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The Competition and Markets Authority (CMA) has ordered a $650 million energy trading merger to be reversed.
Intercontinental Exchange (ICE), the largest operator of utilities exchanges and clearing houses in Europe, has been instructed to sell the software firm Trayport which it bought in December.
The preliminary findings of a probe into the merger were published by the CMA in August. It warned that the merger could result in a “substantial lessening of competition”.
The CMA put forward several provisional remedies but said its preferred choice was for ICE to undo the merger with Trayport. It has now told ICE to move ahead with the sell-off, after concluding that the alternatives “would not be effective”.
Trayport’s software enables the buying and selling of energy commodity and utilities derivatives and underpins around 85 per cent of all trades in Europe.
The CMA found that ICE’s ownership of the company would be likely to reduce competition between itself and its rivals, which would in turn lead to “increased fees for execution and clearing, and worse terms offered to traders”. It said it would also be likely to reduce competition to “launch new products, find innovative trading solutions and enter markets with new offerings”.
Inquiry chair Simon Polito said: “Participants in this market have a high level of dependence on Trayport’s integrated software offering, alternatives are weak and barriers to entry in this market are high.
“We found that the merged company would have the ability and incentive to use its ownership of Trayport to restrict the competitiveness of ICE’s rivals. This could lead to a range of adverse consequences for traders and venues in the vitally important wholesale energy markets including higher prices, a general worsening of terms and quality and less innovative trading solutions.
“Having looked at this in detail and sought views from a range of market participants, we believe that the only effective way to preserve competition is to require ICE to sell Trayport.”
A spokesman for the comapny said: “ICE is disappointed by the decision, having presented a compelling clearance case, and will now consider its options including the possibility of an appeal.”
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