CELEX: 32022M10499
Language: en
Date: 2022-02-24 00:00:00
Title: Commission Decision of 24/02/2022 declaring a concentration to be compatible with the common market (Case No COMP/M.10499 - STATE STREET / BBH (INVESTOR SERVICES BUSINESS)) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 24.02.2022
                                                                C(2022) 1255 final
                                                                                 PUBLIC VERSION
                                                                 In the published version of this decision,
                                                                 some information has been omitted
                                                                 pursuant to Article 17(2) of Council
                                                                 Regulation (EC) No 139/2004 concerning
                                                                 non-disclosure of business secrets and other
                                                                 confidential information. The omissions are
                                                                 shown thus […]. Where possible the
                                                                 information omitted has been replaced by
                                                                 ranges of figures or a general description.
                                                                State Street Corporation
                                                                1 Lincoln Street, Floor 8
                                                                Boston, MA 02111-2901
                                                                United States of America
Subject:             Case M.10499 – STATE STREET / BBH (INVESTOR SERVICES
                     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 24 January 2022, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which State Street
          Corporation (“State Street”, US) intends to acquire within the meaning of Article
          3(1)(b) of the Merger Regulation sole control of Brown Brothers Harriman & Co.’s
          (“BBH”, US) investor services business (the “Target”) (the “Transaction”) by way
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’).
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---         of purchase of shares and assets.3 State Street is referred to as the “Notifying Party”
        and, together with the Target, the “Parties”.
1.      THE PARTIES
(2)     State Street is based in Boston and is active in the field of financial services and,
        more specifically, in the provision of domestic and global securities services to
        support institutional investors in developing and executing their global investment
        strategies. As a securities services provider, State Street provides an array of
        customised investment solutions to asset managers, pension funds, hedge funds,
        insurance companies, collective funds, mutual funds and non-profit organisations.
        These primarily comprise global and local custody, fund administration, securities
        lending, investment manager operations outsourcing, recordkeeping, performance
        measurement and analytics and transfer agency services. State Street has more than
        39,000 employees and operates in more than 100 geographic markets worldwide,
        including in the United States, Canada, Europe, the Middle East and Asia.
(3)     BBH operates three primary lines of business: Investor Services (equivalent to State
        Street’s custody business), Private Banking and Investment Management. The
        investor Services division i.e. the Target, operates via its 17 offices across the US,
        Europe and Asia and provides investment servicing, custody and safekeeping,
        agency, securities lending and borrowing, investment operations and technology
        solutions to its clients, which are primarily financial institutions and asset managers.
        As of June 30, 2021, the Target serviced total consolidated assets of approximately
        USD […], total assets under custody of USD 5.34 trillion and total assets under
        administration of USD […]. The Target is headquartered in New York and has
        approximately 4,700 employees, primarily operating from its offices in Boston,
        Jersey City, Kraków, Luxembourg, Dublin, Tokyo, Hong Kong and London (with
        smaller locations in Zurich, Beijing and Grand Cayman).
2.      THE CONCENTRATION
(4)     On 6 September 2021, State Street and BBH entered into an agreement pursuant to
        which State Street agreed to acquire from BBH a combination of shares in, or assets
        from, certain of its European and Asian subsidiaries, together comprising Target.
        Following completion of the Transaction, State Street will thus acquire sole control
        of the Target. The Transaction is therefore a concentration within the meaning of
        Article 3(1)(b) of the EU Merger Regulation.
3.      UNION DIMENSION
(5)     The undertakings concerned have a combined aggregate worldwide turnover of more
        than EUR 5 000 million4 (State Street: EUR 8 533 million; Target: EUR […]). Each
        of them has a Union-wide turnover in excess of EUR 250 million (State Street: EUR
        […]; Target: EUR […]), but they do not achieve more than two-thirds of their
        aggregate Union-wide turnover within one and the same Member State. The notified
3   Publication in the Official Journal of the European Union No C 54, 1.1.2022, p. 6.
4   Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          2
 ---pagebreak---          operation therefore has a Union dimension pursuant to Article 1(2) of the Merger
         Regulation.
4.       RELEVANT MARKETS
(6)      The Parties are both active in the supply of securities services (also sometimes
         referred to as investment servicing) to asset managers and institutional investors and,
         in the case of Target, high net worth individual clients. Institutional clients include
         mutual funds, pension funds, alternative investors such as hedge funds and insurance
         companies.
(7)      The Commission has previously analysed securities services in a number of cases,
         distinguishing between: global custody, i.e. the service by which a custodian holds a
         range of assets/securities on behalf of a client; and fund administration, i.e. a range
         of outsourced investor services, different configurations of which are provided to
         sophisticated financial institutions and asset managers.
4.1.     Global custody
4.1.1. Product market definition
4.1.1.1. Previous Commission decisions
(8)      In previous Commission decisions, global custody services have been held to include
         safekeeping of assets, presentation of securities for and reception of securities from
         clearing and settlement platforms, income and dividend processing, arranging of
         withholding tax relief and tax reclaim, other corporate actions such as notification
         and dealing with bonus issues, rights issues and takeovers, proxy voting services,
         sweeping of uninvested cash and transaction and portfolio reporting services. 5
         Global custodians may also provide to their clients foreign exchange trading,
         securities lending, performance measurement and risk analysis, and management of
         cash accounts and cash funds linked to securities held in custody.
(9)      The Commission considered that these services all form part of a single product
         market but left open whether global custody should be systematically distinguished
         from local custody (sub-custody).6 Local custody (or sub-custody) refers to the
         provision of custody services within a specific jurisdiction (see section 4.2).
(10)     The Commission previously considered whether a common product market for
         global custody and fund administration services exists, but left open the question.7
4.1.1.2. The Notifying Party’s view
(11)     The Notifying Party submits that all services mentioned in paragraph (8) form part
         of a single product market, which should not be further divided into segments.
5    M.5797 State Street / Intesa Sanpaolo, paragraph 11; M.3781 Crédit Agricole / Caisse D’Epargne,
     paragraphs 11-14; M. 3027 State Street / Deutsche Bank, paragraphs 8-10.
6    M.5797 State Street / Intesa Sanpaolo, paragraph 12; M.3781 Crédit Agricole / Caisse D’Epargne,
     paragraphs 11-14; M. 3027 State Street / Deutsche Bank, paragraph 10.
7    M.5797 State Street / Intesa Sanpaolo, paragraphs 8-9; M.3781 Crédit Agricole / Caisse D’Epargne ; M.
     3027 State Street / Deutsche Bank.
                                                         3
 ---pagebreak---         Notably, the Notifying Party argues that segmentations by customer type, fund type
        or asset type or volume of assets under management (“AUM”) would not be
        appropriate. The Notifying Party submits that:
        (a)      The services provided under global custody do not materially vary for any of
                 these possible segments8 ;
        (b)      All service providers can offer the services for each possible segment.9
        (c)      Likewise, the services are not materially different depending on the segment.
                 The specific mix of services rather depends on the individual needs of every
                 client.10
(12)    The Notifying Party regards a combined market for global custody and fund
        administration as a plausible product market definition as well, as the two services
        are commonly provided together.11
4.1.1.3. The Commission’s assessment
(13)    Global custody comprises a broad set of services that can be different from client to
        client. Some of these services, such as safekeeping of assets, presentation of
        securities for and reception of securities from, clearing and settlement platforms and
        income and dividend processing are considered as core global custody services by
        virtually all respondents to the Commission’s market investigation. Other services,
        such as proxy voting services and sweeping of uninvested cash are considered by a
        majority of respondents as ancillary global custody services.12 However, the
        Commission did not get any indications that any of these services are sufficiently
        distinct so that they should be considered as separate product markets. As such, for
        the purposes of this Decision the Commission considers global custody to comprise
        all the services mentioned in paragraph (8).
(14)    The majority of customers that responded to the Commission’s market investigation
        do not choose different global custody service providers for different asset classes.
        However, some customers indicated that more niche asset classes may benefit from
        specific support and services from the global custodian.13 Similarly, the majority of
        competitors that responded to the Commission’s market investigation either
        indicated that global custody services are broadly the same across asset types, or that
        there are slight differences, but that all major suppliers are able to serve all types of
        assets.14 As such, for the purposes of this Decision the Commission considers that a
        segmentation by asset class is not appropriate.
(15)    Concerning different customer types (e.g. asset managers vs. pension funds), the
        majority of competitors consider that global custody services are the same,
8   Form CO, paragraphs 96, 111.
9   Form CO, paragraphs 108, 110.
10  Form CO, paragraphs 96, 107, 112.
11  Form CO, paragraph 102.
12  Responses to questionnaire Q1 to customers, question 4 and questionnaire Q2 to competitors, question 4.
13  Responses to questionnaire Q1 to customers, question 7.
14  Responses to questionnaire Q2 to competitors, question 8.
                                                        4
 ---pagebreak---         regardless of customer type.15 As such, for the purposes of this Decision the
        Commission considers that a segmentation by customer type is not appropriate.
(16)    To conclude, the Commission considers that global custody can be considered as a
        single heterogeneous market, with a set of services that may differ slightly
        depending on client needs or asset type.
(17)    As concerns a combined market for global custody services and fund administration,
        the Commission’s market investigation confirmed that the majority of customers
        source global custody and fund administration together, as this is generally more
        efficient. However, not all customers source the two services together, for example
        in order to select a best in class service provider for each service, which may not be
        the same provider.16 Furthermore, there are slight differences in the competitive
        landscape for each service. For example, there are some non-bank fund
        administrators, who cannot provide global custody as the latter requires a banking
        license.
(18)    In this case, it can be left open whether the appropriate product market definition is
        limited to global custody, or comprises a combined market for global custody and
        fund administration, as the Parties’ market positions are very similar on both
        markets. The Commission will perform its competitive assessment on the narrowest
        basis, i.e. a separate market for each of global custody and fund administration.
        However, considering that the Parties’ position on a combined market is very
        similar, the competitive assessment is valid for a combined market as well.
4.1.2. Geographic market definition
4.1.2.1. Previous Commission decisions
(19)    The Commission has previously considered whether global custody markets are
        global, EEA wide or national in scope considering aspects such as: the global nature
        of the service, the regulatory framework, whether clients hold a large number of
        domestic assets, and whether clients prefer a global custodian with its own local
        presence in this jurisdiction.17 Notably, in case M.3781 Crédit Agricole / Caisse
        D’Epargne in 2005, the Commission, without concluding on the matter, examined
        the existence of a national (French) market on the basis that a large number of clients
        held significant parts of their investments in French instruments and could prefer a
        provider having its local custody service.
4.1.2.2. The Notifying Party’s view
(20)    The Notifying Party submits that the market for global custody services is global in
        scope. First, while acknowledging that both the AIFMD and UCITS regimes18
15  Responses to questionnaire Q2 to competitors, question 10.
16  Responses to questionnaire Q1 to customers, question 6.
17 M.3781 Crédit Agricole / Caisse D’Epargne, paragraphs 15 – 19; M.5797 State Street / Intesa Sanpaolo,
    paragraph 17.
18 All collective investment undertakings which: (i) raise capital from a number of investors, with a view to
    investing it in accordance with a defined investment policy for the benefit of those investors; and (ii) are
    domiciled or distributed in the EU, are subject to either the UCITS framework or the AIFMD framework.
    UCITS and their management companies and managers or AIFs (AIFMs) are governed by the Member
    State laws implementing the relevant Directives (Undertakings for Collective Investment Transferable
                                                          5
 ---pagebreak---         require that a global custodian providing a depositary function for EU domiciled
        funds must be domiciled in the Member State where the fund is domiciled, the
        Notifying Party argues that the Parties’ clients manage funds that hold assets in
        multiple jurisdictions in and outside of the EU. Thus, the clients source global
        custody services globally.19 Second, the major global custodians, including the
        Parties, operate globally.20 Third, global custodians could easily obtain the
        regulatory approval to establish a local presence in the potentially affected national
        markets, Ireland and Luxembourg.21 Fourth, global custody services are often
        delegated within the custodians group and, hence, carried out in different locations
        from an operational perspective.22
(21)    Moreover, the Notifying Party is of the view that the considerations in case M.3781
        are irrelevant for the present case as, promoted by the introduction of a European
        passport for UCITS and AIF under the respective regulatory frameworks, clients
        hold assets in various jurisdictions. Moreover, different from the French market in
        M.3781, Ireland and Luxembourg are generally regarded as cross-border
        jurisdictions that are used by investment institutions to access the broader EEA
        market.23
4.1.2.3. The Commission’s assessment
(22)    A slight majority of customers responding to the Commission’s market investigation
        indicated that they source global custody services by comparing offers worldwide,
        and that the major players are active globally. 24 However, the vast majority of
        customers that responded to the Commission’s market investigation indicated that
        they demand that their global custodian is present in the country in which their fund
        is domiciled due to regulatory requirements. 25 Indeed, the European UCITS and
        AIFMD regimes do not contain a passporting provision for global custodian
        services, meaning that global custodians need to be present in the country of
        domiciliation of their client funds.
(23)    Furthermore, some customers indicated that there are global custodians that are only
        active regionally.
(24)    These facts would indicate that global custody services in the EEA might be national
        in scope.
(25)    Ultimately, in this case the appropriate geographic market definition for global
        custody services can be left open, as the Transaction does not give rise to
        competitive concerns under any plausible geographic market definition. The
        Transaction does not give rise to an affected market for global custody on a global or
    Securities Directive 2009/65/EC (“UCITS IV”), Directive 2014/91/EU (“UCITS V”) and Alternative
    Investment Fund Managers Directive 2011/61/EU (the “AIFMD”)).
19  Form CO, paragraph 114, 121.
20  Form CO, paragraph 121.
21  Form CO, paragraph 120.
22  Form CO, paragraph 121.
23  Form CO, paragraphs 123 – 125.
24  Responses to questionnaire Q1 to customers, question 9.
25  Responses to questionnaire Q1 to customers, question 10.
                                                        6
 ---pagebreak---         EEA-wide level. At national level, the Transaction gives rise to affected global
        custody markets in Ireland and Luxembourg.
4.2.    Local custody
4.2.1. Product market definition
4.2.1.1. Previous Commission decisions
(26)    Local custody (or sub-custody) refers to the provision of custody services within a
        specific jurisdiction. The Commission has previously noted that a local custodian (or
        sub-custodian) is one method by which a global custodian can carry out custody
        services in countries other than the one in which it is domiciled and still adhere to
        the specific requirements of national law. 26 In the same case, the Commission also
        considered global custody and local custody as separate standalone markets on the
        basis that they perform different functions. Global custody is intended for the end
        customer (i.e., institutional investors in this case) and implies a direct link between
        the global custodian and the end customer. In contrast, local custody refers to a
        service intended for global custodians, who can therefore be considered as
        employing a sub-contractor with no direct link to the end customer. The Commission
        ultimately left the exact product market definition open.
4.2.1.2. The Notifying Party’s view
(27)    The Notifying Party submits that, while there is likely a local custody market that the
        Commission could plausibly analyse, the question can be left open. 27
4.2.1.3. The Commission’s assessment
(28)    The market investigation has not provided any indication that the Commission
        should depart from precedents or the Notifying Party’s view with regard to the
        market definition for local custody. As such, for the purposes of this Decision, the
        Commission has considered a plausible market for local custody services, but does
        not conclude on whether local custody clearly constitutes a separate product market,
        given that no competition concerns arise regardless of the precise definition.
4.2.2. Geographic market definition
4.2.2.1. Previous Commission decisions
(29)    The Commission noted in Crédit Agricole/Caisse D'Epargne/JV that it may be
        defensible to analyse a national-level market (in that case, France) on the basis that a
        large number of clients with a significant part of their investment domiciled in one
        country may favour a sub-custodian in the same country. However, the Commission
        ultimately left the exact approach to geographic market definition open.
26   M.3781 Crédit Agricole/Caisse D’Epargne/JV, decision of 14 June 2005, paragraphs 11-12.
27   Response to RFI 7, paragraph 2.2
                                                       7
 ---pagebreak--- 4.2.2.2. The Notifying Party’s view
(30)     The Notifying Party submits that the Commission should not depart from its
         previous decisional practice.
4.2.2.3. The Commission’s assessment
(31)     The market investigation has not provided any indication that the Commission
         should depart from precedents or the Notifying Party’s view with regard to the
         market definition for local custody. As such, for the purposes of this Decision, the
         Commission has considered the market to be national in scope.
4.3.     Fund administration
4.3.1. Product market definition
4.3.1.1. Previous Commission decisions
(32)     The Commission considered that fund administration includes a range of services
         that form a single product market. 28 These services typically include: acting as
         trustee, depositary or depot bank of mutual funds; accounting services and net asset
         valuations; share registration and taxation services; transfer agency; trustee and
         record keeping services; ancillary legal and secretarial services and transaction and
         portfolio reporting services. Additional value-added services may be offered, such as
         providing middle and back office services for fund managers; benefit payment
         services; performance measurement and risk analysis; and consolidated
         recordkeeping.29
(33)     While ultimately leaving the question open, in M.5797 State Street / Intesa
         Sanpaolo, the Commission examined whether fund administration services for
         individual managed accounts (IMAs) constitute a separate market.
4.3.1.2. The Notifying Party’s view
(34)     The Notifying Party submits that fund administration constitutes a single product
         market comprising of the services mentioned in paragraph (32) without further
         segmentation. Notably, a segmentation by fund type would not be appropriate as the
         services provided to different fund types do not substantially differ and the
         regulatory background is very similar. 30 According to the Parties, this also applies to
         IMAs, as the services are very similar, because the only difference is that NAV
         calculations do not have to be divided in units.31
(35)     Moreover, the Notifying Party states that transfer agency should not be considered
         separately from fund administration. Transfer agency is, in most cases, provided
         together with fund administration and clients do not select a service provider based
28   M.3781 Crédit Agricole / Caisse D’Epargne, paras. 21; M.5797 State Street / Intesa Sanpaolo, paragraph
     14.
29 M. 3027 State Street / Deutsche Bank, paragraph 11.
30 Form CO, paragraph 139.
31 Form CO, paragraph 140.
                                                        8
 ---pagebreak---         on their transfer agency capabilities but look at the more general service package of
        fund administration.32
4.3.1.3. The Commission’s assessment
(36)    Fund administration can cover various services and the precise definition appears to
        vary more among market participants than that of global custody. Respondents to the
        market investigation agree that accounting (e.g. Net Asset Value calculation) is a
        core fund administration service, while they are divided on whether remaining
        services such as transfer agency, securities lending, back-office activities, collateral
        management, depobank, correspondent bank, performance and analytics, tax-
        transparent asset pooling, transition management, foreign exchange services and
        client and regulatory reporting should be classified as core or ancillary fund
        administration services.33 However, no market participants suggested that any of
        these services are sufficiently distinct so that they should be considered as separate
        product markets.
(37)    Further, with respect to transfer agency, the Notifying Party’s view was confirmed;
        the majority of customers responding to the market investigation stated that they
        source transfer agency together with fund administration, and the majority of
        competitors responding to the market investigation indicated that they usually
        provide transfer agency together with fund administration (and/or global custody, to
        the extent that global custody and fund administration are themselves provided
        together).34 As such, for the purposes of this Decision the Commission considers
        fund administration to comprise all the services mentioned in paragraph (32).
(38)    As is the case for global custody service providers, the majority of customers that
        responded to the Commission’s market investigation do not choose different fund
        administration service providers for different asset classes.35 Similarly, the majority
        of competitors that responded to the Commission’s market investigation either
        indicated that fund administration services are broadly the same across asset types,
        or that there are slight differences, but that all major suppliers are able to serve all
        types of assets.36 As such, for the purposes of this Decision the Commission
        considers that a segmentation by asset class is not appropriate.
(39)    Concerning different customer types (e.g. asset managers vs. pension funds), the
        large majority of competitors consider that either fund administration services are the
        same, regardless of customer type, or that they differ per customer but all major
        suppliers are able to serve all types of customers.37 As such, for the purposes of this
        Decision the Commission considers that a segmentation by customer type is not
        appropriate.
(40)    To conclude, the Commission considers that fund administration can be considered
        as a single heterogeneous market, with a set of services that may differ slightly
        depending on client needs or asset type. As per paragraphs (17)-(18), the question of
32  Form CO, paragraphs 144 – 146.
33  Responses to questionnaire Q1 to customers, question 5 and questionnaire Q2 to competitors, question 5.
34  Responses to questionnaire Q1 to customers, question 5 and questionnaire Q2 to competitors, question 7.
35  Responses to questionnaire Q1 to customers, question 8.
36  Responses to questionnaire Q2 to competitors, question 9.
37  Responses to questionnaire Q2 to competitors, question 11.
                                                         9
 ---pagebreak---         whether fund administration and global custody services are a combined market or
        two separate markets can be left open.
4.3.2. Geographic market definition
4.3.2.1. Previous Commission decisions
(41)    The Commission considered a possible national definition of the relevant market in
        M.3027, but noted in case M.3781, without concluding on the matter, that the
        arguments of the Parties in that case that the market may be wider than national had
        been in part confirmed by the market investigation. 38 The reasons for considering a
        national market were that some of the activities included in the fund administration
        services have specific national regulations or require a national presence following
        the UCITS Directive.39 However, the market investigation in case M.3781 suggested
        that this had partially changed.40
4.3.2.2. The Notifying Party’s view
(42)    The Notifying Party submits that the fund administration market is at least EEA-
        wide in scope for four reasons. First, fund administrators are usually active in
        various jurisdictions, including a range of countries across the EEA and tend to offer
        standardised services irrespective of the location. 41 Second, an increasing number of
        clients sources fund administration services from a single provider on a pan-
        European or at least multi-jurisdictional basis.42 Third, market dynamics are
        substantially similar across the EU. 43 Finally, European regulatory regimes, namely
        AIFMD and UCITS Directives, continue harmonisation of the services environment
        within the EEA.44 Considering these dynamics, the Notifying Party further argues
        that the assessment in M.3027 would not be appropriate anymore.
4.3.2.3. The Commission’s assessment
(43)    A majority of customers responding to the Commission’s market investigation
        indicated that they source fund administration services by comparing offers
        worldwide, and that the major players are active globally. 45 Unlike global custody
        services, for fund administration services there does not appear to be a regulatory
        requirement for national presence. Nevertheless, customers do indicate that they
        sometimes look for local knowledge and expertise related to the scope of
        investment.46
(44)    Ultimately, in this case the appropriate geographic market definition for fund
        administration services can be left open, as the Transaction does not give rise to
        competitive concerns under any plausible geographic market definition. The
38  M.3781 Crédit Agricole / Caisse D’Epargne, paragraph 22.
39  M.3027 State Street / Deutsche Bank, paragraph 12.
40  M.3781 Crédit Agricole / Caisse D’Epargne, paragraph 22.
41  Form CO, paragraph 161.
42  Form CO, paragraph 162.
43  Form CO, paragraph 163.
44  Form CO, paragraph 165.
45  Responses to questionnaire Q1 to customers, question 11.
46  Responses to questionnaire Q1 to customers, question 11.
                                                       10
 ---pagebreak---          Transaction does not give rise to an affected market for fund administration on an
         EEA-wide level. At national level, the Transaction gives rise to affected fund
         administration markets in Ireland and Luxembourg. At the global level, the
         Transaction also gives rise to an affected fund administration market.
4.4.     Asset management
4.4.1. Product market definition
4.4.1.1. Previous Commission decisions
(45)     The Commission has previously described asset management as “the provision of
         investment advice and often also the implementation of this advice”. 47 Asset
         management includes, “the creation, establishment and marketing of funds mainly to
         retail clients on an ‘off-the-shelf’ basis and the provision of portfolio management
         services for institutional investors.”48 The Commission has previously considered a
         market for overall asset management, but also further segmentation by client type
         (i.e., asset management for retail clients and asset management for institutional
         clients) as well as a separate market for mutual funds. Within asset management for
         institutional clients, the Commission has also considered further sub-segmentation
         by active management (asset manager aims at outperforming a benchmark such as an
         index) and passive management (asset manager aims at replicating the performance
         of an index). Similarly, within asset management for retail clients, the Commission
         has considered further sub-segmentation by open retail funds (no restriction on the
         number of investors) and closed retail funds (tailored for a small group of investors).
         Ultimately, however, the Commission has left open the question of whether asset
         management should be treated as a single market or segmented more narrowly
         according to these various distinctions. 49
4.4.1.2. The Notifying Party’s view
(46)     The Notifying Party submits that the relevant market is likely to be asset
         management without further segmentation, but notes that the exact product market
         definition can be left open.50 The Notifying Party adds that most asset management
         providers tend to provide the full range of asset management products/services and
         certain types of funds (e.g., UCITS) can be addressed to both institutional and retail
         clients.
47   M.6812 SFPI/DEXIA, decision of 21 February 2013, paragraph 30; M.4844 Fortis/ABN AMRO Assets,
     decision of 3 October 2007, paragraph 67; M.8257 NN Group/Delta Lloyd, decision of 7 April 2017,
     paragraph 108.
48 M.8359 Amundi/Credit Agricole/Pioneer Investments, decision of 24 March 2017, paragraph 16; M.9796
     UNIQA/AXA (Insurance, Asset Management and Pensions – Czechia, Poland and Slovakia), decision of
     29 July 2020, paragraph 35.
49 M.3894 Unicredito/HVB, decision of 18 October 2005, paragraphs 35-36; M.4844 Fortis/ABN AMRO
     Assets, decision of 3 October 2007, paragraphs 67-70; M.5728 Crédit Agricole/Société Générale Asset
     Management, decision of 22 December 2009, paragraphs 35- 39; M.8359 Amundi/Credit Agricole/Pioneer
     Investments, decision of 24 March 2017, paragraphs 18 and 20.
50 Response to RFI 7, paragraph 1.3.
                                                         11
 ---pagebreak--- 4.4.1.3. The Commission’s assessment
(47)     The market investigation has not provided any indication that the Commission
         should depart from precedents or the Notifying Party’s view with regard to the
         market definition for asset management. As such, for the purposes of this Decision
         the Commission considers a market for asset management, leaving open the question
         of further segmentation.
4.4.2. Geographic market definition
4.4.2.1. Previous Commission decisions
(48)     In previous cases, the Commission has considered the market as global, EEA-wide
         or national in scope, but ultimately left this question open. 51
4.4.2.2. The Notifying Party’s view
(49)     The Notifying Party submits that the geographic market is at least EEA-wide, if not
         global, in scope, but note that the exact approach to product market definition can be
         left open.52 The Notifying Party adds that, as noted in previous Commission
         decisions, a wider than national market is particularly plausible for large
         multinational corporate customers with cross-border activities, where there may also
         be a need to pool risks on an international basis. The Notifying Party argues that this
         is supported by the fact that the asset management sector has been harmonised
         throughout the EU by virtue of the UCITS Directive and AIFD.
4.4.2.3. The Commission’s assessment
(50)     The market investigation has not provided any indication that the Commission
         should depart from precedents or the Notifying Party’s view with regard to the
         market definition for asset management. As such, for the purposes of this Decision,
         the Commission has considered the market as global, EEA-wide or national in scope.
5.       COMPETITIVE ASSESSMENT
(51)     The Transaction gives rise to horizontal overlaps in global custody and in fund
         administration, as well as to vertical links between local custody and global custody,
         global custody and asset management, and fund administration and asset
         management.
5.1.     Horizontally affected markets
5.1.1. Legal framework
(52)     The Commission Guidelines on the assessment of horizontal mergers under the
         Merger Regulation (the “Horizontal Merger Guidelines”) distinguish between two
         main ways in which mergers between actual or potential competitors on the same
51   M.8359 Amundi/Credit Agricole/Pioneer Investments, decision of 24 March 2017, paragraphs 28-29 and
     M.5728 Crédit Agricole/Société Générale Asset Management, decision of 22 December 2009, paragraph
     41.
52 Response to RFI 7, paragraph 1.5.
                                                     12
 ---pagebreak---  ---pagebreak---  ---pagebreak---                  stop them from switching. This is evidenced by fees being at the same levels
                 in Ireland and Luxembourg, despite different concentration levels. 56
        (c)      All of the Parties' major competitors are already present in both Ireland and
                 Luxembourg, and there are no barriers to expansion or any differentiation
                 that makes them distant competitors to the Parties. Therefore, the Parties face
                 strong competitive constraints irrespective of geographic scope.57
5.1.2.3. The Commission’s assessment
(60)    First, the Commission notes that post-Transaction, the merged entity will have a high
        market share in Ireland ([40-50]%) and a more modest – yet still market leading –
        market share in Luxembourg ([20-30]%). However, the Luxembourgish global
        custody market is far more fragmented than the market in Ireland.
(61)    In addition, data submitted by the Notifying Party confirms its argument that the
        strong position in Ireland is primarily driven by a high degree of customer
        concentration. State Street’s top three clients in Ireland account for [a significant
        percentage]% of its assets under custody (“AUC”), and the Target’s top three clients
        account for [a significant percentage]% of its Ireland AUC.58 As such, the loss of
        one or few clients could significantly shift the market shares and potentially remove
        State Street’s leading position.
(62)    Second, the market investigation confirmed that a number of strong competitors
        remain in each of the markets post-Transaction. Despite the strong market position
        of State Street in Ireland, customers that responded to the Commission’s market
        investigation rated several other providers of global custody services similarly or
        more suitable for their needs in Ireland, including BNY Mellon, BNP Paribas, Citi,
        JP Morgan and Northern Trust.59 One customer explained, “All the above listed
        Custodians are recognized in the market. There are additional players that are not
        shown in the list.”60 Another confirmed, “State Street, Northern Trust, BNY Mellon
        & JP Morgan are the largest custodians in Ireland and have significant experience
        and expertise…”61 One customer summarized, “The Irish market is substantial and
        well served with custodians.” 62
(63)    Moreover, customers that responded to the Commission’s market investigation did
        not consider State Street and the Target as particularly close competitors. Customers
        typically considered the other large global custodians, such as BNY Mellon,
        Northern Trust and JP Morgan, as the closest competitors to State Street in both
        Ireland and Luxembourg. The Target is considered a smaller competitor. One
        customer summarizes, “BBH is more competing against the second level of
        custodians by asset under custody.” Some customers explained that while State
56  Form CO, paragraphs 203-205.
57  Form CO, paragraphs 206-212.
58  Form CO, paragraphs 191-194, 252-255.
59  Responses to questionnaire Q1 to customers, question 12.
60  Response to questionnaire Q1 to customers, question 12.
61  Response to questionnaire Q1 to customers, question 12.
62  Response to questionnaire Q1 to customers, question 12.
                                                        15
 ---pagebreak---         Street is characterised by efficient process due to its scale, the Target is characterised
        by more tailored, high-touch service.63
(64)    Third, contrary to the Notifying Party’s arguments, customers consider that
        switching suppliers is either difficult or very difficult, and costs a significant amount
        of money and time.64 Despite these difficulties, there is evidence that significant
        client switches do occur. For example, in December 2021, BlackRock (State Street’s
        largest customer in Ireland) announced that it will move its iShares ETF portfolio to
        a multi-custodian model and away from State Street as the sole supplier. 65 The Irish
        part of this portfolio accounts for approximately […]% of State Street’s AUC in
        Ireland. Other examples are provided by customers responding to the market
        investigation; “We moved the majority of our Luxembourg Funds from [one
        provider] to [another provider] in 2021. After lengthy DD process we concluded
        that they could provide the required service but at a cheaper price which the
        investors would benefit from.”66 Another explains, “We added [one provider] in
        Luxembourg as we were unhappy with the service levels provided our existing
        provider.” Another customer “transitioned 2 funds from [one provider] to [another
        provider in] Ireland. The services in scope included depositary/global custody and
        fund administration. It was a strategic decision to move these funds based on the
        wider relationship [with the provider] and operational efficiency that could be
        gained from consolidating providers.” Additionally, when launching a new fund,
        asset managers do have flexibility to choose a (new) global custodian.
(65)    Moreover, several customers indicated that they would be willing to switch if
        necessary, and that they could employ negotiation strategies such as internal
        benchmarking and benchmarking with the help of external consultants. 67 One
        customer explains, “[the customer] is rather reluctant to switch and would
        thoroughly assess and weigh the transition costs against the potential benefits in
        terms of service and price. However, switching is not excluded, because, if it would
        be in the best interest of the investors. [the customer] protects the interest of the
        investor and ensures that services and prices are adequate.”68 Indeed, most
        customers already work with multiple global custodians in a single jurisdiction,
        because, among others, this “enables direct comparison of services and
        benchmarking”.69 One customer summarizes, “in a recurring period of 3 years, [the
        customer] challenges its suppliers either in bilateral negotiations or with formal
        requests for proposals (“RFP”) in order to benchmark and evaluate the service
        offerings.”70 Furthermore, several responding customers indicated that they have
        stopped working with a global custodian in the past 3 years, while around a third
        indicated that they have added a new global custodian in the past 3 years.
63  Responses to questionnaire Q1 to customers, question 16.
64  Responses to questionnaire Q1 to customers, question 26.
65  https://www.wsj.com/articles/blackrock-to-pull-2-trillion-in-assets-from-state-street-
    11638918001#:~:text=Citigroup%20will%20wind%20up%20custodian,expected%20to%20take%2018%
    20months.&text=The%20bank%20also%20provides%20custody,the%20manager's%20private%2Dmarke
    ts%20business., Accessed on 17 February 2022.
66  Responses to questionnaire Q1 to customers, question 25.
67  Responses to questionnaire Q1 to customers, question 23.
68  Minutes of call with customer held on 4 January 2022.
69  Responses to questionnaire Q1 to customers, question 20.
70  Minutes of call with customer held on 6 January 2022.
                                                           16
 ---pagebreak--- (66)    Fourth and last, the large majority of customers and competitors that responded to
        the Commission’s market investigation did not expect a negative impact on the
        global custody markets in either Ireland or Luxembourg, instead indicating that they
        expect the Transaction to have a neutral or positive effect. 71 One customer explains,
        “Even though two important market players are merging, it is possible that the
        merger will result in higher pressure on prices and will create trends to innovate”
        and others confirm, “Innovation power increases and scale benefits are expected to
        be passed on to clients” and “The technology coupled with the scale (State Street)
        may accelerate investment in innovative products.” Yet another customer explains,
        “The transaction involves parties with complementary attributes in terms of
        coverage and expertise. The combined organisation will have increased scale across
        markets where custody services are delivered, providing opportunities to reduce
        prices, and additional client servicing capabilities, providing opportunities for
        enhanced service delivery.”
(67)     Furthermore, the vast majority of customers that responded to the Commission’s
        market investigation indicated that sufficient suitable suppliers will be available
        post-Transaction.72 One customer summarizes, “[the customer] has no competition
        concerns regarding the Transaction as there would remain sufficient competitors on
        the market globally as well as in Luxembourg and Ireland” and another confirms,
        “There are sufficient providers of global custody and fund administration globally
        and in Ireland.”73 Regarding Ireland specifically, customers confirmed, “We
        consider that there will be sufficient suppliers to provide coverage for the Irish
        market” and “There are many other firms based in Ireland that can supply the
        services.”74
(68)    Based on the above, the Transaction does not give rise to serious doubts as to its
        compatibility with the internal market or a substantial part thereof in relation to
        horizontal non-coordinated effects for the provision of global custody services in
        Ireland and Luxembourg.
5.1.3. Fund administration
5.1.3.1. Market structure
(69)    Both Parties are active globally in fund administration. The Transaction does not
        give rise to an affected market under an EEA-wide geographic scope, as the Parties’
        combined market share remains under 20% ([10-20]% in 2020). The Transaction
        does give rise to an affected market for fund administration at global level, and at
        national level in Ireland and Luxembourg.
71  Responses to questionnaire Q1 to customers, question s 30.2, 30.3, 30.4 and questionnaire Q2 to
    competitors, questions 28.2, 28.3, 28.4.
72 Responses to questionnaire Q1 to customers, question 32.
73 Responses to questionnaire Q1 to customers, question 31.
74 Responses to questionnaire Q1 to customers, question 32.
                                                      17
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (72)    The Luxembourgish fund administration market is more fragmented, and State
        Street’s market share is lower ([10-20]% in 2020). The pre-Transaction HHI is
        below 1,000 and the Transaction brings a modest delta HHI of [100-200], with the
        final HHI remaining under 1,000.
(73)    The global fund administration market is relatively more concentrated. State Street’s
        market share is [10-20]% in 2020, but the pre-Transaction HHI is approximately
        [1000-3000]. The Transaction, however, brings a negligible delta of [0-100].
5.1.3.2. The Notifying Party’s view
(74)    The Notifying Party argues that no competition concerns arise in fund
        administration, regardless of the geographic market definition, because there are a
        number of well-resourced competitors,75 customers can and do switch,76 and the
        market shares are not reflective of market power77 but rather of high customer
        concentration.78 Additionally, the Notifying Party argues that low regulatory barriers
        to entry (e.g., no banking licence requirement), coupled with the growth of
        alternative asset classes which do not require a custodian, have created an
        opportunity for independent non-bank fund administrators to enter the fund
        administration space.79 According to the Notifying Party, in Europe these companies
        compete directly with banks such as the Parties.
5.1.3.3. The Commission’s assessment
(75)    The Commission finds that the Transaction does not raise serious doubts as to its
        compatibility with the internal market or the functioning of the EEA Agreement in
        relation to fund administration, and its further plausible segmentations, at a global
        level or national level in Ireland or Luxembourg, for the following reasons.
(76)    First, the Commission notes that post-Transaction, the merged entity will have a high
        market share in Ireland ([40-50]%) and a more modest – yet still market leading –
        market share in Luxembourg ([20-30]%). However, the Luxembourgish global
        custody market is more fragmented than the market in Ireland. At the global level,
        the merged entity will have a low market share only slightly above 20% (at [20-
        30]%) and will remain number two; moreover, the increment at global level is very
        low, at [0-5] percentage point.
(77)    Furthermore, data submitted by the Notifying Party confirms its argument that the
        strong position in Ireland is primarily driven by a high degree of customer
        concentration. State Street’s top three clients in Ireland account for [a significant
        percentage]% of its AUC, and the Target’s top three clients account for [a significant
        percentage]% of its Ireland AUC.80 As such, the loss of one or few clients could
        significantly shift the market shares and potentially remove State Street’s leading
        position.
75  Form CO,   paragraph 263.
76  Form CO,   paragraphs 266 - 269.
77  Form CO,   paragraphs 251 et seq.
78  Form CO,   paragraph 255.
79  Form CO,   paragraphs 276 – 279.
80  Form CO,   paragraphs 252-255.
                                                   20
 ---pagebreak--- (78)   Second, the market investigation confirmed that a number of strong competitors
       remain in each of the markets post-Transaction. Customers ranked Bank of New
       York Mellon as the top provider in Ireland, followed by BBH, State Street, Northern
       Trust and JP Morgan. Customers indicated that all 5 providers, and at least 3 others,
       would be suitable or very suitable to meet their needs in fund administration in
       Ireland.81 One customer summarized, “All the above listed suppliers are recognized
       in the market. There are additional players that are not shown in the list,” while
       another confirmed, “All service providers listed in this questionnaire are well
       established and reputable market players.”82
(79)   Similarly, customers ranked Bank of New York Mellon as the top provider in
       Luxembourg, followed by BBH, State Street, BNP Paribas and JP Morgan.
       Customers indicated that all 5 providers and at least 1 other would be suitable or
       very suitable to meet their needs in fund administration in Luxembourg. 83 One
       customer summarized, “The Luxembourg market is also well established and served
       by a variety of providers.”84 Competitors confirmed customers’ view concerning
       fund administration in both Ireland and Luxembourg. 85
(80)   Moreover, the Parties are not considered to be close competitors of each other.
       Customers typically considered the other large global custodians, such as BNY
       Mellon, Northern Trust and JP Morgan, as the closest competitors to State Street and
       to BBH in Ireland. In Luxembourg, customers considered BNY Mellon and JP
       Morgan to be the closest competitors to both State Street and BBH.86
(81)   Overall, the Target is considered a smaller competitor. Some customers explained
       that while State Street is characterised by efficient process due to its scale, the Target
       is characterised by more tailored, high-touch service.87 One customer summarized,
       “State Street's closest competitors are the larger organisations providing fund
       administration services. BBH's closest competitors are smaller and can provide a
       more bespoke service.”88 Another specified, “BBH is more competing against the
       second level of administrators by asset under administration.”89
(82)   Third, contrary to the Notifying Party’s arguments, customers consider that
       switching suppliers is either difficult or very difficult, and costs a significant amount
       of money and time.90 Therefore, although it is relatively rare for an existing fund to
       switch administrators, there is evidence that switching does occur for various
       reasons. For example, a fund may switch in case of unsatisfactory performance of
       the incumbent provider. One customer states, “We moved the majority of our
       Luxembourg Funds from [one provider] to [another provider] in 2021. After lengthy
       DD process we concluded that they could provide the required service but at a
81  Responses to questionnaire Q1 to customers, question 13.
82  Response to questionnaire Q1 to customers, question 13.
83  Responses to questionnaire Q1 to customers, question 14.
84  Response to questionnaire Q1 to customers, question 14.
85  Responses to questionnaire Q2 to competitors, questions 16, 18.
86  Responses to questionnaire Q1 to customers, questions 17, 19.
87  Responses to questionnaire Q1 to customers, question 17.
88  Response to questionnaire Q1 to customers, question 17.
89  Response to questionnaire Q1 to customers, question 17.
90  Responses to questionnaire Q1 to customers, question 26.
                                                        21
 ---pagebreak---        cheaper price which the investors would benefit from.”91 Another explains, “We
       added [one provider] in Luxembourg as we were unhappy with the service levels
       provided our existing provider.” Another customer “transitioned 2 funds from [one
       provider] to [another provider in] Ireland. The services in scope included
       depositary/global custody and fund administration. It was a strategic decision to
       move these funds based on the wider relationship [with the provider] and
       operational efficiency that could be gained from consolidating providers.” Yet
       another customer describes the process and rationale, “We changed custody and fund
       administrators in [year] from [a provider] and [a provider] to [selected
       provider]…we decided to undertake a review of both service providers and
       undertook an RFP process. The aim was to benchmark the incumbents to other
       providers in the market and during the RFP it was clear benefits of consolidating
       both fund structures into one…[an incumbent provider was] eliminated from the
       process at the first stage as the services offered were significantly inferior. [ One
       provider] and [another provider] were the finalist and references were taken from
       existing clients. Both service providers offered a superior service compared with the
       incumbents however [the customer] decided to partner with [selected provider] due
       to similarities in the culture and ethos” Moreover, when launching a new fund, asset
       managers do have flexibility to choose a (new) fund administrator.
(83)   In addition, several customers indicated that they would be willing to switch if
       necessary, and could employ negotiation strategies such as internal benchmarking
       and benchmarking with the help of external consultants. 92 One customer explains,
       “[the customer] is rather reluctant to switch and would thoroughly assess and weigh
       the transition costs against the potential benefits in terms of service and price.
       However, switching is not excluded, because, if it would be in the best interest of the
       investors. [the customer] protects the interest of the investor and ensures that
       services and prices are adequate.”93 Indeed, the majority of customers already work
       with multiple fund administrators in a single jurisdiction. 94 One customer explains,
       “We are better able to negotiate services when we have a comparative provider.”95
       Another customer summarizes, “in a recurring period of 3 years, [the customer]
       challenges its suppliers either in bilateral negotiations or with formal requests for
       proposals (“RFP”) in order to benchmark and evaluate the service offerings.”96
       Furthermore, several responding customers indicated that they have stopped working
       with a fund administrator in the past 3 years, while a sizeable number indicated that
       they have added a new fund administrator in the past 3 years.
(84)   Fourth and last, the large majority of customers and competitors that responded to
       the Commission’s market investigation expected a positive or neutral impact on the
       overall fund administration market, as well as the fund administration markets in
       Ireland and in Luxembourg.97 One customer explains, “We consider that the impact
       will be neutral or marginally positive for the market. There are some complimentary
       [sic] aspects between State Street and BBH in terms of market coverage that should
91  Responses to questionnaire Q1 to customers, question 25.
92  Responses to questionnaire Q1 to customers, question 23.
93  Minutes of call with customer held on 4 January 2022.
94  Responses to questionnaire Q1 to customers, question 21.
95  Response to questionnaire Q1 to customers, question 21.
96  Minutes of call with customer held on 6 January 2022.
97  Responses to questionnaire Q1 to customers, question s 30.5, 30.6, 30.7 and questionnaire Q2 to
    competitors, questions 28.2, 28.3, 28.4.
                                                        22
 ---pagebreak---         provide greater options and benefit for clients of both firms. The increased scale and
        coverage should also allow for further price compression in the market.” Another
        confirms, “Perceiving the capabilities and strengths of BBH and State Street as
        complimentary [sic] regards fund administration and transfer agency we would not
        expect any major change on price charged to the market but improvements on
        quality and innovation as a consequence of combining BBH's expertise and agility
        with State Street's scale and capability to fund innovation and bringing it to market
        to the extent the post-merger integration is successful.”
(85)    Furthermore, the vast majority of customers that responded to the Commission’s
        market investigation indicated that sufficient suitable suppliers will be available
        post-Transaction.98 Customers explained, “the market remains competitive with
        other service providers” and “There are many other firms that can supply the
        services.”99 Regarding Ireland specifically, customers confirmed, “We consider that
        there will be sufficient suppliers to provide coverage for the Irish market ” and
        “There are many other firms based in Ireland that can supply the services.”100
(86)    Based on the above, the Transaction does not give rise to serious doubts as to its
        compatibility with the internal market or a substantial part thereof in relation to
        horizontal non-coordinated effects for the provision of fund administration services
        in Ireland, in Luxembourg and at the global level.
5.2.    Vertically affected markets
5.2.1. Legal framework
(87)    According to the Commission’s Guidelines on the assessment of non-horizontal
        mergers under the Council Regulation on the control of concentrations between
        undertakings (“Non-horizontal Merger Guidelines”), foreclosure effects may occur
        where actual or potential rivals' access to supplies or markets is hampered or
        eliminated as a result of the merger, thereby reducing these companies' ability and/or
        incentive to compete.101
(88)    In assessing the likelihood of an anticompetitive input foreclosure scenario, the
        Commission examines, first, whether the merged entity would have, post-merger, the
        ability to substantially foreclose access to inputs, second, whether it would have the
        incentive to do so, and third, whether a foreclosure strategy would have a significant
        detrimental effect on competition downstream.102 These three conditions are
        cumulative so that the absence of any of them is sufficient to rule out the likelihood
        of anti-competitive input foreclosure.103
(89)    In assessing the likelihood of an anticompetitive customer foreclosure scenario, the
        Commission examines, first, whether the merged entity would have the ability to
        foreclose access to downstream markets by reducing its purchases from its upstream
        rivals, second, whether it would have the incentive to reduce its purchases upstream,
98   Responses to questionnaire Q1 to customers, question 32.
99   Responses to questionnaire Q1 to customers, question 31.
100  Responses to questionnaire Q1 to customers, question 32.
101  Non-horizontal Merger Guidelines, paragraph 18.
102  Non-horizontal Merger Guidelines, paragraph 32.
103  Case T – 370/17 KPN v Commission, EU:T:2019:354, para 119.
                                                        23
 ---pagebreak---         and third, whether a foreclosure strategy would have a significant detrimental effect
        on consumers in the downstream market. 104
5.2.2. Local custody (upstream) – Global custody (downstream)
(90)    With regard to the upstream markets, the Parties act as a local custodian in: (i) the
        US, Canada, Germany and the UK for State Street; and (ii) the US for BBH. 105 In the
        US, the Parties expect that their combined share falls below 30%. In Canada,
        Germany and the UK, State Street estimates its share to be [20-30]%, [10-20]% and
        [10-20]% in each country respectively, while BBH is not active at all.
(91)    The Parties’ combined market shares in global custody (downstream) have been
        presented above in Tables 1 and 2. They are [40-50]%, [20-30]%, [10-20]% and [10-
        20]% respectively in Ireland, Luxembourg, in the EEA and at the global level.
(92)    Given these market shares, only the vertical link between global custody in Ireland
        downstream and local custody upstream is affected.106
5.2.2.1. Customer foreclosure
        (A)        The Notifying Party’s view
(93)    The Parties submit that the supply of local custody services (upstream) to global
        custody providers (downstream) does not constitute a vertically affected market.
        First, the Notifying Party argues that the appropriate geographic market for the
        provision of global custody (downstream) is global, in which case the Parties’
        combined market share would be significantly below 30%. The Notifying Party
        therefore argues that there is no scope for either input or customer foreclosure
        concerns to arise in relation to the provision of local custody services in these
        jurisdictions.
(94)    With respect to customer foreclosure, the Notifying Party adds that the Parties will
        not have sufficient market power downstream. The Notifying Party argues that as a
        result of customer concentration, competition is fierce and market positions are not
        entrenched in Ireland. In fact, fees as a proportion of AUA are similar across both
        the Republic of Ireland and Luxembourg, despite the higher concentration in the
        former. The Notifying Party argues that the relatively more concentrated market
        shares in the Republic of Ireland are therefore not reflective of market power. 107
(95)    The Notifying Party further argues that the combined entity would lack incentive to
        pursue a customer foreclosure strategy; in the US, neither State Street nor BBH
        currently use third-party local custody suppliers. Therefore, the Parties would not
        have the ability, nor the incentive, to pursue customer foreclosure in relation to local
        custody services in the US. The Parties do use third-party local custodians in
        Canada, Germany and the UK. However, the Notifying Party states that there would
104 Non-horizontal Merger Guidelines, paragraph 59.
105 Form CO, paragraph 339 ff.
106 Input foreclosure for this vertical link is not assessed further in this decision as it can be excluded a priori
    due to the low combined market shares (<30% in all cases) in the upstream market. The rest of this section
    therefore focuses on customer foreclosure.
107 Form CO, paragraph 351.
                                                            24
 ---pagebreak---        be no incentive for the Parties to pursue customer foreclosure in these countries as
       funds domiciled in the Republic of Ireland do not represent a significant portion of
       the global custody market (less than 4.3%). Therefore, even if assets under all funds
       in the Republic of Ireland were subject to local custody services in Canada, Germany
       and the UK, the Parties would have no incentive to pursue customer foreclosure.
       (B)        The Commission’s assessment
(96)   The Commission finds that the Transaction does not raise serious doubts as to its
       compatibility with the internal market or the functioning of the EEA Agreement in
       relation to the vertical relationship between local custody upstream and global
       custody downstream, regardless of the precise market definition, for the following
       reasons.
(97)   First, the vertical link is largely pre-existing, since State Street is already active both
       upstream and downstream. The increment from the Target upstream is [5-10]%,108
       which does not represent a significant change in the incentive to foreclose.
       Downstream, the increment is [5-10]%, which represents only a moderate change in
       the ability to foreclose. Indeed, as argued by the Notifying Party and as confirmed by
       the Commission in section 5.1.2.3, sufficient customers, i.e. global custodians, will
       remain downstream. The vast majority of customers that responded to the
       Commission’s market investigation indicated that sufficient suitable global
       custodians will be available post-Transaction.109 This is also valid for global
       custodians as customers of local custody providers.
(98)   Moreover, there is customer concentration in Ireland, with State Street’s top three
       clients in Ireland account for [a significant percentage]% of its AUC, and the
       Target’s top three clients account for [a significant percentage]% of its Ireland
       AUC.110 As such, the loss of one or few clients could significantly shift the market
       shares and potentially remove the merged entity’s leading position in global custody.
       This would indicate that the merged entity would lack the market power downstream
       implied by its market shares, and thus the ability or incentive to successfully
       implement customer foreclosure, given that the loss of a few clients could threaten
       the success of the foreclosure strategy.
(99)   Second, funds domiciled in the Republic of Ireland only represent less than 4.3% of
       the total addressable market of global custody downstream. Of these, only a certain
       percentage require local custody services in the countries where the Parties are
       present, namely US, Canada, Germany and the UK; the Parties estimate those shares
       to be 50-55%, <1%, <2% and <7% respectively for those jurisdictions.111 However,
       even if all assets under all funds in the Republic of Ireland were subject to local
       custody services in US, Canada, Germany and the UK, local custody competitors
       upstream would have sufficient remaining demand (i.e. 95.7%) for their services.
(100) Only one competitor indicated a potential concern in relation to this vertical link;
       this competitor currently receives local custody services from the Target and
       suggested that the quality of service post-Transaction is unknown as it depends on
108 Response to RFI 7, paragraph 4.1.
109 Responses to questionnaire Q1 to customers, question 32.
110 Form CO, paragraphs 191-194.
111 Response to RFI 7, paragraph 3.2.
                                                       25
 ---pagebreak---         whether State Street continues the same quality of service. In other words, the
        concern was related to a preference for BBH as a provider, rather than the risk of an
        intentional degradation of service to itself post-Transaction as a downstream
        competitor.
5.2.3. Global custody (upstream) – Asset management (downstream)
(101) The Parties’ combined market shares in global custody have been presented above in
        Tables 1-2. They are [40-50]%, [20-30]%, [10-20]% and [10-20]% respectively in
        Ireland, Luxembourg, in the EEA and at the global level.
(102) The Parties' combined share in asset management is low, at [0-5]%, [0-5]%, [0-5]%
        and [0-5]% respectively in Ireland, Luxembourg, globally and in the EEA.
(103) Given these market shares, only the vertical link between global custody in Ireland
        upstream and asset management downstream is affected.112
5.2.3.1. Input foreclosure
        (A)       The Notifying Party’s view
(104) First, the Notifying Party argues that the combined entity would lack significant
        market power and therefore ability to pursue an input foreclosure strategy. The
        Notifying Party argues that as a result of customer concentration, competition is
        fierce and market positions are not entrenched in Ireland. In fact, fees as a proportion
        of AUA are similar across both the Republic of Ireland and Luxembourg, despite the
        higher concentration in the former. The relatively more concentrated market shares
        in the Republic of Ireland are therefore not reflective of market power. 113
(105) Second, the Notifying Party argues that the combined entity would lack incentive to
        pursue an input foreclosure strategy; the Parties’ major competitors are already
        present in the Republic of Ireland, including BNY Mellon ([10-20]%), JP Morgan
        ([10-20]%), BNP Paribas ([0-5]%), Northern Trust ([10-20]%) and Citi ([0-5]%).
        Thus, downstream customers will continue to have a choice of global custody
        suppliers post Transaction. The Notifying Party adds that threats of switching that
        the Parties face reinforces this conclusion. 114 The Notifying Party concludes that any
        downstream gains would accrue to rivals rather than to the Parties given their very
        small shares (and minimal increment) in asset management.
        (B)       The Commission’s assessment
(106) The Commission finds that the Transaction does not raise serious doubts as to its
        compatibility with the internal market or the functioning of the EEA Agreement in
        relation to the vertical relationship between global custody upstream and asset
        management downstream, regardless of the precise market definition, for the
        following reasons.
112 Customer foreclosure for this vertical link is not assessed further in this decision as it can be excluded a
    priori due to the low combined market shares (<4% under any market definition) in the downstream
    market. The rest of this section therefore focuses on input foreclosure.
113 Form CO, paragraph 351.
114 Form CO, paragraph 352.
                                                           26
 ---pagebreak--- (107) First, the vertical link is largely pre-existing, since State Street is already active both
        upstream and downstream. The increment from the Target upstream is [5-10]%,
        which represents only a moderate change in market power and thus ability to
        foreclose. Downstream, the increment is negligible, indicating a lack of change in
        the incentive to foreclose. Indeed the low combined market share downstream would
        point to low potential gains in the case of foreclosure.
(108) Second, as argued by the Notifying Party and as confirmed by the Commission in
        section 5.1.2.3, sufficient competitors will remain upstream. Moreover, there is
        customer concentration in Ireland, with State Street’s top three clients in Ireland
        account for [a significant percentage]% of its AUC, and the Target’s top three clients
        account for [a significant percentage]% of its Ireland AUC.115 As such, the loss of
        one or few clients could significantly shift the market shares and potentially remove
        the merged entity’s leading position in global custody. This would indicate that the
        merged entity would lack the market power upstream implied by its market shares,
        and thus the ability or incentive to successfully implement input foreclosure, given
        that the loss of a few clients could threaten the success of the foreclosure strategy.
(109) Third and last, while the majority of responding competitors indicated that they
        currently use services from the Parties, a large majority of responding competitors
        stated that they are not concerned that the Parties would stop providing the service
        post-Transaction.116 The only competitor who indicated a potential concern did so in
        relation to a different vertical link, namely local custody upstream and global
        custody downstream, dealt with in the previous section.
5.2.4. Fund administration (upstream) – Asset management (downstream)
(110) The Parties’ combined market shares upstream in fund administration have been
        presented above in Tables 3-5. They are [40-50]%, [20-30]% and [20-30]%
        respectively in Ireland, Luxembourg and at the global level.
(111) The Parties' combined share downstream in asset management is low, at [0-5]%, [0-
        5]%, [0-5]% and [0-5]% respectively in Ireland, Luxembourg, globally and in the
        EEA.
(112) Given these market shares, only the vertical link between fund administration in
        Ireland upstream and asset management downstream is affected. 117
5.2.4.1. Input foreclosure
        (A)       The Notifying Party’s view
(113) First, the Notifying Party argues that the combined entity would lack significant
        market power and therefore ability to pursue an input foreclosure strategy. The
        Notifying Party argues that as a result of customer concentration, competition is
        fierce and market positions are not entrenched in Ireland. In fact, fees as a proportion
115 Form CO, paragraphs 191-194.
116 Responses to questionnaire Q2 to competitors, question 27.
117 Customer foreclosure for this vertical link is not assessed further in this decision as it can be excluded a
    priori due to the low combined market shares (<4% under any market definition) in the downstream
    market. The rest of this section therefore focuses on input foreclosure.
                                                           27
 ---pagebreak---        of AUA are similar across both the Republic of Ireland and Luxembourg, despite the
       higher concentration in the former. The relatively more concentrated market shares
       in the Republic of Ireland are therefore not reflective of market power.118
(114) Second, the Notifying Party argues that the combined entity would lack incentive to
       pursue an input foreclosure strategy; the Parties’ major competitors are already
       present in the Republic of Ireland, including BNY Mellon ([10-20]%), JP Morgan
       ([10-20]%), BNP Paribas ([0-5]%), Northern Trust ([10-20]%) and Citi ([0-5]%).
       Thus, downstream customers will continue to have a choice of fund administration
       suppliers post Transaction. The Notifying Party adds that threats of switching that
       the Parties face reinforces this conclusion. The Notifying Party concludes that any
       downstream gains would accrue to rivals rather than to the Parties given their very
       small shares (and minimal increment) in asset management. 119
       (B)        The Commission’s assessment
(115) The Commission finds that the Transaction does not raise serious doubts as to its
       compatibility with the internal market or the functioning of the EEA Agreement in
       relation to the vertical relationship between fund administration upstream and asset
       management downstream, regardless of the precise market definition, for the
       following reasons.
(116) First, the vertical link is largely pre-existing, since State Street is already active both
       upstream and downstream. The increment from the Target upstream is [5-10]%,
       which only represents a moderate change in market power and thus ability to
       foreclose. Downstream, the increment is negligible, indicating a lack of change in
       the incentive to foreclose. Indeed the low combined market share downstream would
       point to low potential gains in the case of foreclosure.
(117) Second, as argued by the Notifying Party and as confirmed by the Commission in
       section 5.1.3.3, sufficient competitors will remain upstream. Moreover, there is
       customer concentration in Ireland, with State Street’s top three clients in Ireland
       account for [a significant percentage]% of its AUC, and the Target’s top three clients
       account for [a significant percentage]% of its Ireland AUC.120 As such, the loss of
       one or few clients could significantly shift the market shares and potentially remove
       the merged entity’s leading position in fund administration. This would indicate that
       the merged entity would lack the market power upstream implied by its market
       shares, and thus the ability or incentive to successfully implement input foreclosure,
       given that the loss of a few clients could threaten the success of the foreclosure
       strategy.
(118) Third and last, while the majority of responding competitors indicated that they
       currently use services from the Parties, a large majority of responding competitors
       stated that they are not concerned that the Parties would stop providing the service
       post-Transaction.121 The only competitor who indicated a potential concern did so in
       relation to a different vertical link, namely local custody upstream and global
       custody downstream, dealt with in section 5.2.2.
118 Form CO, paragraph 356.
119 Form CO, paragraph 357.
120 Form CO, paragraphs 191-194, 252-255.
121 Responses to questionnaire Q2 to competitors, question 27.
                                                        28
 ---pagebreak--- 6.    CONCLUSION
(119) 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
                                                    Executive Vice-President
                                              29