Intercontinental Exchange (ICE), the largest operator of exchanges and clearing houses for European utilities trading, bought software firm Trayport for $650 million in December.
The CMA panel investigating the merger said traders, brokers, exchanges and clearing houses which compete with ICE “depend on the Trayport platform to carry out their energy trading activities effectively”. The software enables the trading of energy commodity and utilities derivatives, and underpins more than 85 per cent of utilities derivatives trades in Europe.
The CMA raised concerns that ICE could use its ownership of Trayport’s platform to give it an advantage over rival exchanges and clearing houses.
“This loss of constraint could lead to increased fees for execution and clearing, and worse terms offered to traders,” it said in a statement. “The merger could also result in a loss of competition between ICE and its rivals to launch new products, find innovative trading solutions and enter markets with new offerings.”
Chair of the CMA inquiry Simon Polito said: “We examined the merger’s competition risks and given the high level of dependence of market participants on Trayport’s integrated software offering, we provisionally concluded that the merged entity would have the ability and incentive to harm ICE’s main rivals’ ability to compete effectively.
“This could lead to higher prices, a general worsening of terms and less innovative trading solutions offered to traders in wholesale energy markets.”
The CMA indicated a preference for a “structural” remedy; namely the selling off of Trayport by ICE. It is also considering two alternative “behavioural” remedies: one requiring Trayport to offer its products and services to all its customers on “fair, reasonable and non-discriminatory terms”; and another requiring it to open up the closed ‘access programming interface’ for its software.
A spokeswoman for ICE said: “ICE acquired Trayport at the end of last year and the CMA commenced a competition review in January 2016, which is not uncommon in the UK.
“The CMA today announced its provisional findings for the Phase 2 investigation. Whilst the findings are not final, they do start a consultation on potential remedies. If remedies are required, ICE is confident that they will be line with how ICE intends to operate Trayport as an open and autonomous software provider.”
The CMA has given a deadline of 30 August for interested parties to comment on the potential remedies. It will deliver its final ruling on 18 October.