CME Group’s Acquisition of NEX Under Investigation by Regulator

The Competition and Markets Authority will have to ensure the deal doesn't result in a "substantial lessening of competition"

The acquisition of NEX Group (NEX) may be entering rocky territory. This Thursday, the Competition and Markets Authority (CMA) said that it was launching an investigation into the purchase of the financial services company by CME Group (CME).

Akin to the US Bureau of Competition, the CMA is supposed to ensure UK markets remain competitive. Thursday’s announcement indicates that it is at the start of a process that could seriously hamper CME’s acquisition plans.

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The CMA’s own rules mean that it is required to investigate any deals valued at over £70 million ($91.76 million) or where a merger results in a business controlling more than 25 percent of a market in the UK.

Valued at £3.9 billion ($5.1 billion) CME’s acquisition of NEX certainly meets the first of these two criteria. Whether the second is applicable is unclear – though one would think it is more relevant to a discussion regarding market monopoly.

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A CME Monopoly?

The CMA’s announcement this Thursday indicates that they have launched a phase 1 investigation into the acquisition. That gives anyone that may wish to comment on the deal until September 27 to send their thoughts to the CMA.

If the competition regulator does decide that the acquisition of NEX poses a threat to market competitiveness, they will proceed to a phase 2 investigation. That could make things more difficult for CME.

According to British law firm Slaughter and May, a phase two investigation “may lead to a prohibition decision, a decision that the transactions should be allowed to proceed subject to commitments, or clearance.”

Given the scale of both NEX and CME, it’s hard to see how the CMA will determine whether or not the acquisition will breach competitiveness rules. For instance, NEX already controls a majority of fixed income trading and CME, the majority of US Treasury futures trading.

As there has been almost no suggestion that CME’s acquisition of NEX will create a noncompetitive market, it seems unlikely the deal is going to be stopped. Nonetheless, the CMA’s investigations have the potential to bog down the speed at which it is carried out.

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