ICE suspect of potential anticompetitive practices after merger

Global operator of exchanges and clearing houses Intercontinental Exchange (ICE) agreed to buy energy trading software provider Trayport from BGC Partners Inc. for $650 million in stock in November 2015.

However, ICE already holds the dominion of the European energy trading by controlling markets for refined products, natural gas and Brent crude oil. And with the merger completed, Trayport is operating for ICE in the less regulated over-the-counter (OTC) territory.

With MiFiD II kicking in, increased trading obligations are forcing the financial services industry to reshape itself. During the announcement, ICE Chairman and CEO Jeff Sprecher said: “European regulators have made clear that they do not expect OTC gas and power markets to be subject to the mandatory clearing provisions that are being applied to other commodity markets”.

The UK Competition and Markets Authority (CMA), however, shows concerns of potential anticompetitive practices to be perpetrated by the financial group: “ICE is the leading exchange for energy trading in the UK, and in Europe, and based on the evidence we’ve gathered, it may have the ability and incentive to increase prices and/or reduce the quality of Trayport’s software products and services – on which its rivals are dependent – in order to divert trading from rival exchanges, OTC brokers and clearinghouses to its own exchange and clearinghouse, and/or in order to protect its market position from increased competition.”

“Given these concerns and their potential effect on those providers that currently compete with ICE, along with extensive third party concerns, we think the merger warrants an in-depth investigation unless ICE can offer suitable undertakings”, said Andrea Coscelli, CMA Executive Director of Markets and Mergers, and decision-maker in the phase 1 investigation.

Unless ICE is able to offer undertakings which address the competition concerns until 5 May 2016, the CMA will be referring for an in-depth phase 2 investigation by an independent group of panel members.