European Commission opens investigation into acquisition of Refinitiv by London Stock Exchange

Maria Nikolova

The Commission is concerned that the proposed acquisition may reduce competition in trading and clearing of various financial instruments and in financial data products.

The European Commission today announced the launch of an in-depth investigation into the proposed acquisition of Refinitiv by the London Stock Exchange Group (LSEG). The Commission is concerned that the proposed acquisition may reduce competition in trading and clearing of various financial instruments and in financial data products.

The proposed transaction combines major trading venues where electronic trading of bonds of the European Economic Area (EEA), UK, and Swiss governments takes place. These venues include LSEG’s MTS and Refinitiv’s Tradeweb. This would result in a very large combined market share in the electronic trading of European Government Bonds, the Commission says. The market investigation indicates that the parties own venues with a leading position in the market, and are close competitors in this space, in particular regarding trading between dealers and investors. The market investigation also suggests that it is difficult for a new trading venue to attract clients in sufficient numbers and become a real alternative to incumbent venues.

Regarding the trading and clearing of over-the-counter interest-rate derivatives (“OTC IRDs”), the proposed transaction would create a combined entity with significant market power both upstream (trading) and downstream (clearing), the Commission says.

The preliminary investigation shows that barriers to entry are high and customers rarely switch trading venues or clearing houses. The Commission will also investigate further the competitive dynamics in trading and clearing of exchange-traded funds and foreign exchange instruments.

Furthermore, the Commission has preliminary concerns that following the proposed transaction, competitors in consolidated real-time datafeeds and desktop services could be shut out from accessing LSEG’s input data.

In addition, Refinitiv offers foreign exchange indices. Consolidated real-time datafeeds and foreign exchange indices are significant inputs for index providers and Refinitiv is one of the largest suppliers for these products.

LSEG’s FTSE Russell is a major provider of financial indices in the EEA and globally. The Commission has preliminary concerns that following the proposed transaction, competitors in index licensing could be shut out from accessing Refinitiv’s necessary input data.

The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.

The Commission now has until 27 October 2020 to take a decision. The opening of an in-depth inquiry does not prejudge the final result of the investigation.

LSEG today noted the Commission’s announcement. The Exchange said it continues to engage constructively with the European Commission and noted that the Phase II review will enable the European Commission to consider the Transaction in further detail, as would be expected for a global transaction of this nature.

LSEG says it has received a number of antitrust and foreign investment approvals and continues to make progress in relation to the remaining clearances and approvals upon which the Transaction is also conditional. LSEG stressed that it remains committed to closing the transaction in 2020.

In August 2019, LSEG announced the acquisition of Refinitiv in an all-share transaction for an enterprise value of approximately $27 billion. The proposed acquisition, which was approved by LSEG’s shareholders in November 2019, significantly accelerates LSEG’s existing strategy to be a leading global financial markets infrastructure provider. Thanks to the deal, LSEG is set to markedly expand its data and analytics offering to create a global multi-asset class capital markets business.

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