi-X Europe and the merger of Deutsche Boerse with NYSE Euronext go through by year’s end.
In supporting its finding that there would not be a significant lessening of competition, the U.K. competition panel “noted that historically customer consortia had sponsored the establishment of multilateral trading facilities that had successfully overcome the barrier represented by network effects and we reviewed the evidence on further possible sponsored entry. We provisionally concluded that if any worsening of the merged entity’s competitive offering or other strategic considerations provided the incentive to do so, new entrysupported or sponsored by major customers would overcome the network effects identified.”
In European terms, “multilateral trading facilities” are venues which operate in more than one jurisdiction, with a pre-set and uniform set of operating rules.
