CMA Says ICE Must Reverse its $650 Million Trayport Takeover

ICE refused CMA suggestion of divestiture of Trayport platform earlier in August.

The UK Competition and Markets Authority (CMA) has selected the forced sale option to reverse Intercontinental Exchange’s $650 million takeover of the commodities trading software company Trayport, as the watchdog decided the deal undermines competition. The US-headquartered group refused the British competition watchdog’s divestiture ruling, saying it is disappointed with the decision and would consider an appeal.

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Following possible ICE’s complete sale of the platform, the new buyer also will have to be approved by the CMA in order to preserve competition.

ICE beat arch-rival CME Group to buy the broker-tech platform licenser just ten months ago, but the UK`s competition authority now believes a complete divestiture is the only effective remedy to the substantial lessening of competition.

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Earlier in August, the CMA highlighted that ICE’s $650 million investment in Trayport could hurt competition for wholesale European utilities trades, where Trayport’s software helps facilitate 85 per cent of activates. It also voiced concerns about possible worse terms for traders due to higher fees for executing and clearing trades.

Other market participants such as Nasdaq, EEX, Tradition and ICAP have told CMA that they fear OTC gas and power markets could be subject to the mandatory clearing provisions that are being applied to other commodity markets. According to CMA, all the third party submissions said that the sale of the Trayport business is the only comprehensive solution to all aspects of its competition concerns. The independent group rejected alternative remedial actions, such as forcing Trayport to offer better terms to customers, concluding that it would not be effective.

ICE slaps down CMA suggestion

In response to CMA claims, ICE expressed its disagreement with the findings two months ago as they do not align with its vision for Trayport’s business, which licenses a technology platform to serve brokers for electronic and hybrid trade execution. In addition, the Atlanta-based exchange operator said that Trayport will continue to serve its customers—energy producers and consumers, brokers, exchanges and clearing houses—with its existing technology platform as it does today. It also will ensure that all customers are “treated fairly and reasonably and are not discriminated against, including with respect to pricing, access and support.”

Commenting on the ruling, Simon Polito, Inquiry Chair at CMA said: “Participants in this market have a high level of dependence on Trayport’s integrated software offering, alternatives are weak and barriers to entry in this market are high. We found that the merged company would have the ability and incentive to use its ownership of Trayport to restrict the competitiveness of ICE’s rivals.”

“This could lead to a range of adverse consequences for traders and venues in the vitally important wholesale energy markets including higher prices, a general worsening of terms and quality and less innovative trading solutions. Having looked at this in detail and sought views from a range of market participants, we believe that the only effective way to preserve competition is to require ICE to sell Trayport,” Simon concluded.

 

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