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LSE and Refinitiv make commitments on derivatives trading and clearing to secure EU approval for deal. Story w/ @JavierespFT
A thread. 1/n https://www.ft.com/content/1170dc7c-7002-4af6-ad63-a6b3416dcea9
A thread. 1/n https://www.ft.com/content/1170dc7c-7002-4af6-ad63-a6b3416dcea9
The LSE is betting on selling Borsa Italiana and promises of behaviour to see it through Brussels. But will it be enough? Maybe. Two past antitrust cases don't offer an easy answer.
First one is a now-forgotten case in 2012 with then-Thomson Reuters, now Refinitv, and market access to consolidated real-time datafeeds
https://ec.europa.eu/competition/antitrust/cases/dec_docs/39654/39654_2861_16.pdf
https://ec.europa.eu/competition/antitrust/cases/dec_docs/39654/39654_2861_16.pdf
The feeds relied on RIC codes, a short, alphanumeric code that identifies financial instruments and their trading locations. Used by everyone to convert info from TR market data to their own systems.
Thomson Reuters was the dominant player in the market, everyone used these codes. The Commission decided it was abusing its dominant position.
To resolve it TR had to offer a time-limited licence to
customers, and they had to make promises on behaviour.
customers, and they had to make promises on behaviour.
And here we are in 2020; the EU has concerns about customers being shut out of real-time datafeeds.
So if they promise to behave and play nice, that'll be enough, right? Umm maybe but don't take it for granted.
Per the story, Brussels also is worried about trading and clearing of interest rate swaps, about bringing together Tradeweb and LCH.
The LSE and Refinitiv have made commitments about open access here. After all both LCH and Tradeweb already practice it. But case #2
Back in 2016 LSE and Deutsche Borse tried the same tack on non-discriminatory access. Full case here
https://ec.europa.eu/competition/mergers/cases/decisions/m7995_7544_3.pdf
https://ec.europa.eu/competition/mergers/cases/decisions/m7995_7544_3.pdf
The Commission didn't really go for it
And generally speaking, the Commission folks said it wasn't a massive fan of promises of good behaviour
Will the Commission be convinced this time, unlike 2016/2017? DB didn't "do" open access, so foreclosure was possible.
Today is a different case, different managements, different philosophies and different politics at play.
Today is a different case, different managements, different philosophies and different politics at play.
LSE and Refinitiv managements and advisers have learned from past cases:
This time round the Commission wasn't very positive about the effect on sovereign debt trading.
This time round the Commission wasn't very positive about the effect on sovereign debt trading.
Given past precedents, it's no surprise to see MTS prepped to be offloaded even if selling the stock exchange wasn't strictly necessary.
One may argue that Mifid II in 2018, mandating open access, has changed things. But the Commission wasn't convinced last time either.
So while Borsa Italiana and data are concerns, the biggest issue might be this. The vertical silo, updated.
Which, for those who have followed this world for the last decade, feels like fighting the Hundred Years' War.
Past precedent means you can't rule out Brussels demanding a "structural remedy" ie the sale of LCH or Tradeweb, which would be the red line for this deal.
I'm not saying Brussels won't bless this deal. It might well do. It's not 2017 again. But it shouldn't be taken for granted that it'll sail through. I'm sure advisers aren't.
