The European Commission has launched an investigation into Refinitiv’s proposed acquisition by the London Stock Exchange under the EU Merger Regulation. High among the EU’s main preliminary concerns are fears that Refinitiv’s strengths in providing data feeds and other inputs into index providers’ calculations could put competitors at a disadvantage have emerged as a key concern in the EU’s investigation of the market data vendor’s proposed acquisition by the London Stock Exchange.
The commission says it will now “carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.” It says it was notified of the transaction on May 13, and has 90 working days to take a decision on or before October 27.
So-called ‘vertical concerns’ about the impact of the proposed acquisition on index data licensing is one of four issues outlined by the EC in its announcement of its investigation. The others relate to fixed-income trading platforms, trading and clearance of interest-rate derivatives, and desktop terminals and data feeds.
In the index data space, the EC notes that Refinitiv is “one of the largest suppliers” of input data for benchmark operators’ index calculations, both through its own indices in the foreign exchange market and its consolidated real-time data feeds, which are used to drive indices managed by third parties. At the same time, the LSE’s FTSE Russell is “a major provider of financial indices … globally.” The Commission says that it “has preliminary concerns that following the proposed transaction, competitors in index licensing could be shut out from accessing Refinitiv’s necessary input data.”
A second, broader vertical concern centres on Refinitiv’s core business of operation of consolidated data feeds and desktop solutions, which make use of – among many other sources – inputs from the LSE in the form of exchange data, index data from FTSE Russell, and the exchange group’s own SEDOL identifiers.
“These three types of data are significant inputs for data feeds and desktop services and there is often no alternative for LSEG’s offering,” the commission says. “The Commission has preliminary concerns that following the proposed transaction, competitors in consolidated real-time data feeds and desktop services could be shut out from accessing LSEG’s input data.”
Elsewhere, the commission is will investigate the proposed transaction’s potential impact on electronic trading of European government bonds, where its ‘horizonal concerns’ focus on the fact that the LSE’s MTS and Refinitiv’s Tradeweb platforms together would constitute “a very large combined market share in the electronic trading of European Government Bonds.”
The commission says “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.”
Finally, the commission expressed vertical concerns about trading and clearing of interest-rate derivatives where, it says, “the proposed transaction would lead to a combined entity with significant market power both upstream (trading) and downstream (clearing).” Noting that “barriers to entry are high and customers rarely switch trading venues or clearing houses,” the commission says it will investigate “the competitive dynamics in trading and clearing of exchange-traded funds and foreign exchange instruments.”