On 20 June 2011, the Office of Fair Trading ('OFT') announced that it was going to refer the anticipated acquisition by BATS Trading Limited of Chi-X Europe Limited to the Competition Commission ('CC') for further regulatory scrutiny in accordance with its powers under the Enterprise Act 2002.
Both companies operate Multilateral Trading Facilities ('MTFs') that enable pan-European equities to be traded on a single platform, as opposed to national exchanges such as the London Stock Exchange ('LSE'). MTFs are relatively new as a result of the European Markets in Financial Instruments Directive that was introduced in 2007. Each day billions of pounds worth of equities are traded on the platforms.
The anticipated merger would reduce the number of significant suppliers of trading services for UK-listed equities from three to two. The OFT has a duty to refer to the CC any arrangement that it believes could lead to a substantial lessening of competition. In this instance the OFT believes that, absent the merger, going forward the two companies would have competed more strongly against one another and with the LSE.
There has been some surprise at the decision to refer given that the case was not one in which the OFT had encountered widespread customer complaints and the evidence before it was mixed, indeed it has been described as "slightly puzzling". However, it is a '3 to 2' merger and as noted by Ali Nikpay, Senior Director of the OFT: "We cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition."
The OFT therefore has decided to refer the anticipated acquisition to the CC for further investigation and has given interested parties until 8 July 2011 to submit their evidence. A report is expected by 2 December 2011 following the basic 24-week statutory investigation period.
This is the sixth merger so far in 2011 to have been referred to the CC by the OFT.
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