CELEX: 32019M9130
Language: en
Date: 2019-02-11 00:00:00
Title: Commission Decision of 11/02/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9130 - Société Générale S.A / Commerzbank AG) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
  In the published version of this decision,                         Brussels, 11.02.2019
  some information has been omitted                                  C(2019)1116
  pursuant to Article 17(2) of Council
  Regulation (EC) No 139/2004 concerning
  non-disclosure of business secrets and                                     PUBLIC VERSION
  other confidential information. The
  omissions are shown thus […]. Where
  possible the information omitted has been                          To the notifying party:
  replaced by ranges of figures or a general
  description.
Subject:              Case M.9130 - Société Générale / Commerzbank EMC Business
                      Commission decision pursuant to Article 6(1)(b) of Council
                      Regulation No 139/20041 and Article 57 of the Agreement on the
                      European Economic Area2
Dear Sir or Madam,
(1)         On 7 January 2019, the European Commission received notification of a
            proposed concentration (the “Transaction”) pursuant to Article 4 of the Merger
            Regulation, by which Société Générale SA (“SG”, France or the “Notifying
            Party”) acquires within the meaning of Article 3(1)(b) of the Merger Regulation
            sole control of the Equity Markets & Commodities Business (“EMC”, or the
            “Target”) of Commerzbank AG (“Commerzbank”, Germany)3. SG and the
            Target are collectively referred to as the "Parties".
1.        THE PARTIES
(2)         SG is globally active in retail banking and financial services, global investment
            management, and corporate and investment banking.
(3)         Commerzbank EMC Business is active in asset management services as well as
            the design, structuring, issuance, and market making of structured investment
            products.
1    OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on the
     Functioning of the European Union ('TFEU') has introduced certain changes, such as the replacement of
     'Community' by 'Union' and 'common market' by 'internal market'. The terminology of the TFEU will be used
     throughout this decision.
2    OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
3    Publication in the Official Journal of the European Union No C 18, 15.01.2019, p. 42.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 2.      THE OPERATION
(4)       On 8 November 2018, SG and Commerzbank signed a business purchase
          agreement pursuant to which SG would acquire sole control over the Target by
          way of a combined asset and share deal. The Transaction involves (i) the
          acquisition by SG of assets, liabilities, contracts, and employees pertaining to
          the Target and (ii) the acquisition by SG of 100% of the shares in Commerzbank
          affiliates pertaining to the Target.4
(5)       The Transaction would therefore give rise to a concentration within the meaning
          of Article 3(1)(b) of the Merger Regulation.
3.      UNION DIMENSION
(6)       The undertakings concerned have a combined aggregate world-wide turnover of
          more than EUR 5 000 million5 (SG: EUR 23 954 million; the Target: EUR […]).
          Each of them has an EU-wide turnover in excess of EUR 250 million (SG: EUR
          […]; the Target: EUR […]), but they do not achieve more than two thirds of
          their aggregate EU-wide turnover within one and the same Member State.
(7)       The Transaction therefore has an EU dimension pursuant to Article 1(2) of the
          Merger Regulation.
4.      RELEVANT MARKETS
     4.1.    Structuring, Issuance, and Market Making of ETSIPs
             4.1.1.      Product market definition
(8)       Structured investment products (“SIPs”) are innovative financial instruments,
          characterised by an underlying asset (e.g., a specific share, bond, commodity,
          index, rate, or a basket thereof), pay-off formulae (defining the amounts payable
          to the investors based on reference performances of the underlying assets) and a
          wrapper (e.g., a certificate, note, fund, bilateral master agreement, etc.).
(9)       Financial institutions, such as the Parties, are active in the design and
          manufacturing of SIPs. This involves choosing an underlying financial
          instrument and wrapping it in the adequate legal wrapper. The new SIP is then
          issued and becomes available (for the first time) to investors in the primary
          market. Once a SIP has entered the primary market, it can then be traded further
          on the secondary market. SIPs are attractive when they can be easily traded, i.e.,
          the market is sufficiently liquid for the concerned product. To ensure such
          liquidity, financial institutions often act as “market makers”. Market making
          consists in selling and buying SIPs to and from clients, making profit on price
          differentials.6
4   Namely, Commerz Funds Solutions S.A., Blue Amber Fund Management S.A., Commerz Pearl Ltd., and
    Commerz Securities Hong Kong Ltd..
5   Turnover calculated in accordance with Article 5 of the Merger Regulation.
6   See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 30.
                                                             2
 ---pagebreak--- (10)     SIPs that are sufficiently generic and standardized can be traded on exchanges
         and are therefore called exchange-traded structured investment products
         (“ETSIPs”). ETSIPs include exchange-traded notes, warrants, certificates, and
         exchange traded funds (“ETFs”). ETSIPs are different from wholesale SIPs
         (“WSIPs”), which are tailor-made to meet requirements of specific customers
         and are traded over-the-counter (“OTC”).
(11)     In BNP Paribas / Certain Assets of Royal Bank of Scotland, the Commission
         considered that there is one single relevant market including the structuring,
         issuance, and market making of ETSIPs.7 The market investigation in that case
         showed that there is limited demand-side substitutability between ETSIPs and
         stocks, bonds, and listed equity derivatives, because they involve different levels
         of return and risk.8 The market investigation also suggested that ETSIPs are not
         substitutable with other types of SIPs, like WSIPs.9
(12)     In that case, the market investigation indicated that the market for structuring,
         issuance, and market making of ETSIPs should not be further sub-segmented
         based on the different asset classes underlying an ETSIP (e.g., equities,
         commodities, fixed income).10 Thus, the Commission concluded that “the
         narrowest product market definition encompasses all structured ETSIP”.11
(13)     The Notifying Party agrees with the Commission’s past decisional practice
         regarding product market definition concerning ETSIPs.
(14)     For the purposes of the present case, the Commission considers that the relevant
         product market includes the structuring, issuance, and market making of
         ETSIPs.
            4.1.2.     Geographic market definition
(15)     In BNP Paribas / Certain Assets of Royal Bank of Scotland, the Commission’s
         market investigation indicated that the market for structuring, issuance, and
         market making of ETSIPs “should be considered as national in scope since the
         competition between suppliers takes place at the national level”.12
(16)     The Notifying Party submits that the scope of the market for structuring, issuing,
         and market making of ETSIPs is EEA-wide. The Notifying Party explains that
         the situation in the market has considerably evolved since 2014 and the
         Commission’s investigation in BNP Paribas / Certain Assets of Royal Bank of
         Scotland. The Notifying Party recalls that a new pan-European regulatory
         framework has been introduced (namely, MiFID II13 and MiFIR14) and pan-
         European trading platforms have emerged (e.g., Euronext ETF Access or
7  See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 39.
8  See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 40.
9  See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 32.
10 See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 41.
11 See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 43.
12 See Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 53.
13 See Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments and
   amending Directive 2002/92/EC and Directive 2011/61, OJ L 173, 12.06.2014, p. 349.
14 See Regulation 600/2014 of the European Parliament and of the Council on markets in financial instruments and
   amending Regulation (EU) No 648/2012, OJ L 173, 12.06.2014, p. 84.
                                                         3
 ---pagebreak---           Euronext’s platform for warrants and certificates). This facilitates the supply and
          purchase of ETSIPs across the EEA.
(17)      The vast majority of customers participating in the market investigation
          confirmed that, when making their choice for ETSIPs, customers located in one
          EEA country also consider ETSIPs listed on exchanges in other EEA
          countries.15 As customers put it, they purchase ETSIPs in the EEA in “an
          integrated marke[t] place. Most ETSIPs are in direct competition with each
          other” and “the choice of the exchange is less important”.16
(18)      In the market investigation, most customers considered that there are no
          particular advantages for an (institutional or retail) customer purchasing ETSIPs
          listed on a local exchange. Only a minority of respondents insisted that there are
          advantages for retail customers when purchasing ETSIPs on a local exchange,
          e.g., the availability of legal documentation in the customer’s native language.17
(19)      For the purposes of the present case, it can be left open whether the relevant
          market for structuring, issuance, and market making of ETSIPs is EEA-wide or
          national, as the Transaction does not give rise to serious doubts as to its
          compatibility with internal market under any plausible geographic market
          definition.
     4.2.     Distribution of investment products (including ETSIPs)
              4.2.1.     Product market definition
(20)      In its past decisional practice, the Commission considered that the distribution
          of a specific type of investment products (in that case, mutual funds) constituted
          a separate relevant market.18 In other cases, the Commission considered that the
          relevant product market could include distribution of mutual funds and other
          investment products.19 The Commission ultimately left this question open.20
(21)      The Notifying Party submits that the relevant product market in this case should
          comprise the distribution of all investment products.
(22)      In Crédit Agricole / Société Générale Asset Management, the Commission also
          considered that distribution of mutual funds could be sub-segmented based on
          the channel of distribution. Specifically, the Commission envisaged different
          markets for (i) distribution of mutual funds through the general retail network
15 Replies to Q1 – Questionnaire to Customers, question 5.
16 Replies to Q1 – Questionnaire to Customers, question 5.1.
17 Replies to Q1 – Questionnaire to Customers, question 6.
18 See Case M.8359 – Amundi / Crédit Agricole / Pioneer Investment, paragraph 33 and Case M.6168 – RBI / EFG
   EUROBANK / JV, paragraph 12.
19 See Case M.6405 – Banco Santander / Rainbow, paragraph 12 and Case M.5293 – Santander / Alliance &
   Leicester, paragraph 9.
20 See Case M.8359 – Amundi / Crédit Agricole / Pioneer Investment, paragraph 33 and Case M.6168 – RBI / EFG
   EUROBANK / JV, paragraph 18, Case M.5293 – Santander / Alliance & Leicester, paragraph 9, and Case M.4844
   – Fortis / ABN AMRO Assets, paragraphs 39-40 and 155.
                                                            4
 ---pagebreak---           and (ii) distribution of mutual funds through private banking.21 The Commission
          ultimately left this question open.22
(23)      The Notifying Party highlights the differences between the two channels and
          recalls that ETSIPs are essentially distributed to retail clients through online
          brokers, i.e., through the general retail network.
(24)      For the purposes of the present case, it can be left open whether the relevant
          market includes distribution of all investment products or only ETSIPs and
          whether it comprises all distribution channels or only one of them. The
          Transaction does not give rise to competition concerns under any plausible
          market delineation.
              4.2.2.    Geographic market definition
(25)      In past decisions, the Commission found that the market for the distribution of
          mutual funds and other investment products is national in scope.23 The
          Notifying Party does not contest this geographic market definition.
(26)      For the purposes of the present case, the plausible relevant markets for the
          distribution of ETSIPs and for the distribution of investment products are
          considered national in scope, regardless of the distribution channel used.
5.   COMPETITIVE ASSESSMENT
          Introduction
(27)      Article 2 of the Merger Regulation requires the Commission to examine whether
          notified concentrations are compatible with the internal market, by assessing
          whether they would significantly impede effective competition in the internal
          market or in a substantial part of it.
(28)      The Commission Guidelines on the assessment of horizontal mergers under the
          Merger Regulation (the "Horizontal Merger Guidelines") distinguish two main
          ways in which mergers between actual or potential competitors on the same
          relevant market may significantly impede effective competition, namely non-
          coordinated effects and coordinated effects.24
(29)      Non-coordinated effects may significantly impede effective competition by
          eliminating the competitive constraint imposed by one merging party on the
          other, as a result of which the merged entity would have increased market power
          without resorting to coordinated behaviour. According to recital (25) of the
          preamble of the Merger Regulation, a significant impediment to effective
          competition can result from the anticompetitive effects of a concentration even
          if the merged entity would not have a dominant position on the market
21 See Case M.5728 – Crédit Agricole / Société Générale Asset Management, paragraphs 68ff.
22 See Case M.5728 – Crédit Agricole / Société Générale Asset Management, paragraph 77.
23 See Case M.8359 – Amundi / Crédit Agricole / Pioneer Investment, paragraph 34, Case M.6405 – Banco
   Santander / Rainbow, paragraph 12, Case M.5293 – Santander / Alliance & Leicester, paragraph 9, Case M.4844
   – Fortis / ABN AMRO Assets, paragraphs 155-158.
24 OJ C 31, 05.02.2004, p. 5. The remainder of this decision focuses on non-coordinated effects.
                                                          5
 ---pagebreak---          concerned. In this regard, the Horizontal Merger Guidelines consider not only
         the direct loss of competition between the merging firms, but also the reduction
         in competitive pressure on non-merging firms in the same market that could be
         brought about by the merger.25
(30)     Indeed, the Horizontal Merger Guidelines list a number of factors which may
         influence whether or not significant non-coordinated effects are likely to result
         from a merger, such as the large market shares of the merging firms, the fact that
         the merging firms are close competitors, the limited possibilities for customers
         to switch suppliers, or the fact that the merger would eliminate an important
         competitive force. Not all of these factors need to be present for significant non-
         coordinated effects to be likely. The list of factors, each of which is not
         necessarily decisive in its own right, is also not an exhaustive list.26
(31)     In addition, the Commission Guidelines on the assessment of non-horizontal
         mergers under the Merger Regulation (the "Non-Horizontal Merger Guidelines")
         distinguish between two main ways in which vertical mergers may significantly
         impede effective competition, namely input foreclosure and customer
         foreclosure.27
(32)     For a transaction to raise input foreclosure competition concerns, the merged
         entity must have a significant degree of market power upstream.28 In assessing
         the likelihood of an anticompetitive input foreclosure strategy, the Commission
         has to examine whether (i) the merged entity would have the ability to
         substantially foreclose access to inputs; (ii) whether it would have the incentive
         to do so; and (iii) whether a foreclosure strategy would have a significant
         detrimental effect on competition downstream.29
(33)     For a transaction to raise customer foreclosure competition concerns, the merged
         entity must be an important customer with a significant degree of market power
         in the downstream market.30 In assessing the likelihood of an anticompetitive
         customer foreclosure strategy, the Commission has to examine whether (i) the
         merged entity would have the ability to foreclose access to downstream markets
         by reducing its purchases from upstream rivals; (ii) whether it would have the
         incentive to do so; and (iii) whether a foreclosure strategy would have a
         significant detrimental effect on consumers in the downstream market.31
25 Horizontal Merger Guidelines, paragraphs 24-38.
26 Horizontal Merger Guidelines, paragraphs 24-38.
27 OJ L 24, 29.1.2004, p. 1.
28 Non-horizontal Merger Guidelines, paragraph 35.
29 Non-horizontal Merger Guidelines, paragraph 32.
30 Non-horizontal Merger Guidelines, paragraph 61.
31 Non-horizontal Merger Guidelines, paragraph 59.
                                                   6
 ---pagebreak---            Affected markets
(34)       Both SG and the Target design, construct, and sell ETSIPs and the Transaction
           gives rise to horizontally affected markets regarding structuring, issuance, and
           market making of ETSIPs in the EEA and in several Member States.32
(35)       In addition, SG distributes its own and third-party ETSIPs, among other
           investment products. In this respect, SG only acts as a broker, meaning that it
           does not buy and/or sell ETSIPs on its own behalf, making a profit on the price
           differential. When acting as a distributor, SG only concludes a transaction on
           behalf of a client (collecting a brokerage fee).
(36)       The Transaction gives rise to affected markets regarding the vertical link
           between structuring, issuing, and market making of ETSIPs (upstream) and
           distribution of investment products such as ETSIPs (downstream).33
     5.1.      Horizontal Analysis
(37)       The Parties’ activities overlap in the structuring, issuance, and market making of
           ETSIPs in 16 EEA countries34 and give rise to affected markets at the EEA level
           and in 12 EEA countries.35 Given the volatility of market shares in ETSIPs, the
           Commission did not identify affected markets only based on 2017 market share
           data but also took into account the combined market shares of the Parties in
           2015 and 2016. A market was considered as horizontally affected by the
           Transaction where the combined share of the Parties was 20% or higher in any
           of the years 2015, 2016, or 2017.
               5.1.1.    EEA Level
(38)       A possible EEA-wide market for structuring, issuance, and market making of
           ETSIPs would be affected by the Transaction based on 2015 market share data,
           when the combined entity would have been the market leader with a share of
           [20-30]%. In 2016 and 2017, the Transaction would not have affected the EEA-
           wide market for structuring, issuance, and market making of ETSIPs. Table 1
           below summarizes the shares of the Parties and their competitors in this market
           in the EEA in 2015, 2016 and 2017.
32 The Parties’ activities also overlap horizontally in (i) asset management services and (ii) WSIPs but the
   Transaction does not give rise to affected markets.
33 SG is further active in the markets for the distribution of mutual funds, in fund administration services and in
   custody services, which are all vertically related to the Parties' activities in the provision of asset management
   services. SG is also active in the distribution of investment products, which is vertically related to the Parties’
   activities in WSIPs. None of these vertical links gives rise to affected markets.
34 Namely, Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
   Norway, Poland, Portugal, Spain, Sweden, and the United Kingdom.
35 Namely, Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Poland, Portugal, Spain, and
   Sweden.
                                                               7
 ---pagebreak---                    Table 1 – Market for structuring, issuance, and market making of ETSIPs (2017)
                                    Total Market Size and Market Share in the EEA
                                                       (2015-2017)
                                                2015                     2016                   2017
             Total market size (M€)                 1 101 533              1 118 155               1 340 824
             SOCIETE GENERALE [5-10]%                            [5-10]%                [5-10]%
             TARGET                     [10-20]%                 [10-20]%               [10-20]%
             Merged entity              [20-30]%                 [10-20]%               [10-20]%
             FLOW TRADERS               [10-20]%                 [10-20]%               [20-30]%
             JANE STREET                [10-20]%                 [10-20]%               [10-20]%
             SUSQUEHANNA                [5-10]%                  [5-10]%                [5-10]%
             OPTIVER                    [0-5]%                   [0-5]%                 [0-5]%
             GOLDMAN SACHS              [0-5]%                   [0-5]%                 [0-5]%
             BNP PARIBAS                [0-5]%                   [0-5]%                 [0-5]%
             Others                     [20-30]%                 [20-30]%               [20-30]%
             TOTAL                      100%                     100%                   100%
             Post-merger HHI            [1000-2000]              [1000-2000]            [1000-2000]
             HHI increment              [0-250]                  [0-250]                [0-250]
                                                  Source: Form CO
(39)     The Transaction does not give rise to serious doubts as to its compatibility with
         the internal market regarding a possible EEA-wide market for structuring,
         issuance, and market making of ETSIPs for the following reasons.
(40)     First, following the Transaction, the combined entity will continue facing strong
         competition from several players, including Flow Traders (the market leader
         with a share of [20-30]% in 2017), Jane Street ([10-20]%), and Susquehanna
         ([5-10]%) (all operating at EEA level for the market making of ETFs), but also
         Optiver ([5-10]%) Goldman Sachs ([0-5]%), BNP Paribas ([0-5]%), UniCredit
         ([0-5]%), Deutsche Bank ([0-5]%), Vontobel ([0-5]%), and Morgan Stanley ([0-
         5]%). The HHI in this market is between 1,000 and 2,000 and the delta HHI is
         below 250 in each of 2015, 2016, and 2017.36
(41)     The market investigation confirmed that the combined entity will remain subject
         to strong competitive constraints in the EEA-wide market for structuring,
         issuance, and market making of ETSIPs. Customers described this market as
         “highly competitive”37 and including a large number of competitors.38 In this
         respect, the vast majority of respondents confirmed that, post-Transaction, the
         number of alternative providers of ETSIPs would remain sufficient for
         customers to obtain both competitive prices and a wide range of product options
         from suppliers of ETSIPs in the EEA.39
(42)     Second, according to the results of the market investigation, in the market for
         structuring, issuance, and market making of ETSIPs in the EEA, the Parties are
         not each other’s closest competitors. The vast majority of customers and
         competitors who responded to the market investigation identified players other
         than the Target as SG’s closest competitor in the EEA (e.g., BNP Paribas or
36 See Horizontal Merger Guidelines, paragraph 20.
37 Replies to Q1 – Questionnaire to Customers, question 8.
38 Replies to Q1 – Questionnaire to Customers, question 8.
39 Replies to Q1 – Questionnaire to Customers, question 17 and to Q2 – Questionnaire to Competitors, question 16.
                                                            8
 ---pagebreak---          Blackrock), taking into account the range of ETSIPs offered.40 Similarly, the
         vast majority of respondents identified players other than SG as the Target’s
         closest competitor in the EEA (e.g., Deutsche Bank), taking into account the
         country where the ETSIP provider is based.41 In any event, the market
         investigation provided indications that there are no significant differences
         between the ETSIP products that the various suppliers offer. In this context,
         some market participants explained that “the product types offered are highly
         standardized” and “there is no specific feature which differentiates [SG or the
         Target Business] from other large pan-European issuers”.42
(43)     Third, the majority of customers and competitors that participated in the market
         investigation stated that customers switch easily between suppliers of the
         structuring, issuance, and market making of ETSIPs.43 The price of an ETSIP is
         the most important parameter that customers take into account in purchasing
         decisions,44 considering also the return and performance prospects of the
         product. As explained by one customer: “ETSIPs business is a transparent and
         competitive, therefore customers can compare different product offers easily
         and decide what fits best for them”.45
(44)     Fourth, the market investigation did not reveal any substantiated competition
         concerns in relation to the proposed Transaction in a possible EEA market for
         the structuring, issuance, and market making of ETSIPs.46
(45)     In light of the above, the Transaction does not give rise to serious doubts as to
         its compatibility with the internal market regarding a possible market for the
         structuring, issuance, and market making of ETSIPs in the EEA.
             5.1.2.     National level
(46)     If the market for the structuring, issuance, and market making of ETSIPs were
         defined at national level, the Transaction would lead to horizontally affected
         markets in 12 EEA countries, namely Austria, Belgium, Finland, France,
         Germany, Ireland, Italy, Luxembourg, Poland, Portugal, Spain, and Sweden.
(47)     Table 2 below summarises the Parties’ combined market shares in each of these
         national markets in 2015, 2016 and 2017. It also includes information on the
         market size and the share increment that either SG or the Target contribute to
         the combined entity (whichever is the lowest in each case).
40 Replies to Q1 – Questionnaire to Customers, question 12 and to Q2 – Questionnaire to Competitors, question 12.
41 Replies to Q1 – Questionnaire to Customers, question 13 and to Q2 – Questionnaire to Competitors, question 13.
42 Replies to Q2- Questionnaire to Competitors, questions 6, 8, and 9.
43 Replies to Q1 – Questionnaire to Customers, question 15.
44 Replies to Q1 – Questionnaire to Customers, question 9.
45 Replies to Q1 – Questionnaire to Customers, question 15.1.
46 Replies to Q1 – Questionnaire to Customers, question 17 and to Q2 – Questionnaire to Competitors, question 17.
                                                            9
 ---pagebreak---                        Table 2 – National Markets for structuring, issuance, and market making of ETSIPs
                          Combined market shares in affected EEA countries over the 2015-2017 period
EEA                               2015                                  2016                                    2017
Member                                                  Market                                     Market     Combin
                  Market       Combine
State                                                               Combined
                     size          d         Share Δ       size                    Share Δ           size        ed         Share Δ
                                                                       Share
                    (M€)        Share                     (M€)                                      (M€)       Share
Austria             20 588    [30-40]%      [10-20]%      20 867   [30-40]%       [10-20]%           27 237  [10-20]%      [5-10]%
Belgium               6 778   [20-30]%      [10-20]%        6 745  [20-30]%       [10-20]%            8 796  [20-30]%      [5-10]%
Finland             11 408    [20-30]%      [10-20]%       11 177  [10-20]%       [5-10]%            14 434  [20-30]%      [5-10]%
France             124 269    [30-40]%      [10-20]%     125 098   [20-30]%       [10-20]%         162 280   [10-20]%      [5-10]%
Germany            317 977    [20-30]%      [0-5]%       279 322   [20-30]%       [0-5]%            322 771  [20-30]%      [0-5]%
Ireland             13 272    [20-30]%      [5-10]%       13 451   [30-40]%       [5-10]%            17 557  [20-30]%      [5-10]%
Italy              162 303    [20-30]%      [10-20]%     161 597   [20-30]%       [5-10]%           185 911  [10-20]%      [5-10]%
Luxembourg          11 154    [40-50]%      [20-30]%       11 305  [40-50]%       [20-30]%           14 756  [30-40]%      [10-20]%
Poland                2 600   [20-30]%      [0-5]%          2 537  [20-30]%       [0-5]%              2 600  [10-20]%      [0-5]%
Portugal              3 427   [20-30]%      [5-10]%         3 473  [10-20]%       [5-10]%             4 533  [10-20]%      [5-10]%
Spain               17 256    [30-40]%      [5-10]%       17 093   [30-40]%       [5-10]%            21 838  [30-40]%      [5-10]%
Sweden              19 544    [30-40]%      [10-20]%       20 427  [10-20]%       [5-10]%            22 008  [10-20]%      [0-5]%
                                                     Source: Form CO
  (48)         To account for the volatility of market shares47 Table 3 below shows the Parties’
               average combined market shares for the same markets over the last five years
               (2013-2017).
                    Table 3 – National Markets for the structuring, issuance, and market making of ETSIPs
                            Average combined market shares in affected EEA countries (2013-2017)
              EEA Member State                    SG Share               Target Share                Combined Share
          Austria                         [10-20]%                  [10-20]%                     [20-30]%
          Belgium                         [5-10]%                   [10-20]%                     [20-30]%
          Finland                         [10-20]%                  [10-20]%                     [20-30]%
          France                          [10-20]%                  [5-10]%                      [20-30]%
          Germany                         [0-5]%                    [10-20]%                     [20-30]%
          Ireland                         [5-10]%                   [10-20]%                     [20-30]%
          Italy                           [10-20]%                  [5-10]%                      [10-20]%
          Luxembourg                      [10-20]%                  [20-30]%                     [30-40]%
          Poland                          [10-20]%                  [0-5]%                       [10-20]%
          Portugal                        [5-10]%                   [10-20]%                     [10-20]%
          Spain                           [20-30]%                  [20-30]%                     [20-30]%
          Sweden                          [10-20]%                  [10-20]%                     [30-40]%
                                                        Source: Form CO
  (49)         In Finland, Poland, and Portugal, the Parties’ combined market shares remain
               below [20-30]% in each of 2015, 2016 and 2017 and on average for the period
               2013-2017. The market investigation did not reveal any competition concerns in
               relation to ETSIPs in Finland, Poland, and Portugal.48 In all three countries, the
               combined entity will continue to face competition by at least four players with
  47 Cf. Case M.7151 – BNP Paribas / Certain Assets of Royal Bank of Scotland, paragraph 67 and Table 1. In that
       decision, the Commission acknowledged (in paragraph 69) that “... high volatility is a structural characteristic of
       the [ETSIPs] market”.
  48 Replies to Q1 – Questionnaire to Customers, question 18 and to Q2 – Questionnaire to Competitors, question 18.
                                                                10
 ---pagebreak---            average shares of 5% or more in 2013-2017.49 In light of this,50 the Transaction
           does not give rise to serious doubts as to its compatibility with the internal
           market regarding markets for structuring, issuance, and market making of
           ETSIPs in Finland, Poland, and Portugal.
(50)       In Belgium, Ireland, and Italy, the Parties’ combined market share exceeded [20-
           30]% in 2015, 2016, and/or 2017 but the average combined market shares
           remained below [20-30]% over the 2013-2017 period. In all three countries, the
           combined entity will continue to face competition by at least four players with
           average shares of approximately 5% or more in 2013-2017.51 The market
           investigation did not reveal any competition concerns in relation to the market
           for structuring, issuance, and market making of ETSIPs in Belgium, Ireland, and
           Italy.52 In light of this, the Transaction does not give rise to serious doubts as to
           its compatibility with the internal market regarding markets for structuring,
           issuance, and market making of ETSIPs in Belgium, Ireland, and Italy.
(51)       In each of Austria, France, and Sweden, the Parties’ combined market shares
           exceeded [20-30]% in 2015 and/or 2016, but fell below [20-30]% in 2017.
           Moreover, in Austria and France, the average combined market share of the
           Parties in 2013-2017 period does not exceed [20-30]%. In France and Sweden,
           the Parties’ combined market shares have been steadily decreasing between
           2015 and 2017. In all three countries, the combined entity would face
           competition by at least four players with average market shares above 5% in
           2013-2017.53 The market investigation did not reveal any competition concerns
           in relation to the market for structuring, issuance, and market making of ETSIPs
           in Austria, France, and Sweden.54 In light of this, the Transaction does not give
           rise to serious doubts as to its compatibility with the internal market regarding
           markets for structuring, issuance, and market making of ETSIPs in Austria,
           France, and Sweden.
(52)       In Germany, the Parties’ combined market share in 2017 and their average
           combined market share in 2013-2017 was below [20-30]%. The Parties’
           combined market share was [20-30]% in 2015. In any event, the post-merger
           HHI remains below 2,000 post-Transaction based on market share data of 2015,
           2016, and 2017. The HHI increment in each of these years would be less than
           250.55 The market investigation did not reveal any competition concerns in
           relation to the market for structuring, issuance, and market making of ETSIPs in
49 In Finland: Flow Traders ([20-30]%), Jane Street ([10-20]%), Susquehanna ([10-20]%), and Optiver ([5-10]%);
   in Poland: Flow Traders ([20-30]%), Jane Street ([20-30]%), Susquehanna (11%), and Optiver ([5-10]%); in
   Portugal: Flow Traders ([20-30]%), Jane Street ([20-30]%), Susquehanna ([10-20]%), and Optiver ([5-10]%).
50 See Horizontal Merger Guidelines, paragraph 18.
51 In Belgium: Flow Traders ([20-30]%), Jane Street ([20-30]%), Susquehanna ([10-20]%) and Optiver ([5-10]%);
   in Ireland: Flow Traders ([20-30]%), Jane Street ([20-30]%), Susquehanna ([10-20]%)) and Optiver ([5-10]%);
   in Italy, these are Flow Traders ([20-30]%), Jane Street ([10-20]%), Susquehanna ([5-10]%), and Optiver ([5-
   10]%).
52 Replies to Q1 – Questionnaire to Customers, question 18 and to Q2 – Questionnaire to Competitors, question 18.
53 In Austria: Flow Traders ([20-30]%), Jane Street ([20-30]%), Susquehanna ([10-20]%), and Optiver ([5-10]%);
   in France: Flow Traders ([20-30]%), Jane Street ([10-20]%), Susquehanna ([10-20]%), and Optiver ([5-10]%);
   in Sweden: Morgan Stanley ([10-20]%), BNP Paribas ([10-20]%), Flow Traders ([5-10]%), and Jane Street ([5-
   10]%).
54 Replies to Q1 – Questionnaire to Customers, question 18 and to Q2 – Questionnaire to Competitors, question 18.
55 Form CO, Annex 12.
                                                           11
 ---pagebreak---           Germany.56 In light of this, the Transaction does not give rise to serious doubts
          as to its compatibility with the internal market regarding the market for
          structuring, issuance, and market making of ETSIPs in Germany.
(53)      In Luxembourg, the Parties’ combined share was [30-40]% in 2017. The merged
          entity would become the number one player in the market. The average
          combined share of the Parties over 2013-2017 would be [30-40]%. However, the
          Transaction does not give rise to serious doubts as to its compatibility with the
          internal market in the market for structuring, issuance, and market making of
          ETSIPs in Luxembourg:
              Post-Transaction, the combined entity will face competition in Luxembourg
               by at least three major competitors with average shares of above 5% in
               2013-2017.57 One customer active in Luxembourg stated: “[w]e absolutely
               believe that the market of ETSIPs will remain competitive, after the
               Transaction, the reason being that the market counts +/- 15 issuers which
               provide the market with plenty of structure, maturities etc.”;58
              The vast majority of respondents confirmed that the Parties are not each
               other’s closest competitors in Luxembourg;59
              As in the EEA, in Luxembourg, customers can (and do) easily switch from
               one ETSIP provider to another because products are similar and there is high
               price transparency. The price of the ETSIP is the key criterion that
               customers take into account when making their purchasing decisions,60
               considering also the return on investment and performance prospects of the
               product; and
              The market investigation did not reveal any competition concerns in relation
               to the market for structuring, issuance, and market making of ETSIPs in
               Luxembourg.61
(54)      In Spain, the Parties’ combined share was [30-40]% in 2017. The merged entity
          would be the number one player in the market. The average combined share of
          the Parties over 2013-2017 would be [20-30]%. However, the Transaction does
          not give rise to serious doubts as to its compatibility with the internal market in
          the market for structuring, issuance, and market making of ETSIPs in Spain:
              Post-Transaction, the combined entity will face competition in Spain by at
               least three major competitors with shares above 5% in 2013-2017;62
56 Replies to Q1 – Questionnaire to Customers, question 18 and to Q2 – Questionnaire to Competitors, question 18.
57 Namely, Flow Traders ([10-20]%), Jane Street ([10-20]%), and Susquehana ([5-10]%).
58 Replies to Q1 – Questionnaire to Customers, question 17.
59 Replies to Q1 – Questionnaire to Customers, questions 12-13 and to Q2 – Questionnaire to Competitors, questions
   10-11.
60 Doc ID 256, Minutes of Call with customer active in Luxembourg, 4 December 2018, paragraphs 4 and 8.
61 Replies to Q1 – Questionnaire to Customers, question 18 and to Q2 – Questionnaire to Competitors, question
   16.1.
62 Namely, Flow Traders ([20-30]%), Jane Street ([10-20]%), and Susquehana ([5-10]%).
                                                           12
 ---pagebreak---              As in the EEA, in Spain, customers can (and do) easily switch from one
              provider to another because products are similar and there is high price
              transparency. The price of the ETSIP is the key criterion that customers of
              take into account when making their purchasing decisions,63 considering
              also the return on investment and performance prospects of the product; and
             The market investigation did not reveal any competition concerns in relation
              to the market for the structuring, issuance, and market making of ETSIPs in
              Spain.64
     5.2.    Vertical analysis
(55)      SG is active in the EEA in the distribution of investment products (including
          ETSIPs), which is downstream from the market for structuring, issuance, and
          market making of ETSIPs.
(56)      The Notifying Party submits that SG’s share is far below 30% in the
          downstream market for the distribution of investment products (including
          ETSIPs), regardless of the precise relevant market delineation.
(57)      The Transaction only gives rise to affected markets in countries where the
          combined share of the Parties is 30% or more in the upstream market (i.e., the
          market for structuring, issuance, and market making of ETSIPs) and SG is
          active in the downstream market (regardless of its precise delineation). These
          countries are Austria, France, Ireland, Luxembourg, and Spain.65 Table 4
          includes SG’s estimated market share in distribution of investment products in
          each of these five countries, under all plausible market delineations.
63 Doc ID 63, Minutes of Call with customer active in Spain, 4 December 2018, paragraph 4.
64 Replies to Q1 – Questionnaire to Customers, question 17 and to Q2 – Questionnaire to Competitors, questions
   16.1 and 17.1; Doc ID 63, Minutes of Call with customer active in Spain, 4 December 2018, paragraph 6.
65 Taking into account the combined share of the Parties in any of the years 2015, 2016, or 2017.
                                                            13
 ---pagebreak---                            Table 4 – Distribution of ETSIPs and other investment products
                                                SG Market Share (2017)
       Country          Product Distributed                 Channel of Distribution        2017 Share of SG66
                                                     All channels                         [0-5]%
                    Distribution of all investment
                                                     General retail banking network       [0-5]%
                    products (including ETSIPs)
                                                     Private banking network              [0-5]%
     Austria
                                                     All channels                         [0-5]%
                    Distribution of ETSIPs           General retail banking network       [0-5]%
                                                     Private banking network              [0-5]%
                                                     All channels                         [10-20]%
                    Distribution of all investment
                                                     General retail banking network       [10-20]%
                    products (including ETSIPs)
                                                     Private banking network              [5-10]%
     France
                                                     All channels                         [10-20]%
                    Distribution of ETSIPs           General retail banking network       [0-5]%
                                                     Private banking network              [10-20]%
                                                     All channels                         [0-5]%
                    Distribution of all investment
                                                     General retail banking network       [0-5]%
                    products (including ETSIPs)
                                                     Private banking network              [0-5]%
     Ireland
                                                     All channels                         [0-5]%
                    Distribution of ETSIPs           General retail banking network       [0-5]%
                                                     Private banking network              [0-5]%
                                                     All channels                         [0-5]%
                    Distribution of all investment
                                                     General retail banking network       [0-5]%
                    products (including ETSIPs)
                                                     Private banking network              [0-5]%
     Luxembourg
                                                     All channels                         [0-5]%
                    Distribution of ETSIPs           General retail banking network       [0-5]%
                                                     Private banking network              [0-5]%
                                                     All channels                         [0-5]%
                    Distribution of all investment
                                                     General retail banking network       [0-5]%
                    products (including ETSIPs)
                                                     Private banking network              [0-5]%
     Spain
                                                     All channels                         [0-5]%
                    Distribution of ETSIPs           General retail banking network       [0-5]%
                                                     Private banking network              [0-5]%
                               Source: Notifying Party’s Reply to RFI of 28 January 2019
             5.2.1.     Input Foreclosure
(58)      The combined entity is unlikely to foreclose competing distributors of ETSIPs
          post-Transaction by restricting access to its ETSIPs:
             The combined entity would not have the ability to foreclose downstream
              rivals because it would not have a significant degree of market power in the
              upstream market for ETSIPs.
              In Austria, France, and Ireland, the combined share of the Parties exceeded
              30% in 2015 or 2016 in the upstream market for ETSIPs but in 2017 and on
              average over the period 2013-2017, it is far below this threshold.67
              In Luxembourg and in Spain, the Parties held combined shares exceeding
              30% in 2017 in the upstream market for ETSIPs. However, the combined
              entity would still not have a significant degree of market power within the
              meaning of the Non-horizontal Merger Guidelines. In both countries, the
              combined entity cannot restrict the overall availability of ETSIPs in the
              market in terms of either price or quality. The combined entity is unlikely to
              increase ETSIP prices, because there is high transparency for customers
66 Shares based on volumes traded.
67 See Tables 2 and 3 above.
                                                            14
 ---pagebreak---                purchasing ETSIPs in both Luxembourg and Spain and switching is easy.68
               If the combined entity downgraded the quality of the ETSIPs it offers
               downstream, distributors would switch to alternatives from rivals, as there
               are no fundamental differences among the ETSIPs offered in the market.69 In
               any event, if the combined entity were to limit access to its ETSIPs for
               distributors, its competitors would be able to respond immediately
               expanding their output (e.g., proposing more, differentiated ETSIPs) in
               response to the supply restriction.
              The combined entity would not have the incentive to restrict access to its
               ETSIPs. ETSIPs need to be distributed (and traded) as widely as possible
               and in high volumes to be most profitable for the issuer.
             5.2.2.     Customer Foreclosure
(59)     The combined entity is unlikely to foreclose competing ETSIP providers post-
         Transaction by restricting access to its distribution services:
              The combined entity would not have the ability to foreclose upstream rivals
               because it would not have a significant degree of market power in the
               downstream market, irrespective of its precise delineation.
               In Austria, Ireland, Luxembourg, and Spain, the combined entity holds less
               than [0-5]%           in the downstream market (under all plausible sub-
               segmentations).
               In France, the share of the combined entity would reach [10-20]% in a
               potential market for distribution of investment products via the general retail
               network. However, even in this case, the combined entity would not be in
               any way a “must-go” distributor for ETSIP providers. Several alternative
               options remain for the distribution of ETSIPs in France, including online
               brokers and traditional bank networks (e.g., Citi, BNP, Crédit Agricole).
              The combined entity would not have the incentive to restrict the portfolio of
               ETSIPs it distributes and exclude third-party products. ETSIP end-
               purchasers always opt for distributors who can offer the widest possible
               choice of products. The market investigation confirmed that today, SG
               distributes, alongside the SG ETSIPs, a wide range of third-party products,
               e.g., from BNP Paribas, Credit Suisse, and Natixis, etc.70
68 See paragraphs (52) and (53) above.
69 See paragraph (41) above.
70 Replies to Q2 – Questionnaire to Competitors, question 2.1.
                                                           15
 ---pagebreak--- 6.   CONCLUSION
(60)  For the above reasons, the European Commission has decided not to oppose the
      notified operation and to declare it compatible with the internal market and with
      the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of
      the Merger Regulation and Article 57 of the EEA Agreement.
                                                   For the Commission
                                                   (Signed)
                                                   Margrethe VESTAGER
                                                   Member of the Commission
                                             16