118/12    14 December 2012

The OFT has today cleared the anticipated acquisition by the London Stock Exchange Group plc (LSEG) of majority control of LCH.Clearnet Group Limited (LCH.Clearnet).

LSEG owns a number of trading venues including the London Stock Exchange, Turquoise and MTS. LCH.Clearnet is an international clearing house.

The parties do not compete with each other in relation to the vast majority of their activities but LCH.Clearnet provides clearing services for trades executed on LSEG trading venues. The OFT therefore assessed whether post-transaction the parties would foreclose or otherwise harm their rivals, for example, through raising trading or clearing fees, refusing access to certain services or degrading the quality of these services, and in doing so raise the cost of trading and clearing for customers.

The OFT framed its investigation by looking separately at the trading and clearing of equities securities, fixed income securities and exchange traded derivatives. Following a thorough investigation in which the OFT assessed the parties' ability and incentive to engage in foreclosure the OFT concluded that there is no realistic prospect of competition concerns arising.

The OFT notes that any attempt to engage in foreclosure would be transparent to many customers in particular those who are also shareholders. These customers, who are sophisticated financial institutions, are represented on the LCH.Clearnet board, on its risk committees and on its product advisory groups. This governance arrangement further limits the likelihood that the parties would engage in activities that would harm customers.

The OFT also considered whether the horizontal overlap between the clearing services provided by LSEG's subsidiary CC&G and LCH.Clearnet raised competition concerns. It found that there was only limited pre-existing competition between these two clearing houses and that post-merger there will be sufficient competitive constraints on the merged party.

Ali Nikpay, OFT Senior Director and Decision Maker in this case, said:

'Given the importance of the activities undertaken by the parties to the UK economy, we conducted an extensive and thorough review of this transaction. We engaged with a large number of third parties including industry participants, regulatory agencies in the UK and competition agencies in Spain and Portugal. We concluded that the deal did not raise competition concerns.'

NOTES

1. The transaction was approved by shareholders including user (customer) and trading venue shareholders on 3 April 2012 and LCH.Clearnet's Articles of Association will be amended to incorporate a commitment to operate as an open and horizontal clearing house. The benefits of open-access are intended to provide customers with a choice of trading and clearing services.
   
2. The Reference Test - The OFT has a duty to make a reference to the Competition Commission if the OFT believes that it is or may be the case that a relevant merger situation has been or will be created, and as applicable, the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
   
3. Under the Enterprise Act 2002 a relevant merger situation is or will be created if two or more enterprises have ceased or will cease to be distinct enterprises, and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
   
4. Societa per il Mercato dei Titoli di Stato S.p.A (MTS) is LSEG's fixed income trading venue. Cassa di Compensazione e Garanzia S.p.A (CC&G) is LSEG's subsidiary that provides clearing services.
   
5. This transaction was also notifiable in Spain and Portugal. Both the Spanish and Portuguese competition authorities cleared the transaction at phase one on 12 September 2012 and 7 December 2012, respectively.
   
6. The OFT's approach to its consideration of non-horizontal mergers is set out in its Merger Assessment Guidelines at section 5.6.
   
7. The text of this decision will be placed in the mergers section as soon as is reasonably practicable.