CMA sets out provisional concerns about ICE/Trayport merger

The Competition and Markets Authority (CMA) has provisionally found that ICE’s acquisition of Trayport may give rise to competition concerns.

Intercontinental Exchange, Inc. (ICE) is the largest operator of exchanges and clearinghouses in the trading of European utilities. It has its own proprietary software which allows trading of energy commodity and utility derivatives on its exchanges.

Trayport’s software permits the trading of energy commodity and utility derivatives. Its software forms an integrated platform which underpins over 85% of European utilities derivatives trading.

ICE acquired Trayport in December 2015 for $650 million. The merger was called in for review by the CMA in January 2016, and on 3 May 2016 it was referred for an in-depth investigation.

A group of independent panel members investigating the merger has provisionally found that it may be expected to lead to a substantial lessening of competition (SLC). They found that not only traders, but also the brokers, exchanges and clearinghouses that compete with ICE depend on the Trayport platform to carry out their energy trading activities effectively.

The CMA is therefore concerned that ICE could use its ownership of Trayport’s platform to reduce competition between ICE and its rivals for wholesale European utilities trades. This loss of constraint could lead to increased fees for execution and clearing, and worse terms offered to traders. The merger could also result in a loss of competition between ICEand its rivals to launch new products, find innovative trading solutions and enter markets with new offerings.

The CMA is today also issuing a notice of possible remedies which outlines measures the CMA could take if it still believes the merger may be expected to lead to an SLC when it makes its final decision.

Simon Polito, Inquiry Chair, said:

We examined the merger’s competition risks and given the high level of dependence of market participants on Trayport’s integrated software offering, we provisionally concluded that the merged entity would have the ability and incentive to harm ICE’s main rivals’ ability to compete effectively. This could lead to higher prices, a general worsening of terms and less innovative trading solutions offered to traders in wholesale energy markets.

We are now inviting responses to our provisional findings and remedies notice, and will continue to assess all the evidence before we make our final decision.

All information relating to this merger investigation can be found on the case page.