October 20, 2011

BATS Global Markets Inc.’s acquisition of Chi-X Europe, the continent’s largest alternative trading system, received provisional clearance from the UK Competition Commission, paving the way for a final decision by year end.

The anti-trust regulator concluded that it does not expect the deal to result in a substantial lessening of competition.

Customers of both firms have the power to prevent any attempt by the merged company to raise trading fees or worsen service quality, by taking—or threatening to take—their business elsewhere or even potentially sponsoring new entry by a competitor as has happened previously in this sector, said the UK Competition Commission in its media release.

In a release, summarizing its provisional decision, Malcolm Nicholson, chairman of the BATS/Chi-X Inquiry Group, said: “The two exchanges share a very similar customer base and so are dependent on retaining the business of a limited number of large financial institutions. Such institutions could quickly spot any rise in costs or fall in service quality and would have the ability to take their business elsewhere with relative ease.”

Both companies operate Multilateral Trading Facilities (MTFs) which enable market participants (investment banks, brokers and dealers) to trade equities through a single platform as an alternative to trading on national exchanges such as the London Stock Exchange (LSE), notes the UK Competition Commission in a release summarizing its decision.

According to Fidessa which tracks the fragmentation between the European exchanges and MTFs, Chi-X has 18.41 percent share of European share volume, while BATS Europe has 4.52 percent, but Chi-X is already exceeding LSE’s 13.1 percent and Deutsche Borse with 14.39 percent.

In a statement, Joe Ratterman, BATS’ chairman, commented: “We are pleased by the Competition Commission's provisional findings, which if reflected in the final report, will clear the way for the creation of an even stronger competitor to Europe’s incumbent exchanges. We will continue to work closely with the Commission throughout the duration of the inquiry.”

The Competition Commission is expected to publish its final report by Dec. 2, 2011, the statutory deadline for completion of its inquiry. If the regulatory body clears the acquisition in its final decision, it is anticipated that the transaction will be completed by the end of this year, according to BATS in its release.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...