The UK's Office of Fair Trading (OFT) has referred the acquisition of pan-European multilateral trading facility (MTF) Chi-X Europe by US trading venue operator BATS Global Markets to the Competition Commission for further investigation.
According to a statement from the OFT, the combination of Chi-X Europe with BATS Europe, the MTF operated by BATS Global Markets, would reduce the number of trading destinations for UK equities. It claimed that if the two MTFs were to continue to operate independently, they “would have competed more strongly against each other”, as well as competing against the London Stock Exchange for secondary trading of UK cash equities.
The Competition Commission is an independent public body that conducts in-depth investigations into mergers, markets and the regulation of the major regulated industries. It is expected to report its findings on the BATS/Chi-X deal by 2 December.
“This case is not one in which we have encountered widespread customer complaints. However, we cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition,” said Ali Nikapy, senior director, OFT. “We have therefore referred the merger to the Competition Commission for a more detailed investigation so it can determine whether a substantial lessening of competition is probable.”
If and when approval is received, BATS Global Markets intends for the new entity to retain the existing dark and lit order books of each MTF. An initial go-live date for the new offering had been set for 12 September, at which time Chi-X Europe is expected to migrate onto BATS Europe's technology platform located at data centres operated by Equinix.
BATS had previously confirmed that European CEO Mark Hemsley will lead the combined entity, with current Chi-X Europe chief Alasdair Haynes due to step down after a transition period. Haynes was appointed CEO of Chi-X Europe in December 2009, just eight months before BATS Global Markets' initial approach to buy the firm in August last year.
According to BATS Global Markets' IPO filing in early May, the deal to buy Chi-X Europe is worth around US$305 million. BATS Global Markets could also pay up to an additional US$65 million in cash to Chi-X Europe's shareholders in Q3 2012, subject to meeting market share benchmarks. Chi-X Europe made a profit of £798,000 last year, the only MTF to have reported a profit.
“BATS' establishment was based on the need for competition and our purpose for combining BATS Europe and Chi-X Europe is to raise the level of competition in Europe's securities markets. Therefore we also appreciate the regulatory processes in place to protect competition and were aware that a referral to the Competition Commission was a possibility,” said Joe Ratterman, president and chief executive officer of BATS Global Markets. “We are discussing this matter with our shareholders and the relevant authorities and remain optimistic about completing the deal.”
“Although we are disappointed by the OFT's decision, we will engage with our board and shareholders to ascertain next steps,” added Haynes. “Chi-X Europe will also work with the Competition Commission to address any questions or concerns that they may have about the proposed deal.”