CELEX: 32021M10158
Language: en
Date: 2021-07-20 00:00:00
Title: Commission Decision of 20/07/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10158 - IHS MARKIT / CME GROUP / JV) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                               Brussels, 20.7.2021
                                                               C(2021) 5583 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                                                                information omitted has been replaced by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.
                                                               IHS Markit Ltd
                                                               4th floor Ropemaker Place
                                                               25 Ropemaker Street
                                                               London EC2Y 9LY
                                                               UK
                                                               CME Group Inc.
                                                               20 South Wacker Drive
                                                               Chicago, Illinois 60606
                                                               USA
Subject:            Case M.10158 – IHS MARKIT/CME GROUP/JV
                    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
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---                                                  Contents
1. THE PARTIES ............................................................................................................ 5
2. THE CONCENTRATION .......................................................................................... 5
3. UNION DIMENSION ................................................................................................. 6
4. MARKET DEFINITION ............................................................................................ 6
   4.1. Overview of Parties’ activities .......................................................................... 6
   4.2. Over-the-counter ‘OTC’ derivatives ................................................................. 7
   4.3. Derivatives trading services .............................................................................. 8
        4.3.1.   Introduction and Parties’ services ....................................................... 8
        4.3.2.   Relevant product market definition ..................................................... 9
        4.3.3.   Relevant geographic market definition ............................................. 12
   4.4. Derivatives clearing ......................................................................................... 13
        4.4.1.   Introduction and Parties’ services ..................................................... 13
        4.4.2.   Relevant product market definition ................................................... 13
        4.4.3.   Relevant geographic market definition ............................................. 15
   4.5. Trade processing services ................................................................................ 15
        4.5.1.   Introduction and Parties’ services ..................................................... 15
        4.5.2.   Relevant product market definition ................................................... 16
   4.6. Prime broker (PB) give-up management ......................................................... 21
        4.6.1.   Introduction and Parties’ services ..................................................... 21
        4.6.2.   Relevant product market definition ................................................... 22
        4.6.3.   Relevant geographic market definition ............................................. 25
   4.7. NOE messaging services ................................................................................. 25
        4.7.1.   Introduction and Parties’ services ..................................................... 25
        4.7.2.   Relevant product market definition ................................................... 26
        4.7.3.   Relevant geographic market definition ............................................. 32
   4.8. CCP connectivity ............................................................................................. 33
        4.8.1.   Introduction and Parties’ services ..................................................... 33
        4.8.2.   Relevant product market definition ................................................... 33
        4.8.3.   Relevant geographic market definition ............................................. 36
   4.9. Credit limit management for OTC derivatives ................................................ 37
        4.9.1.   Introduction and Parties’ services ..................................................... 37
        4.9.2.   Relevant product market definition ................................................... 37
                                                             2
 ---pagebreak---          4.9.3.   Relevant geographic market definition ............................................. 39
   4.10. Trade confirmation .......................................................................................... 40
         4.10.1. Introduction and Parties’ services ..................................................... 40
         4.10.2. Relevant product market definition ................................................... 40
         4.10.3. Relevant geographic market definition ............................................. 42
   4.11. Trade optimization........................................................................................... 42
         4.11.1. Introduction and Parties’ services ..................................................... 42
         4.11.2. Relevant product market definition ................................................... 44
         4.11.3. Relevant geographic market definition ............................................. 47
   4.12. RED codes ....................................................................................................... 48
         4.12.1. Introduction and the Parties’ services................................................ 48
         4.12.2. Relevant product market definition ................................................... 48
         4.12.3. Relevant geographic market definition ............................................. 49
5. COMPETITIVE ASSESSMENT .............................................................................. 50
   5.1. Analytical framework ...................................................................................... 50
         5.1.1.   Horizontal non-coordinated effects ................................................... 50
         5.1.2.   Non-horizontal non-coordinated effects ............................................ 51
   5.2. Overview of affected markets ......................................................................... 51
   5.3. FX and IRD CCP connectivity services worldwide ........................................ 52
         5.3.1.   Notifying Parties’ view...................................................................... 54
         5.3.2.   Commission’s assessment ................................................................. 55
         5.3.3.   Conclusion ......................................................................................... 60
   5.4. FX NOE messaging services worldwide ......................................................... 60
         5.4.1.   Notifying Parties’ view...................................................................... 62
         5.4.2.   Commission’s assessment ................................................................. 63
         5.4.3.   Conclusion ......................................................................................... 67
   5.5. FX PB give-up messaging services worldwide ............................................... 67
         5.5.1.   Notifying Parties’ view...................................................................... 68
         5.5.2.   Commission’s assessment ................................................................. 68
         5.5.3.   Conclusion ......................................................................................... 69
   5.6. CCP connectivity in FX and IRD worldwide (upstream) and clearing
         services in FX and IRD worldwide and in the EEA (downstream) ................ 69
         5.6.1.   Notifying Parties’ view...................................................................... 71
         5.6.2.   Commission’s assessment ................................................................. 72
         5.6.3.   Conclusion ......................................................................................... 76
   5.7. OTC FX trading services ................................................................................. 77
                                                              3
 ---pagebreak---         5.7.1.  Customer foreclosure of FX trading services worldwide or EEA-
                wide (upstream) - FX CCP connectivity services worldwide
                (downstream) ..................................................................................... 77
        5.7.2.  Assessment of concerns with respect to commercially sensitive
                data .................................................................................................... 81
   5.8. Trade optimization services ............................................................................. 83
        5.8.1.  Input foreclosure of RED codes worldwide (upstream) – portfolio
                compression/portfolio reconciliation/margin management for CDS
                worldwide (downstream) ................................................................... 87
        5.8.2.  Customer foreclosure of portfolio compression, portfolio
                reconciliation, margin management and basis risk mitigation
                services for IRDs, CDS and equity derivatives worldwide
                (upstream) – trade confirmation services for IRDs, CDS and
                equity derivatives or overall worldwide (downstream) ..................... 91
        5.8.3.  Input foreclosure of trade confirmation services for IRDs or
                overall worldwide (upstream) – portfolio reconciliation and
                margin management services for IRDs worldwide (downstream) .... 98
   5.9. Conglomerate effects ..................................................................................... 101
        5.9.1.  Notifying Parties’ view.................................................................... 102
        5.9.2.  Commission’s assessment ............................................................... 103
        5.9.3.  Conclusion ....................................................................................... 106
6. CONCLUSION ....................................................................................................... 107
                                                             4
 ---pagebreak--- Dear Sir or Madam,
(1)    On 15 June 2021, the European Commission received notification of a proposed
       concentration pursuant to Article 4 of the Merger Regulation by which IHS Markit
       Ltd. (‘IHSM’, UK) and CME Group Inc. (‘CME’, USA) will contribute IHSM’s
       over-the-counter (‘OTC’) derivatives and foreign exchange (‘FX’) trade processing
       business (MarkitSERV) and CME’s trade processing and optimization businesses
       (Traiana, TriOptima, Reset) to a joint venture called Parthenon Ltd (‘JV’, UK),
       which they will jointly control (IHSM and CME are referred to hereinafter as the
       ‘Notifying Parties’ and IHSM, CME and the JV are referred to hereinafter as the
       ‘Parties’).3 The creation of the JV and the contribution of the aforementioned
       businesses is referred to as the ‘Transaction’.
1.       THE PARTIES
(2)    IHSM is an international provider of information, analytics, expertise, and solutions
       to major industries, financial markets, and governments globally. IHSM provides
       pricing and reference data, financial indices, security identifiers, valuation and
       trading services, and data feeds/data management solutions.
(3)    CME is a US based global risk management firm. CME owns and operates several
       exchanges (Chicago Mercantile Exchange, Chicago Board of Trade (CBOT), New
       York Mercantile Exchange (NYMEX) and the Commodity Exchange (COMEX)) and
       provides other trading and clearing services across a range of asset classes, including
       commodities, equity indices, foreign currency (FX) products4, interest rate
       derivatives (IRDs)5 and cryptocurrencies.
(4)    The JV will be active in trade processing and trade/portfolio optimization services in
       a number of asset classes.
2.       THE CONCENTRATION
(5)    On 12 January 2021 IHSM and CME signed a Transaction Agreement pursuant to
       which IHSM will transfer the shares of the entities carrying out the MarkitSERV
3
       Publication in the Official Journal of the European Union No C244, 22.6.2021, p. 22.
4
       FX products are derivative or so-called “spot” contracts: FX derivatives refer to contracts, whose
       payoff depends on the foreign exchange rate(s) of two (or more) currencies over time. FX derivatives
       can be used for a number of reasons, e.g., to provide exposure or hedge against risk with respect to
       changes in exchange rates over time, or for investment purposes. The most common FX derivatives are
       swaps, forwards, non-deliverable forwards (‘NDFs’), futures and options. FX spot contracts are not
       derivative contracts, but contracts between two parties to buy one currency against selling another
       currency at an agreed price for settlement on the ‘spot’ date (usually within two days from when the
       trade is initiated).
5
       Interest-rate derivatives, or ‘IRDs’, are contracts used to speculate on or hedge against a movement in
       interest rates, for instance by transforming a floating or variable interest-rate exposure to a fixed
       interest rate exposure or vice versa, depending on the respective trader’s position/risk to be insured.
                                                           5
 ---pagebreak---      businesses6 and CME will transfer the shares of the Traiana, TriOptima and Reset
     businesses7 to the JV.
(6)  Pursuant to the Transaction Agreement, IHSM, through its indirectly wholly owned
     subsidiary IHS Equity, will hold 50% of the shares of the JV and CME, through its
     wholly owned subsidiary CME NEX, will hold 50% of the shares of the JV. Pursuant
     to the Shareholders Agreement that the Notifying Parties will execute upon closing,
     IHSM and CME will have the right to appoint an equal number of Directors to the
     Board. A quorum requires at least one CME and one IHSM director to be present. All
     board matters will be determined by simple majority, including approval for the
     budget, business plan and management team. Accordingly, the positive consent of
     CME and IHSM is required to approval all strategic matters; therefore, the JV will be
     jointly controlled by IHSM and CME.
(7)  The JV would perform all the functions of an autonomous economic entity on a
     lasting basis. The JV would have sufficient own staff, financial resources and
     dedicated management for its operation and for the management of its business
     interests. Furthermore, the JV would consist of pre-existing businesses and it would
     not be limited to exercising a specific function for its parents. It would have an
     independent market presence and would not have significant sale or purchase
     relationships with its parents. Finally, the JV would be set up for an indefinite period
     and thus intended to operate on a lasting basis. Therefore, the JV would be a full-
     functional joint venture.
(8)  The Transaction thus constitutes a concentration within the meaning of Articles
     3(1)(b) and 3(4) of the Merger Regulation.
3.     UNION DIMENSION
(9)  The undertakings concerned have a combined aggregate world-wide turnover of more
     than EUR 5 000 million8. Each of them has a Union-wide turnover in excess of EUR
     250 million, but they do not achieve more than two-thirds of their aggregate Union-
     wide turnover within one and the same Member State. The Transaction therefore has
     a Union dimension pursuant to Article 1(2) of the Merger Regulation.
4.     MARKET DEFINITION
4.1.   Overview of Parties’ activities
(10) The contributed businesses to the JV provide trade processing services and trade
     optimization services.
6
     US Parthenon Holdings LLC, Option Computers Limited, MarkitSERV Limited, MarkitSERV LLC,
     RCP Trade Solutions Limited, MarkitSERV FX Limited, IHSM U.S. Newco, and MSERV India
     Services Private Limited.
7
     TriOptima AB, Reset Private Limited, Traiana, Inc, Traiana Technologies Limited, Traiana Limited,
     TriOptima UK Limited, TriOptima Asia Pacific Pte. Limited, TriOptima Japan K.K., TriOptima North
     America LLC.
8
     Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                       6
 ---pagebreak--- (11) IHSM contributes MarkitSERV to the JV. MarkitSERV provides trade processing
     services in relation to OTC derivatives, namely credit default swaps9 (‘CDS’), equity
     derivatives10, IRDs, as well as FX spot and derivatives, with a focus on IRDs and
     CDS. Its core service sends and receives details of executed trades to (i) the trading
     parties; (ii) the execution venue, if any; (iii) the central counterparty (‘CCP’); and
     (iv) the trade repository.
(12) CME contributes Traiana, TriOptima and Reset to the JV. Traiana is a market
     infrastructure technology provider that offers pre-trade risk monitoring and
     automated post-trade processing services. TriOptima consists of three core services:
     compression, portfolio reconciliation and margin optimization. Reset is a multilateral
     basis risk mitigation service based on interbank offered rates (IBORs) for interest
     rates, FX non-deliverable forwards (‘NDFs’), FX options and inflation derivatives.
(13) The below overview shows the activities of the businesses across different services:
      Table 1: The OTC trade processing and reconciliation services provided by the
                                                        JV
     Source: Form CO, Table 6.1.
4.2.   Over-the-counter ‘OTC’ derivatives
(14) Derivatives are financial products (including options, futures and swaps) designed to
     transfer various types of economic risks between the parties to a trade. They do not
     transfer ownership of underlying financial assets but derive their value from such
     assets. Financial derivatives enable a transfer of risk between two counterparties
     without needing to invest in the underlying financial assets. There are different types
     of financial derivatives based on the underlying asset class, such as equity
     derivatives, CDS, FX derivatives, and IRDs.
9
     A credit default swap (CDS) is used to transfer credit risk deriving from a bond. It can be either used by
     holders of a bond to ensure against default risk or by investors not holding the bond to speculate.
10
     An equity derivative is a financial instrument whose value is based on movements of an equity
     instrument. For example, a stock option is an equity derivative, because its value is based on the price
     movements of the underlying stock.
                                                         7
 ---pagebreak--- (15)   In broad terms, derivatives may either be traded OTC or on an exchange (i.e.
       exchange-traded-derivatives (‘ETDs’). In 2019, OTC derivatives accounted for 92%
       of the outstanding notional amount of the EU derivatives market, with ETDs
       accounting for the remaining 8%.
(16)   Exchange trading (as opposed to OTC trading) means that the agreement to trade
       securities or derivatives takes place on an exchange or ‘regulated market’11, which is
       subject to different regulation and supervision than OTC trading (venues). While
       trading on exchange is normally anonymous, i.e. the trading parties do not know the
       identity of their counterparty, OTC trading is generally more “relationship-based”
       and counterparties know who they are trading with, (though trading protocols
       ensuring anonymity do exist, e.g. on dealer-to-dealer venues). The reason for this is,
       that financial instruments traded on exchange are standardized and fungible, while
       OTC traded products are bespoke (e.g. derivatives) or not standardized (e.g. bonds).
(17)   In OTC trading, counterparties need to negotiate and agree on the price and other
       terms of the trade. This often takes place on a regulated trading venue (such as a
       Multilateral Trading Facility (‘MTF’) or organised trading facility (‘OTF’), or a
       regulated venue in another jurisdiction); alternatively, the OTC trades are negotiated
       bilaterally between the counterparties to the trade.
(18)   Most OTC derivatives are traded on a bilateral basis (i.e. the contract is between two
       parties, the dealer trader and the buyside trader (so-called ‘dealer-to-client’ or ‘D2C’)
       or a dealer trader and another dealer trader (so-called ‘dealer-to-dealer’ or ‘D2D’).
(19)   Given that the Transaction does not lead to any horizontal or vertical links relating to
       exchange trading or exchange-traded products, the Commission does not further
       assess the market for exchange trading.
4.3.     Derivatives trading services
4.3.1. Introduction and Parties’ services
(20)   CME owns and operates several exchanges (Chicago Mercantile Exchange, Chicago
       Board of Trade, New York Mercantile Exchange and the Commodity Exchange) and
       an electronic trading venue for derivative products across all asset classes (called
       CME Globex), an electronic trading venue for fixed income cash products (called
       BrokerTec) and an FX trading platform (called EBS).
(21)   IHSM does not operate any trading venues and does not offer any services with
       respect to exchange traded products. There are no vertical relationships between
       CME’s Futures & Options trading and clearing offering (CME Globex) and
       MarkitSERV.12 The only trading service leading to a vertical relationship with the JV
11
       According to Art. 4(1)(21) of Directive 2014/65/EU of the European Parliament and of the Council of
       15 May 2014 on markets in financial instruments, OJ L 173, 12.6.2014, page 349 (‘MiFID II’), a
       regulated market “means a multilateral system operated and/or managed by a market operator, which
       brings together or facilitates the bringing together of multiple third-party buying and selling interests
       in financial instruments – in the system and in accordance with its non-discretionary rules – in a way
       that results in a contract, in respect of the financial instruments admitted to trading under its rules
       and/or systems, and which is authorised and functions regularly and in accordance with Title III of
       [Mifid II]”.
12
       Notifying Parties’ response to RFI 16.
                                                          8
 ---pagebreak---         (FX NOE messaging and FX CCP connectivity) is the offering of CME’s FX trading
        venue EBS. EBS offers trading of FX spot contracts as well as FX derivatives (non-
        deliverable forwards, forwards and FX swaps).
4.3.2.    Relevant product market definition
4.3.2.1. Commission’s previous decisions
(22)    In past decisions, the Commission considered that the provision of trading services
        for derivative contracts can be distinguished based on underlying asset classes,
        execution environment, types of contracts and currency pairs.13
(23)    First, regarding the type of underlying variable or asset, the Commission considered
        that trading services for derivatives can be categorised into trading services for equity
        derivatives (single stock or index based), IRDs, currency derivatives, commodity
        derivatives, credit derivatives, and FX derivatives.14
(24)    Second, the Commission previously identified separate relevant product markets for
        the provision of trading services for derivatives on exchanges (i.e. exchange-traded
        derivatives or ‘ETDs’) and the trading of derivatives over-the-counter (i.e. ‘OTC’
        derivatives) in view, in particular, of their different characteristics15 and different
        applicable legal framework.16
(25)    Third, the Commission previously segmented the provision of trading services for
        derivatives according to the types of contracts and considered that trading services
        for swaps17 are part of a distinct product market from trading services for options18
        and futures/forwards,19 although it left open whether trading services for futures and
        for options comprise separate markets as well.20
13
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraph 727 and Commission decision of 24 June 2013 in Case M.6873 - ICE/NYSE
        Euronext, paragraph 69.
14
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraphs 728-731.
15
        Exchange-traded IRDs are standardised products, mainly futures and option, while the OTC trading of
        IRDs consist of contracts, mainly swaps and forward rate agreements, with bespoke terms.
16
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraphs 732-737. See also case COMP/M.6166 - DBAG / NYSE Euronext, paragraphs 255ff
        and 367.
17
        A swap is an agreement between two counterparties to exchange a sequence of cash flows over a period
        of time. These cash flows could for example be tied to the value of fixed or floating interest rates (IRS)
        or to the value of foreign currencies (FX swaps).
18
        An option is a contract between two counterparties under which one counterparty (the option buyer)
        acquires the right (against the payment of a premium), but not the obligation, to buy from, or sell to, the
        other counterparty (the option seller) a specific amount of the underlying asset at a specific "strike
        price" on or before a specified date.
19
        A future/forward is a contract between two counterparties under which one party, the seller, agrees to
        sell to the other counterparty (the buyer) a specified amount of the underlying asset (or its cash
        equivalent) at a specified future date at a price agreed at the time of the conclusion of the contract. The
        difference between a future and forward is that futures are traded on organised exchanges whereas
        forwards are privately negotiated.
20
        Commission decision of 1 February 2012 in Case M.6166 – Deutsche Börse/NYSE Euronext, paragraph
        443 and Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock
        Exchange Group, paragraph 743.
                                                             9
 ---pagebreak--- (26)    Fourth, the Commission has previously considered potential segmentations by
        currency pair, but ultimately left open the product market definition.21
4.3.2.2. Notifying Parties’ view
(27)    The Notifying Parties agree that separate markets should be defined by reference to
        execution method (ETD versus OTC). In addition, the Notifying Parties are of the
        view that it is not appropriate to segment the market with respect to FX spot and
        derivative products since competitors and customers in this space are the same.
4.3.2.3. Commission’s assessment
(28)    With respect to the distinction by asset class, the Commission’s market investigation
        did not provide any evidence that would justify departing from the approach followed
        in previous decisions. For the purposes of this decision, therefore, the Commission
        identifies separate derivative trading services markets based on asset class. The only
        relevant asset class for derivatives trading services markets in this case is FX. CME
        does not offer derivative trading services in equity derivatives, IRDs or CDS. Hence,
        derivative trading services in relation to other asset classes than FX are not relevant
        in the context of the Transaction and are not assessed further in this decision.
(29)    The Commission further investigated distinctions by execution environment (ETD
        versus OTC), trading channel (electronic versus bilateral/voice execution) and types
        of contracts or currencies.
(30)    With respect to the distinction between ETD and OTC execution methods, the
        Commission’s market investigation did not provide any evidence that would justify
        departing from the approach followed in previous decisions. For the purposes of this
        decision, therefore, the Commission identifies separate markets based on execution
        method (i.e. ETD versus OTC). MarkitSERV is not present in, nor does it provide
        any services for, ETDs. Hence, ETD-based markets are not relevant in the context of
        the Transaction and are not assessed further in this decision.
(31)    As detailed below, in the context of FX trading services, the Commission
        investigated whether separate markets should be defined as between: (i) FX spot and
        FX derivative trading services; (ii) electronic and bilateral trading (also referred to as
        “voice”); (iii) anonymous (dealer-to-dealer) and disclosed (dealer-to-client) trading
        services; and (iv) different types of contracts.
(32)    All FX trading venue competitors responding to the Commission’s investigation
        provide trading services for FX spot and FX derivatives 22, suggesting that no
        distinction is warranted at this level from a supply-side perspective. However, the
        question whether FX spot and FX derivatives constitute separate markets can be left
        open for the purposes of this decision, as a conclusion on this issue does not affect
        the outcome of the Commission’s assessment in the present case.
(33)    Regarding a distinction by trading channel, based on the replies to the market
        investigation, most FX trading venue competitors (60%) consider that separate
        markets exist for electronic FX trading services on the one hand, and bilateral/voice
21
        Commission decision of 24 June 2013 in Case M.6873 - ICE/NYSE Euronext, paragraph 69.
22
        Reply to question 5 of Questionnaire 5.
                                                      10
 ---pagebreak---      FX trading services on the other.23 One competitor states: “(…) While the market
     continues to become more electronic, the rate of adoption has slowed substantially,
     suggesting that some form of voice trading will continue to be the preferred execution
     method for a segment of the client market. Those customers are effectively not in
     scope for electronic FX trading venues/services.”24
(34) Other respondents consider that an overall market exists covering both electronic FX
     trading services and bilateral/voice FX trading services, since market participants
     regularly trade in both ways, electronically and via voice, depending on the trade.
     Respondents also indicated that preferences are also dependent on particular products
     or currencies. For example, non-standardized products and “non-G10 currencies”
     tend to be traded via voice.25
(35) The Commission considers that the question whether electronic FX trading services
     and bilateral/voice FX trading services constitute separate markets can be left open
     for the purposes of this decision, as a conclusion on this issue does not affect the
     outcome of the Commission’s assessment in the present case.
(36) The Commission considered further whether “anonymous” versus “disclosed” FX
     trading constitute separate markets. Anonymous trading (also referred to as dealer-to-
     dealer trading) refers to trading protocols that keep the identity of the trading
     counterparty confidential before the trade. Disclosed trading (also referred to as
     dealer-to-client trading) means that trading counterparties on the respective platform
     know who they are trading with. One competitor noted that “there is generally no
     requirement for particular clients to use one over the other, therefore clients can
     (and some do) use both anonymous and disclosed liquidity sources. Therefore, these
     two types of trading venue do compete for business.”26
(37) The Commission considers, however, that the question of whether “anonymous” and
     “disclosed” FX trading constitute separate markets can be left open for the purposes
     of this decision, as a conclusion on this issue does not affect the outcome of the
     Commission’s assessment in the present case.
(38) The market investigation provided some evidence that it might be appropriate to
     define separate markets by type of contract or currency (see recital (34). Some
     customers consider these distinctions to be relevant in relation to the question via
     which channel to trade. For example, FX trading venue competitors mention
     specifically non-deliverable forwards, forwards, swaps and options when asked about
     which trading services they offer.27 This suggests that the mentioned products may be
     relevant distinctions in their service offering. One competitor mentions: “Clients can
     access liquidity in more than 300 currency pairs for FX spot and up to 70 currency
     pairs for FX derivatives.”28 This indicates that the coverage of certain currency pairs
     may be a distinguishing factor in the offer of FX trading services.
23
     Reply to question 4 of Questionnaire 5.
24
     Reply to question 4.1 of Questionnaire 5.
25
     Reply to question 4.1 of Questionnaire 5.
26
     Minutes of a call with a market participant on 24 May 2021, 14:00 CET.
27
     Reply to question 5.2 of Questionnaire 5.
28
     Reply to question 5.2 of Questionnaire 5.
                                                       11
 ---pagebreak--- (39)    The Commission considers that the question whether different types of contracts and
        currencies in FX trading constitute separate markets can be left open for the purposes
        of this decision, as a conclusion on this issue does not affect the outcome of the
        Commission’s assessment in the present case.
4.3.2.4. Conclusion
(40)    In view of the above, the Commission considers that separate FX trading services
        markets exist for exchange traded and OTC traded FX products. Possible further
        distinctions may exist with respect to (i) trading channel (electronic, voice/bilateral),
        (ii) pre-trade transparency (anonymous or disclosed trading), and (iii) by type of
        contract and currency. However, concerning these additional possible distinctions,
        the relevant product market definition can be left open as the Transaction does not
        give rise to serious doubts as to its compatibility with the internal market even on the
        narrowest plausible market.
4.3.3.    Relevant geographic market definition
4.3.3.1. Commission’s previous decisions
(41)    The Commission has previously considered the relevant geographic market definition
        for derivative trading markets, in particular exchange traded European interest rate,
        equity index and single stock options and futures29, as well as for OTC FX trading
        services. The relevant geographic market definitions in those instances were
        considered to be EEA-wide or global.
4.3.3.2. Notifying Parties’ view
(42)    The Notifying Parties did not provide any explicit views on the relevant geographic
        market for the supply of OTC FX trading services, or the potentially narrower
        markets, but provided market shares of EBS and its competitors in a global market.
4.3.3.3. Commission’s assessment
(43)    Responses to the market investigation varied regarding the question of the geographic
        level of competition. Nevertheless, a majority of competitors indicate that they offer
        FX trading services to customers at a worldwide level, sets fees for FX trading at a
        worldwide level and consider that their competitors are active at a worldwide level.30
        The competitors who responded include those operating some of the biggest
        electronic FX trading venues globally31 and hence cover a large proportion of global
        FX trading. Approximately 30% of FX trading takes place bilaterally and not on
        electronic trading venues and hence in this part of the market, it cannot be excluded
        that market participants could have a more regional focus. From a demand-side
        perspective, the market investigation in a previous case revealed that the majority of
        customers trade OTC FX products on worldwide venues.32
29
        Commission decision of 1 February 2012 in Case M.6166 – Deutsche Börse/NYSE Euronext,
        paragraphs 450, 460 and 462.
30
        Reply to question 6 of Questionnaire 5.
31
        Reply to question 8 of Questionnaire 5.
32
        Commission decision of 13 January 2021 in case M.9564 – London Stock Exchange/Refinitiv, para 219,
        to be published.
                                                       12
 ---pagebreak--- (44)    Regarding a plausible EEA-wide market, the Commission notes that less than [5-
        10]% of EBS' trading volumes (and less than [0-5]% of EBS' revenues) are accounted
        for by EEA customers.33 Hence, the Commission considers that the question
        regarding the geographic scope of the market for OTC FX trading services can be left
        open for the purposes of this decision, as a conclusion on this issue does not affect
        the outcome of the Commission’s assessment in the present case.
4.3.3.4. Conclusion
(45)    In view of the above, the Commission considers, in line with previous decisions, that
        the relevant geographic market for OTC FX trading and potential narrower markets is
        likely global and at least EEA-wide. However, the exact geographic market definition
        (i.e. EEA-wide or global) can be left open for the purposes of this decision, as a
        conclusion on this issue does not affect the outcome of the Commission’s assessment
        in the present case.
4.4.      Derivatives clearing
4.4.1. Introduction and Parties’ services
(46)    Clearing refers to all activities occurring between the time of trading (i.e. when a
        trade has been agreed between the buyer and the seller) and the moment in which
        commitments are fulfilled, or “settled” (i.e. the seller has delivered the rights to the
        financial asset to the buyer and the buyer has paid the agreed amount to the seller).
        The main function of clearing is to insure each party to a trade against non-fulfilment
        of the commitments agreed to by the other party. This is commonly referred to as
        insuring “counterparty risk”. Where the clearing service is performed centrally by a
        third party, this third party is referred to as the central counterparty (“CCP”) or
        clearing house. In addition to its principal function of managing counterparty risk, the
        CCP can also perform other ancillary activities such as the registration and
        verification of the trade and its counterparties and the transmission of the details of
        the trade to the relevant settlement body.34
(47)    CME offers clearing and settlement services across asset classes for exchange-traded
        and OTC derivatives through its clearinghouse, CME Clearing.
4.4.2.    Relevant product market definition
4.4.2.1. Commission’s previous decisions
(48)    The Commission has previously considered separate product markets for the clearing
        of derivatives by underlying asset class (e.g. IRDs), execution environment
        (exchange-traded and OTC), type of customer and type of contract (defining swaps as
        separate from futures and options, while leaving open whether futures and options or
        separate currencies constitute separate markets in terms of clearing).35
33
        Form CO, footnote 174.
34
        Commission decision of 29 March 2017 in Case M.7995 – Deutsche Börse/London Stock Exchange
        Group, paragraph 34.
35
        Commission decision of 1 February 2012 in Case M.6166 - Deutsche Börse/NYSE Euronext, paragraph
        444 and Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock
        Exchange Group, paragraph 748, 750.
                                                      13
 ---pagebreak--- 4.4.2.2. Notifying Parties’ view
(49)    The Notifying Parties submit that OTC and ETD derivatives clearing are separate
        relevant product markets. The Notifying Parties submit that it may be appropriate to
        further distinguish between relevant product markets for derivatives clearing services
        by asset class because the underlying financial instruments are used by different
        customer bases for different purposes. They argue that this is also supported by the
        supply-side focus of CCPs. In particular, they point to the fact that CME’s market
        position varies considerably by asset class (c.[5-10]% for OTC IRD clearing
        worldwide, less than [0-5]% for OTC FX clearing worldwide) and the fact it is no
        longer active in some asset classes (e.g. CDS). Moreover, certain CCPs are split by
        asset class. For example, LCH Swap Clear specialises in clearing swaps, LCH Forex
        Clear specialises in clearing FX, and ICE Clear Credit specialises in clearing credit. 36
4.4.2.3. Commission’s assessment
(50)    The results of the market investigation did not provide any indication that it would be
        appropriate to depart from the Commission’s previous assessment of derivatives
        clearing markets.37 In relation to whether clearing services for different asset classes
        should be within the same or separate product markets, the market investigation
        indicated that there is limited supply-side substitutability for clearing services across
        different asset classes. Respondents indicated that expanding into new clearing
        services requires significant investment and a long time period to implement the
        relevant technology solutions, obtain regulatory approvals and build a client base.38
4.4.2.4. Conclusion
(51)    In view of the above, the Commission concludes, in line with its previous decisional
        practice, that there are separate product markets for the clearing of derivatives by
        underlying asset class. The Commission also considers, in line with its previous
        decisional practice, that there are separate product markets for the clearing of
        derivatives by execution environment, type of customer and type of contract.
        However, for the purposes of this decision, the distinction by type of customer and
        contract does not appear relevant. The Transaction gives rise to a vertical link
        between MarkitSERV’s OTC FX and IRD CCP connectivity service (upstream) and
        CME’s OTC FX and IRD clearing services (downstream). MarkitSERV’s service is
        provided without any differentiation across all customer and contract types, and the
        market investigation did not give rise to any suggestion that the impact of the
        Transaction or dynamics of this vertical link would differ by customer and contract
        types. Therefore, the Commission’s assessment focuses on the relevant markets for
        OTC FX clearing and OTC IRD clearing services without further distinguishing
        between customer or contract types.
36
        Notifying Parties’ response to RFI 4 paragraphs 10.2 and 10.3.
37
        Replies to questions 5.1 and 6 of Questionnaire 2.
38
        Replies to question 5.1 of Questionnaire 2.
                                                           14
 ---pagebreak--- 4.4.3.    Relevant geographic market definition
4.4.3.1. Commission’s previous decisions
(52)    The Commission has previously considered the relevant market for clearing services
        (for OTC traded interest rate derivatives) to be at least EEA-wide in scope. In
        particular, the Commission noted that third country CCPs often have a different
        geographic focus and not all customers in the EEA consider them as viable
        alternatives to which they could switch within a short time.39
4.4.3.2. Notifying Parties’ view
(53)    The Notifying Parties did not provide any explicit views on the relevant geographic
        market for the supply of clearing services, but provided market shares on the basis of
        a global market. The Notifying Parties confirmed that these market shares (which are
        less than 10% on any plausible basis at worldwide level) would be even lower on an
        EEA-wide market.40
4.4.3.3. Commission’s assessment
(54)    The market investigation indicated that most CCPs provide clearing services at the
        worldwide level41 and none of the responses to the Commission’s market
        investigation indicated that it would be appropriate to depart from the Commission’s
        previous assessment of the relevant geographic market for clearing services as at
        least EEA-wide.
4.4.3.4. Conclusion
(55)    In view of the above, the Commission considers, in line with previous decisions, that
        the relevant geographic market for clearing services is at least EEA-wide. However,
        the exact geographic market definition (i.e. EEA-wide or global) can be left open for
        the purposes of this decision, as a conclusion on this issue does not affect the
        outcome of the Commission’s assessment in the present case.
4.5.      Trade processing services
4.5.1. Introduction and Parties’ services
(56)    Once the terms of a trade are agreed, the trade is submitted for post trade processing
        by the execution/trading venue, or by the parties themselves, if traded off-venue. This
        includes the transmission of messages between different parties to the trade,
        affirmation/confirmation of the trade, and sending the trade to the relevant CCP (if
        applicable) and reporting it to the relevant trade repositories/regulatory bodies (as
        applicable).
(57)    MarkitSERV provides trade processing services in relation to OTC derivatives
        covering the following asset classes: CDS, equities, OTC FX products and IRD, with
        a focus on IRD and CDS. Its core service sends and receives details of executed
39
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraphs 765-768.
40
        Notifying Parties’ response to RFI 17, paragraph 2.1.
41
        Replies to question 7 of Questionnaire 2.
                                                         15
 ---pagebreak---         trades to: (i) the trading parties; (ii) the execution venue, if any; (iii) the CCP; and
        (iv) the trade repository.
(58)    CME is active in trade processing services through Traiana. Traiana is a market
        infrastructure technology provider that offers credit limit monitoring and automated
        post-trade processing services for FX, equities and exchange traded derivatives.
        Credit limit monitoring is a service provided to prime brokers, executing brokers and
        buy-side clients and consists in credit checks to ensure that the counterparty of a
        trade has sufficient credit to enter into a transaction (see Section 4.9 for more details).
4.5.2.    Relevant product market definition
4.5.2.1. Commission’s previous decisions
(59)    The Commission has not previously considered trade processing services directly. In
        past decisions, the Commission has considered that the provision of trading services
        for derivative contracts can be distinguished based on underlying asset classes,
        execution environment, and types of contracts (see Section 4.3.2 above).42
4.5.2.2. Notifying Parties’ view
(60)    According to the Notifying Parties, trade processing services are separate markets
        based on the following criteria: (a) asset class, e.g. IRDs, equity derivatives or FX
        derivatives; (b) type of trade, i.e. bilateral or prime broker (also known as ‘tri-party’);
        and (c) service type, e.g. notice of execution messaging or CCP connectivity. The
        Notifying Parties support their views on the basis of the following elements:
(61)    Distinction by asset class. The most common underlying assets for derivatives are
        interest rates, credit (e.g. debt or fixed-income instruments), currencies (FX),
        commodities, and equities. Trade processing software and services for different asset
        classes are likely to constitute separate markets, because the functionality and the
        regulatory requirements vary between asset classes. There is no demand-side
        substitutability because customers require trade processing services specific to the
        asset class they are trading and the individuals responsible for different asset classes
        within an organisation also typically vary. There is also limited supply-side
        substitutability, since to expand into a new asset class it would be necessary to invest
        in new systems and to recruit individuals with the requisite knowledge of the new
        products and workflows, as well as to build relationships with new individuals at
        customer organisations.
(62)    Distinction by trade type. Buy-side firms trade with multiple firms directly and can
        either manage their transactions with those firms throughout the life of the trades (i.e.
        on a bilateral basis) or they can use a prime broker. Prime brokerage services
        comprise a bundle of services provided by a bank (such as BNP, Citibank, Deutsche
        Bank, HSBC, JP Morgan, Morgan Stanley and UBS) to hedge funds, asset managers,
        small banks and other clients. Prime brokerage services allow a wide variety of
        smaller clients to trade with dealers while maintaining a credit relationship, placing
        collateral and settling with a single entity (the prime broker). In practice, the prime
        broker steps in to enter two offsetting trades: one with the client and one with the
42
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraph 727.
                                                      16
 ---pagebreak---         executing broker. In this way, the prime broker takes over the trade and effectively
        becomes the guarantor of the buy-side client for the trade. Typically, prime broker
        customers choose this structure as they do not have the credit required to engage in
        bilateral trades. Thus, the vast majority of prime broker customers using trade
        processing services would not consider bilateral trades (and related trade processing
        services) to be a substitute for them. Prime brokerage is most prevalent in FX
        markets. As the prime broker sits between the two executing parties, these trades are
        often referred to as "tri-party", and the suite of trade processing services that are
        involved in supporting prime brokerage trades are different from those involved in a
        bilateral trade.
(63)    Distinction by service type. Trade processing services can also be distinguished by
        the service type (i.e. services relating to different stages of the trade life cycle)
        including: (i) credit risk management (pre- and post-trade) (ii) notice of execution
        (NOE) messaging, and (iii) CCP connectivity. There is no demand-side
        substitutability because customers use these services for different purposes, e.g.
        messaging services involve the transmission of messages from a
        broker/venue/liquidity provider to clients who have just executed a trade to feed their
        internal risk management systems. This service cannot be substituted with another
        trade processing service like CCP connectivity, which consist in sending details of
        trades executed on a trading venue or bilaterally to CCPs for clearing. There is also
        limited supply-side substitutability as different services require different input and
        technical connections to different market participants. In addition, different trade
        processing services are typically procured by different divisions, desks and
        individuals within the same organisation, making it necessary to build new
        relationships in order to expand into new service types.
4.5.2.3. Commission’s assessment
(64)    While the Commission has not previously considered trade processing services
        directly, the results of the market investigation indicate that trade processing service
        markets are separate markets in similar ways to trading services (e.g. by asset class),
        as proposed by the Notifying Parties.
(65)    Regarding a distinction by asset class, a customer explains that “different products
        have different requirements and different system integrations”.43 Even though
        customers do not necessarily source different trade processing services from the same
        provider, 44% say they do procure some products together, but only within the same
        asset class.44 Customers often seem to be organised internally by asset class. One
        customer states: “Within each asset class we try to align the negotiation of products /
        contracts.”45 One market participant notes: “(…)customers themselves operate in
        very different ways across asset classes and procure products separately (e.g. the FX
        trading desk of a major bank will not align with the fixed income desk).”46
(66)    On the supply side, there would seem to be some substitutability across asset classes.
        For example, one market participant states: “From a supply side perspective, the
43
        Reply to question 6 of Questionnaire 3.
44
        Reply to question 7 of Questionnaire 3.
45
        Reply to question 7.1.3 of Questionnaire 3.
46
        Minutes of a call with a market participant on 7 May 2021, 14:30 CET.
                                                          17
 ---pagebreak---      technical requirements to offer services are the same/similar across asset classes.”47
     However, generally suppliers start providing trade processing services by focusing on
     one asset class at first. For example, “Traiana started in FX and has expanded to
     cover other asset classes” notes one customer.48 One market participant observes that
     “[FX] is much simpler as an asset class than fixed income. Fixed income is even
     more complex because different types of fixed income instruments trade in different
     ways, and trade differently in Europe/US/Japan. Therefore would not be easy to
     expand from FX to fixed income, as it requires a lot of work.” 49
(67) One competitor notes: “For asset class, there are differences in requirements in
     terms of trade source, trade matching and enrichment criteria and potential
     workflows. For FX specifically, trade source could be from risk management systems
     or trading platforms which tend to be asset class specific. The matching and
     enrichment requirements for FX also vary from other derivatives and those of equity
     or fixed income along with different market standards and governing regulations.”50
(68) Also, some market participants contacted during pre-notification, considered that
     they do not compete with the Parties because their services, while equivalent to the
     Parties’, related to a different asset class, in which the Parties were not active.51
(69) Based on the above, the Commission considers that trade processing services for
     different asset classes constitute separate markets.
(70) As regards a distinction by trade type (bilateral, tri-party), a customer who is active
     as a prime broker as well as an executing broker notes: “We run bilateral and PB at
     arms length as they have different requirements.”52 Several customers answering the
     market investigation answered in a similar fashion, e.g. “Segregation required
     between Prime and Franchise activity.”53 A competitor in this space confirms this
     view: “Often there are information barriers and physical separation between the PB
     and other desks within sell-side participants.”54 These quotes from both customers
     and competitors indicate that customers distinguish in their operations between
     bilateral and tri-party FX trading, if they do both, and tend to keep these operations
     separate.
(71) Equally, from a supply-side perspective, competitors in other related trade processing
     services markets underline the different purposes and focus of the Parties’ services,
     particularly in terms of trade type. One market participant exemplifies the view of the
     majority by noting that they “do not see much overlap nor complementarity between
     Traiana and Markitserv, the former being PB focused and the latter being sell-side
     market making focused.”55 Responses from competitors also support the Notifying
     Parties’ view that MarkitSERV and Traiana serve different customer groups and
47
     Minutes of a call with a market participant on 7 May 2021, 14:30 CET.
48
     Reply to question 8.1 of Questionnaire 3.
49
     Minutes of a call with a market participant on 7 May 2021, 14:30 CET.
50
     Written response to questions from a competitor, 5 May 2021.
51
     Minutes of a call with a market participant on 7 May 2021, 14:30 CET and Minutes of a call with a
     market participant on 15 May 2021, 18:00 CET.
52
     Reply to question 6 of Questionnaire 3.
53
     Reply to question 6 of Questionnaire 3.
54
     Minutes of a call with a market participant on 11 May 2021, 16:00 CET.
55
     Minutes of a call with a market participant on 11 May 2021, 16:00 CET.
                                                       18
 ---pagebreak---      types of transactions56, and that services generally differ for bilateral and tri-party
     transactions.
(72) Based on the above, the Commission considers that trade processing services for
     different trade types constitute separate markets.
(73) With respect to a distinction by service type, on the demand side, the results of the
     market investigation indicate that customers do not consider trade processing services
     to be substitutable: “We utilise different services for different needs.”57 Some
     customers consider that links/connectivity between services lead them to procure
     from the same provider: “From a pricing and technology integration perspective it
     often makes sense to procure products from the same supplier – particularly from a
     connectivity perspective.”58 The majority of customers (77%) purchase some
     products together59, though the possibility to purchase services together does not
     seem to be a major factor in the decision from whom to procure. 60 One customer
     states: “We consider each component individually based on our needs, weighed with
     convenience of using same provider.”61
(74) One competitor notes that the market is “segmented based on the service type
     required by the client, for example there are different dynamics between products
     that provide for the monitoring of trades in front office (such as credit limit checking)
     compared with products that control trades that are received for middle and back
     offices. There could be thus a distinction between purely ‘technical’ services and
     more ‘value added’ business services.”62
(75) Both customers and competitors seem to view different trade processing services
     separately, though there may be certain product combinations that are purchased
     together. For example, when asked which services customers procure together, many
     answer that they buy several products from each Party.63 However, no clear pattern
     emerges from the answers as to which combinations are more prevalent than others.
     Also, most respondents state that they negotiate the procurement of different products
     separately, noting that “these services are typically procured separately” and they are
     “separate contracts”.64
(76) From a supply-side perspective, there may be a certain level of substitutability of
     general capabilities across services, as evidenced by the fact that Traiana is active in
     several trade processing services. However, the landscape of providers is fragmented
     and diverse.65 Since trade processing services are ancillary to the trading and clearing
     of trades, the market participants active in these services are in some cases also
     trading venues (e.g. FX trading venues provide NOE messaging as part of trading
     services) or CCPs themselves, or other ancillary services providers (providers of
     order management systems or risk management systems). However, the providers of
56
     Form CO, paragraphs 394ff.
57
     Reply to question 6 of Questionnaire 3.
58
     Reply to question 7.1.2 of Questionnaire 3.
59
     Reply to question 7 of Questionnaire 3.
60
     Replies to questions 10 and 13 of Questionnaire 3 with respect to FX NOE messaging services.
61
     Reply to question 6 of Questionnaire 3.
62
     Minutes of a call with a competitor on 12 May 2021, 11:00 CET.
63
     Reply to question 7.1.1 of Questionnaire 3.
64
     Reply to question 11.1.3 of Questionnaire 1.
65
     Form CO, paragraph 442ff regarding an overview of competitors in trade processing markets.
                                                      19
 ---pagebreak---         order management systems or risk management systems do not seem to compete
        closely with the Parties for most services as evidenced by responses to the market
        investigation.66 In any case, offering a new service from the perspective of an already
        active provider of trade processing services is not necessarily an easy undertaking.
        For example, a market participant notes with respect to IHSM: “(…) in 2013-4,
        Markit attempted to enter the credit limit checking space, but today (…) is not aware
        of any significant competition to Traiana.”67
(77)    In summary, the answers from market participants indicate that while customers may
        buy several trade processing products from the same supplier, the decisions are made
        independently for each particular service, based, first and foremost, on service
        quality.68 The least important criterion when choosing trade processing service
        providers was whether the provider also offered other related services.69 Competitors
        agreed that separate trade processing services markets exist by service type. 70
        Considering that customers procure these services separately and competitors offer
        them standalone, the Commission considers that trade processing services are
        separate product markets by service type.
(78)    In addition, a distinction by type of customer is conceivable regarding some trade
        processing services. One competitor states: “Competitors may also vary based on
        target market as the requirements for the likes of asset managers, hedge funds and
        banks significantly differ based on functionality specifics. For example, some buy
        side clients may require support for master/sleeve account structures which would
        not be as applicable to banks.”71
(79)    The Commission considers, in line with its previous decisional practice in related
        markets (e.g. derivatives clearing, see Section 4.4.2), that it is possible that there may
        be separate product markets for trade processing services by type of customer.
        However, for the purposes of this case, the distinction by type of customer does not
        appear relevant. The Transaction gives rise to a horizontal overlap in FX NOE
        messaging services and FX PB give-up management services, as well as a vertical
        relationship between CME’s OTC FX trading services (upstream) and MarkitSERV’s
        OTC FX CCP connectivity service (downstream). All those services are provided
        without any differentiation across customer types, and the market investigation did
        not give rise to any suggestion that the impact of the Transaction or dynamics of
        these relationships would differ by customer types. Therefore, the Commission’s
        assessment focuses on the relevant markets for FX NOE messaging, FX PB give-up
        management, OTC FX CCP connectivity services and OTC FX trading services
        without further distinguishing between customer types.
4.5.2.4. Conclusion
(80)    In view of the above, the Commission considers that trade processing services consist
        of separate markets (i) by asset class, (ii) by trade type (bilateral, tri-party) and (iii)
        by service type (at least into NOE messaging, PB give-up management, CCP
66
        Replies to question 15 and 28 of Questionnaire 3.
67
        Minutes of a call with a market participant on 11 May 2021, 16:00 CET.
68
        Replies to questions 10 and 24 of Questionnaire 3.
69
        Replies to questions 10 and 24 of Questionnaire 3.
70
        Written response of a competitor, 5 May 2021, call with a competitor on 12 May 2021, 11:00 CET.
71
        Written response of a competitor, 5 May 2021.
                                                          20
 ---pagebreak---        connectivity). A separate market by customer type may exist though a conclusion on
       this distinction is not necessary as it is not relevant in the markets affected by the
       Transaction.
(81)   The relevant distinct trade processing services markets in which the Parties overlap
       horizontally or vertically (JV with the parent or within the JV) are covered in
       Sections 4.6 to 4.10, namely FX PB give-up management, FX NOE messaging, CCP
       connectivity, credit limit management for OTC derivatives and trade confirmation.
4.6.     Prime broker (PB) give-up management
4.6.1. Introduction and Parties’ services
(82)   When a prime brokerage trade is agreed between the two trading parties (the buy-side
       trader and the executing broker), they submit a message via a PB give-up
       management services provider’s “message interface” and a prime broker can then
       agree to step in, with the parties being notified through the message interface. The
       prime broker then enters into two offsetting trades: one between its client (the buy-
       side trader) and the prime broker; and one between the executing broker and the
       prime broker. The client, prime broker and executing broker must communicate with
       each other throughout this process. PB give-up messaging services facilitate this
       trilateral communication, including confirmation that a broker has agreed to step in
       between the parties, allocations and confirmations. The below Figure provides a
       graphic visualization of the process to which PB give-up management services relate.
                        Figure 1: Illustration of prime broker give-up process
       Source: Form CO, Table 6.3.
(83)   Traiana is active in PB give-up management services for FX, equity, IRD and
       exchange-traded derivatives trades across several asset classes (though not for FX).72
       PB give-up management services comprise the following sub-services: PB give-up
       messaging services, processing give-up agreements, tri-party documentation
       management, credit limit management and aggregation.
72
       Notifying Parties’ response to question 3 in RFI 18.
                                                         21
 ---pagebreak--- (84)    MarkitSERV provides a sub-set of PB give-up management services for a very small
        volume of FX prime brokerage trades for a limited number of customers. Concretely,
        MarkitSERV has […] customers who use FX NOE messaging services for both
        bilateral and prime broker trades. In addition […], a small number of customers use
        MarkitSERV’s TradeSTP service for FX PB give-up messaging. MarkitSERV does
        not provide any other FX PB give-up management services mentioned in the
        previous recital.
4.6.2.    Relevant product market definition
4.6.2.1. Commission’s previous decisions
(85)    The Commission has not previously considered the prime broker (PB) give-up
        management services market. However, the Commission has considered the related
        market of trading services for derivative contracts and considered in past decisions
        that the market can be distinguished based on underlying asset classes, execution
        environment, and types of contracts.73
4.6.2.2. Notifying Parties’ view
(86)    The Notifying Parties’ views with respect to the general distinguishing criteria in
        trade processing services markets (by asset class and trade type) applies also to PB
        give-up management services (see Section 4.5.2).
(87)    The Notifying Parties note that FX is the only asset class with a significant volume of
        prime broker trades. In addition, on the demand side, different divisions, desks and
        individuals are responsible for services by asset class in customers’ organisations.
(88)    The Notifying Parties consider that FX PB give-up management services constitute
        one relevant product market which should not be further distinguished by service
        type. Traiana offers different, distinguishable FX PB-give-up management services
        that are all available to be purchased individually. Some customers purchase only one
        service, while others purchase several. However, the Notifying Parties submit that it
        is not necessary to conclude on whether FX PB give-up management services should
        be further distinguished by service type, as it does not affect the competitive
        assessment.
4.6.2.3. Commission’s assessment
(89)    The results of the market investigation indicate that it is appropriate to consider PB
        give-up management services as a separate product market from other trade
        processing services. Furthermore, the market investigation supports the conclusion
        that there are separate PB give-up management services markets by asset class and
        trade type.
(90)    Regarding distinctions based on type of contract and execution environment, there
        may be separate markets with respect to PB give-up management services in other
        asset classes or trade types. However, in the present case, affected markets only arise
73
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraph 727.
                                                    22
 ---pagebreak---      with respect to FX PB give-up management, and within FX a further separation by
     type of contract or execution environment is not relevant.
(91) Regarding distinctions by service type or trading channel, the market definition can
     be left open as no serious doubts as to the Transaction’s compatibility with the
     internal market arise regardless of whether a broader market (including all FX PB
     give-up management services, i.e FX PB give-up messaging services, processing
     give-up agreements, tri-party documentation management, credit limit management
     and aggregation for trades executed electronically and bilaterally/via voice) or
     separate markets are assessed. The below sets out in more detail the Commission’s
     considerations.
(92) In terms of a distinction on an asset class basis, the majority of respondents to the
     market investigation considered that, from a demand-side perspective, a distinction
     between PB give-up management services by asset class is relevant.74 The
     respondents refer in particular to FX as a relevant asset class. This may be related to
     the fact that FX is the only asset class with significant volumes of prime broker
     trades.75
(93) From a supply-side perspective, the question does not arise in a meaningful way, as
     no other asset class except FX has significant volume of primer broker trades.76 The
     Commission considers that the PB give-up management services market is separated
     by asset class. Hence, the Commission considers for the purposes of this decision,
     that FX PB give-up management services constitute a separate market.
(94) In terms of execution environment, the distinction of whether a trade is executed on
     exchange or OTC is not relevant for the markets in the present case, as FX PB trades
     are all executed OTC and not on exchanges.77 Hence, a distinction by execution
     environment is not relevant for the assessment of the overlap the Transaction leads to
     in FX PB give-up management services. This distinction is therefore not further
     assessed for the purposes of this decision.
(95) In terms of type of contract, FX PB give-up management services do not provide for
     any distinction by type of contract. The market investigation did not reveal any such
     distinction as being relevant in FX PB give-up management services. Traiana and its
     competitors provide FX PB give-up management services for all contract types for
     FX and no distinction is made with respect to the services by type of contract.78
     Hence, a distinction by type of contract is not relevant for the assessment of the
     overlap the Transaction leads to in FX PB give-up management services. This
     distinction is therefore not further assessed for the purposes of this decision.
(96) In terms of a distinction by service type within FX PB give-up management services,
     the Commission notes that such a distinction may exist, given that products are
74
     Reply to question 6 of Questionnaire 3.
75
     Form CO, paragraph 433 and Notifying Parties’ response to RFI 13, question 1.
76
     Based on a November 2020 ISDA report, the overall OTC equity swaps market is approximately 5% of
     the overall OTC FX market (based on notional outstanding), with OTC equity swaps being the only
     other asset class in which prime brokerage exists to a meaningful extent according to the Notifying
     Parties, see Key-Trends-in-the-Size-and-Composition-of-OTC-Derivatives-Markets-in-the-First-Half-
     of-2020.pdf (isda.org) and reply to question 1 in RFI 13.
77
     Notifying Parties’ response to question 2 in RFI 18.
78
     Notifying Parties’ response to question 4 in RFI 18.
                                                        23
 ---pagebreak---         available standalone and in combination, and customers seem to buy one or several
        products depending on their needs and hence, there seems to be no “fixed bundle”
        constituting FX PB give-up management services.79 The majority of Traiana’s
        customers buy the FX PB give-up messaging service ([…] clients of FX PB give-up
        management services overall), indicating the importance of this service within FX PB
        give-up management services.
(97)    In the market investigation, the Commission asked whether customers considered
        that they could use other service types to replace their current FX PB give-up
        management provider. Responses were mixed with a minority answering “yes” and a
        majority answering “it depends” or “no”. When asked to explain, the general tenor
        was that certain parts of FX PB give-up management can be replaced by in-house
        self-supply or other providers while other parts, like the messaging service, rely on
        the “network” which only Traiana currently seems to provide.80
(98)    In addition, evidence available to the Commission suggests that entry in the market
        of FX PB give-up management is not easy in the sense that suppliers in adjacent
        markets are not able to switch quickly to provide FX PB give-up management
        services and market them in the short term.81 This is supported by the fact that
        MarkitSERV entered the market 10 years ago but has not gained significant traction,
        even though it already competed in adjacent trade processing services markets.
(99)    While a distinction by service type cannot be excluded based on the evidence
        available, a conclusion on this point is not relevant, as the competitive assessment
        would not change based on a narrower market definition distinguishing FX PB give-
        up management services further.
(100) In terms of trading channel, prime brokers use Traiana’s FX PB give-up messaging
        services regardless of how a trade was executed (electronically or bilaterally), so
        from a demand-side perspective, customers do not distinguish between those
        channels when purchasing this service.82
4.6.2.4. Conclusion
(101) Based on the results of the market investigation and the evidence available to it, the
        Commission considers that PB give-up management services are a separate relevant
        product market from other trade processing services and that it is appropriate to
        distinguish the market for PB give-up management services by asset class and trade
        type.
(102) While separate markets based on the execution environment and types of contracts
        may exist with respect to other asset classes, these distinctions are not relevant for the
        present case, as the Parties’ activities only present a link with respect to FX. In FX
        PB give-up management services, these distinctions are not relevant.
79
        Form CO, paragraph 438 a), reply to question 7.1.1 of Questionnaire 3.
80
        Reply to question 23 of Questionnaire 3.
81
        Commission Notice on the definition of relevant market for the purposes of Community competition
        law (97/C 372/03), para. 20.
82
        Notifying Parties’ response to question 9 in RFI 19.
                                                          24
 ---pagebreak--- (103) Potentially narrower separate markets by service type and trading channel within FX
        PB give-up management may exist, though these can be left open, as the Transaction
        does not give rise to serious doubts as to its compatibility with the internal market
        irrespective of such a distinction. Concretely, the Transaction leads to a horizontal
        overlap in FX PB give-up messaging services (see Section 5.5) and possible
        conglomerate effects with respect to FX PB give-up management services (see
        Section 5.9), the assessment of which does not change depending on the above
        further plausible distinction.
4.6.3.    Relevant geographic market definition
4.6.3.1. Commission’s previous decisions
(104) The Commission has not previously considered the relevant geographic market
        definition for FX PB give-up management services. However, relevant geographic
        market definitions in related markets like derivative trading and clearing have
        generally been at least EEA-wide or global.83
4.6.3.2. Notifying Parties’ view
(105) The Notifying Parties submit that the relevant geographic market for the supply of
        trade processing services is global, given that the Parties and their competitors
        provide their services to customers across the world. The Notifying Parties did not
        submit a specific view with respect to FX PB give-up management services.
4.6.3.3. Commission’s assessment
(106) The Commission asked customers of FX PB give-up management services in the
        market investigation whether they compare offers of service providers at worldwide,
        EEA, national or other geographic level and whether the same suppliers are active on
        these levels. In both cases, customers answered practically unanimously that they
        compared offers at worldwide level and that suppliers are active worldwide.84
(107) Suppliers of FX PB give-up management offer their services to customers worldwide
        and there are no physical barriers to the provision of services.
4.6.3.4. Conclusion
(108) In light of the foregoing, for the purposes of this decision, the Commission considers
        the geographic market of FX PB give-up management services to be worldwide.
4.7.      NOE messaging services
4.7.1. Introduction and Parties’ services
(109) Notice of execution (‘NOE’) messaging services involve sending NOEs from brokers
        or venues to customers to feed customers internal risk management systems. A notice
        of execution message is an electronic message sent by brokers or liquidity providers
83
        Commission decision of 1 February 2012 in Case M.6166 – Deutsche Börse/NYSE Euronext,
        paragraphs 450, 460 and 462.
84
        Replies to question 14 and 27 of Questionnaire 3.
                                                          25
 ---pagebreak---         to their clients to notify them of the fact that a trade has been executed and of the
        terms of that trade. It enables counterparties to check the terms of the trade and (for
        bilateral trades) to enter it in their risk management system. MarkitSERV provides
        bilateral NOE messaging services for trades in several asset classes (credit, equities,
        FX and interest rate derivatives). Traiana provides bilateral NOE messaging in FX,
        cash equities and exchange traded derivatives. Hence, a horizontal overlap arises in
        bilateral FX NOE messaging services. In addition, MarkitSERV and Traiana provide
        tri-party NOE messaging services. While for Traiana this service is an integral part of
        its PB give-up management services offering, MarkitSERV is only active as a
        marginal player in tri-party FX NOE messaging.
4.7.2.    Relevant product market definition
4.7.2.1. Commission’s previous decisions
(110) The Commission has not previously considered the NOE messaging services market.
        However, the Commission has considered the related market of trading services for
        derivative contracts and considered in past decisions that the market can be
        segmented based on underlying asset classes, execution environment, and types of
        contracts.85
4.7.2.2. Notifying Parties’ view
(111) The Notifying Parties’ views with respect to the general segmentation in trade
        processing services markets (by asset class and trade type) applies also to NOE
        messaging services (see chapter 4.5.2.2).
(112) The Notifying Parties consider that FX NOE messaging services can be distinguished
        by trade type (bilateral, tri-party). While the Notifying Parties agree that there is
        some supply-side substitutability between bilateral FX NOE messaging and tri-party
        FX PB give-up messaging from a technical perspective, they consider that there are
        other barriers that make it difficult to expand from being a provider of FX NOE
        messaging services to FX PB give-up messaging and vice versa. A provider would
        have to build new workflows and new relationships with individuals in customers’
        organizations, since different divisions in customers’ organizations handle FX NOE
        messaging and FX PB give-up messaging.
(113) The Notifying Parties do not consider that there are separate markets for FX NOE
        messaging by type of contract (e.g. non-deliverable forwards, options, etc.).
        According to the Notifying Parties, there is supply-side substitution, as NOE
        messaging is substantially the same across different types of derivatives with only
        limited differences in the data fields.86 However, there is no demand-side substitution
        between different types of contracts.
(114) Regarding independent provision versus a captive provision of FX NOE messaging
        services, the Notifying Parties consider this not to be a plausible distinction. The
        Notifying Parties consider that suppliers that provide FX NOE messaging services in
        an ancillary capacity (captive providers) compete with suppliers that provide FX
85
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraph 727.
86
        Notifying Parties’ response to question 4 in RFI 13.
                                                          26
 ---pagebreak---         NOE messaging services as their core service and without being vertically integrated
        (independent providers). These other providers are for example risk management
        system providers (Murex, OpenLink, Finastra), post-trade messaging vendors such as
        Refinitiv or Broadridge or trading platforms like EBS, Refinitiv Matching, Hotspot
        (CBOE), FX all and Currenex. While the Notifying Parties recognise that there are
        some trading venues that only provide FX NOE messaging in relation to trades
        executed on their venue, there is competition with respect to FX NOE messaging
        even for those trades. Third party providers (such as Refinitiv and MarkitSERV) are
        commonly used for FX NOE messaging services and hence, trades on these venues
        cannot be considered captive.
4.7.2.3. Commission’s assessment
(115) The results of the market investigation indicate that it is appropriate to consider NOE
        messaging services as a separate product market from other trade processing services.
        Furthermore, the market investigation supports the conclusion that there are separate
        NOE messaging markets by asset class and trade type.
(116) Regarding distinctions based on type of contract and execution environment, it is
        possible that there may be separate markets with respect to NOE messaging services
        in other asset classes or trade types. However, in the present case, affected markets
        only arise with respect to FX NOE messaging, and within FX a further separation by
        type of contract or execution environment is not relevant.
(117) Regarding distinctions based on trading channel (electronic or bilateral/voice
        execution) and independent versus captive provision of services, the market
        definition can be left open as no serious doubts as to the Transaction’s compatibility
        with the internal market arise regardless of whether a broader market (including both)
        or separate markets are concerned. The below sets out in more detail the
        Commission’s considerations.
(118) Regarding a distinction by asset class, the Commission’s market investigation
        provided no evidence that NOE messaging services are contracted across asset
        classes. Respondents procure trade processing services together, where it makes
        technical and commercial sense, though a majority indicates that this is often the case
        within the same asset class.87 Clients of trade processing services are organized
        internally by asset class and often source these services accordingly. One customer
        explains: “This is negotiated at the FX business level.”88
(119) From a supply-side perspective, there may be some substitutability across asset
        classes. However, it would not seem to be the case that suppliers are easily able to
        switch their messaging product to other asset classes89, as this requires connections to
        different venues and brokers (which operate segmented by asset class too). Hence,
        separate markets by asset class seem to be plausible.
(120) With respect to the trade type, there is some supply-side substitutability in NOE
        messaging services across bilateral and tri-party trade flows, as evidenced by the fact
87
        Reply to question 7 of Questionnaire 3.
88
        Reply to question 7.1.3 of Questionnaire 3.
89
        Commission Notice on the definition of relevant market for the purposes of Community competition
        law (97/C 372/03), para. 20.
                                                       27
 ---pagebreak---       that MarkitSERV and Traiana offer both types of messaging services. However, the
      mere presence of the Parties in the respective markets alone does not indicate that the
      messaging market is one market across bilateral and tri-party messaging services.
      From a demand-side perspective, customers do not consider Traiana and
      MarkitSERV as potential substitutes in FX NOE messaging.90 One customer notes:
      “The FXPB business does not procure FX NOE messaging services from
      MarkitSERV. The FX Options business procures FX NOE messaging services from
      MarkitSERV.”91 While MarkitSERV is considered a competitor to Traiana in FX
      NOE messaging92, the closer competitor to Traiana’s offering (which is broader than
      messaging) is considered to be a recent entrant, Cobalt.93
(121) Asked whether customers consider it important that their FX NOE messaging
      provider is also able to provide other messaging services (FX PB give-up messaging
      services), answers are mixed.94 One customer that is active as a prime broker and as
      an executing broker (and hence has bilateral and tri-party trade flows) comments:
      “We do not consider there to be obvious efficiencies to be gained across these types
      of messaging products.”95 Another customer in the same situation mentioned the
      following: “As we are a PB we require access to NOE messages, Traiana is the
      largest provider and therefore it is critical we can access as a PB and EB.”96 A third
      customer mentions: “Harmony [Traiana’s trade processing services suite] is not
      used in the bilateral FX space, where SWIFT and CLS are the main providers.”97
(122) While there seems to be some supply-side substitutability between bilateral and tri-
      party messaging services, the majority of responding market participants do not
      consider the Parties’ activities to be substitutable.98 This is not surprising as
      messaging services are only a part of the suite of products that are included in PB
      give-up management services. When asked about competitors in FX PB give-up
      management services that provide these services as a core offering, the only two
      companies consistently mentioned are Traiana and Cobalt, not MarkitSERV.99
(123) The Parties provide, and some customers use, the messaging services of one Party for
      both bilateral and tri-party messaging (see recital (109)). However, given that only
      very few customers use the services of the Parties interchangeably indicates that for
      the large majority of customers they do not seem to be alternatives or there is no
      perceived benefit in sourcing the services from the same provider. Another aspect to
      consider is that bilateral NOE messages are sent from brokers or venues to customers
      “pre-risk”, i.e. before the trade is entered into the customers risk management
      systems. The messages therefore need to be sent in real time to be of use for
      customers. PB give-up management services are, however, provided “post-risk”, i.e.
90
      Reply to question 20 of Questionnaire 3.
91
      Reply to question 20 of Questionnaire 3.
92
      Reply to question 17 of Questionnaire 3.
93
      Reply to question 30 of Questionnaire 3.
94
      Reply to question 13 of Questionnaire 3.
95
      Reply to question 13.1 of Questionnaire 3.
96
      Reply to question 13.1 of Questionnaire 3.
97
      Minutes of a call with a market participant on 4 May 2021, 11:00 CET.
98
      Reply to question 30 of Questionnaire 3.
99
      Reply to question 31 of Questionnaire 3.
                                                        28
 ---pagebreak---       after the trade is entered into the customers risk management system. For this use
      case, the speed does not matter as much as it does for “pre-risk” messages.100
(124) In conclusion, there seem to be different views on whether there is a benefit in
      procuring bilateral and tri-party FX NOE messaging services from the same or
      different providers, depending on the customer’s business activities. However, even
      where customers are active as a prime broker and an executing broker, this does not
      necessarily mean they source related trade processing services from the same
      provider (see quotes in recitals (120) and (121)).
(125) In terms of execution environment (exchange-traded versus OTC execution), the
      distinction between whether a trade is executed on exchange or OTC is not relevant
      for the markets in the present case, as the Parties only offer trade processing services
      in the affected markets for OTC derivatives.101 Hence, this distinction is not further
      assessed for the purposes of this decision.
(126) In terms of type of contract, FX NOE messaging services do not provide for any
      distinction by type of contract.102 The market investigation did not reveal any such
      distinction as being relevant in FX NOE messaging services. NOE messaging is
      substantially the same across different types of derivatives with only limited
      differences in the data fields. MarkitSERV, for example, charges the same fee for
      NOE messaging irrespective of the type of derivative. While some types of contracts
      may require several NOE messages for different “legs” of the contract (and therefore,
      they are more expensive from a NOE messaging cost perspective than others), this is
      unlikely to be a meaningful distinguishing factor for either demand or supply side,
      given that the overall cost of NOE messaging services compared to other trading
      costs is very small.103 The Commission therefore considers that there is no need to
      conclude on such a distinction as this is not relevant for the purposes of the present
      decision.
(127) As regards a distinction by trading channel (electronic versus bilateral/voice
      execution), trades are submitted to the NOE messaging provider either by the
      electronic trading venue when the trade is executed electronically, or by the parties to
      the trade themselves, when the trade is executed bilaterally, e.g. by phone. In FX
      markets in particular, the majority of trading has moved to electronic venues in recent
      years, though ca. 30% of trading volume is still executed bilaterally/via voice.104
      Most electronic FX trading venue competitors were of the opinion that the market is
      split into electronic FX trading and bilateral/voice trading.105 However, this may be
      different from a demand-side perspective. In any case, there is no need to conclude
      on whether there are separate FX NOE messaging services markets for trades
      executed on electronic venues or bilaterally/via voice, as the distinction would not
      change the Commission’s assessment in the present case.
100
      Form CO, paragraph 700.
101
      Notifying Parties’ response to question 3 in RFI 19: While Traiana provides a limited amount of FX
      NOE messaging for ETDs, there is no overlap with MarkitSERV (as MarkitSERV does not currently
      process trades in relation to the same assets).
102
      Notifying Parties’ response to question 4 in RFI 19.
103
      Notifying Parties’ response to RFI 15.
104
      https://www.euromoney.com/Media/documents/euromoney/pdf/FX-2019-Results-Presentation.pdf,
      slide 5, accessed on 11 July.
105
      Reply to question 4 of Questionnaire 5.
                                                        29
 ---pagebreak--- (128) In addition, the Commission considered whether there could be separate FX NOE
      messaging services markets based on an independent provision of services
      (“independent”) versus a vertically integrated provision of services (“captive”). This
      is a plausible distinction given that trading venues and brokers (as well as other
      providers), offer messaging services as an ancillary part of their
      trading/intermediation services, i.e. they provide trade messaging for the trades
      executed on their venues/through their intermediation. However, for example
      MarkitSERV also processes trades executed on various third party trading platforms,
      which may have their own captive messaging services that they provide to their
      clients.
(129) First, the line between independent and captive providers is somewhat blurred. While
      MarkitSERV and Traiana’s messaging services are considered independent of any
      trading venue106, some FX trading venue providers also provide NOE messaging
      services to third party venues. In particular, Refinitiv, which operates an FX trading
      platform and is according to the Notifying Parties the largest provider of FX NOE
      messaging services, is active as an independent provider to third party venues, in that
      its customers can use messaging services for trades executed on the Refinitiv trade
      platform or on other, third party trade platforms.
(130) Second, one competitor is of the view that customers prefer a provider that connects
      to several venues for efficiency reasons: “The benefit of using IHSM or Traiana’s
      service, as opposed to a drop copy from a trading venue for example, is operational
      efficiency – clients do not need to use multiple different messaging systems across
      their trading platforms and so can avoid the development time and effort needed to
      make their systems work with different platform’s messaging services.” 107 However,
      this contrasts with other evidence available to the Commission. The market
      investigation indicated that in most cases customers consider independent and captive
      providers’ services to be substitutable. Historically, switching is not common among
      customers,108 which one customer explained was because “[w]hile it is not difficult to
      change provider…, there would need to be a good reason to justify the cost and time
      involved”, noting that its current providers’ offering has worked well and so it has not
      had reason to consider changing.109 However, customers’ replies to the market
      investigation suggested that should a need to switch arise, captive providers (which
      can be trading venues, brokers or risk management system providers) would be an
      alternative to independent ones. Even though it could be argued that captive
      providers only ever provide a partial replacement for an independent provider that
      connects to several venues, it is conceivable that those providers would be able to
      develop a wider solution (like Refinitiv). In particular, large customers could sponsor
      such entry as has been demonstrated in past cases110. In any case, a large majority of
      customers (70%) indicated that they would be able to fully or at least partially replace
106
      Despite the fact Traiana’s parent company CME also owns FX trading venue EBS.
107
      Minutes of a call with a competitor on 24 July at 14:00 CET.
108
      Reply to question 22 of Questionnaire 3.
109
      Minutes of a call with a market participant on 28 April 2021 at 10:00 CET.
110
      For example, recent entrant Cobalt in FX PB give-up management services is supported by several of
      Traiana’s main customers in an effort to introduce more competition in that market.
                                                         30
 ---pagebreak---       the FX NOE messaging service they currently procure with an alternative service.111
      One customer notes: “We could direct connect to platforms.”112
(131) The ability to switch by customers is further confirmed by win-loss analyses of both
      Parties’ FX NOE messaging services between 2016 and 2021. During the last 5
      years, MarkitSERV lost […] clients, […] of which replaced MarkitSERV’s services
      with an in-house solution and […] of which changed to a competitor.113 The
      Commission notes that in this context an ‘in-house solution’ likely refers to a solution
      whereby the customer switches to the messaging services offered by trading venues
      (i.e. the customer conducts internal development so as to build a solution that enables
      it to effectively use these services of trading venues). Traiana’s bilateral FX NOE
      messaging service lost […] clients during the same time, […] of which no longer
      needed the service, […] of which built in-house connectivity and […] of which
      possibly moved to a competitor (no names known), while […] provided no reason.114
(132) Third, the market investigation revealed that customers consider captive providers to
      have similar competitive strength in the market for FX NOE messaging115 as the
      main independent suppliers (MarkitSERV, Traiana and Refinitiv). The fact that
      several captive providers are considered to have similar competitive strength as the
      main independent suppliers further indicates that customers consider these providers
      to offer substitutable services. In addition, some captive providers, like credit
      monitoring vendors and order management system providers (as well as FX
      aggregators) market connectivity to multiple trading venues for the purpose of
      execution and can and do provide multi-venue NOE messaging to their clients.116
(133) Fourth, certain providers have a “hybrid” model. Both Traiana and Refinitiv act as
      “independent” provider, i.e. offering services to competing trading venues, but also
      as a “captive” provider, given that they both own (or their respective parent company
      also owns) FX trading venues (Traiana’s parent CME owns FX trading venue EBS
      and Refinitiv owns FX all and Matching, two FX trading venues). Furthermore, an
      independent provider like MarkitSERV provides FX NOE messaging services to a
      number of customers trading on Refinitiv’s venues, even though Refinitiv has its own
      FX NOE messaging service, further illustrating MarkitSERV and Refinitiv’s
      products would be substitutable.
(134) In summary, the market investigation confirms that customers generally consider that
      the FX NOE messaging services provided by independent and captive providers
      would be substitutable to a large extent, with captive providers being considered
      possible substitutes of independent providers. Furthermore, most “independent”
      providers including Traiana are not actually independent in the sense that they are
      owned by parents that also own FX trading venues. In any case, the Commission
      considers that a conclusion on the question whether there are separate markets for
      independent provision of FX NOE messaging services and captive provision of FX
      NOE messaging services (including a narrower definition of captive provision of FX
111
      Reply to question 9 of Questionnaire 3.
112
      Reply to question 9.1 of Questionnaire 3.
113
      Notifying Parties’ response to RFI 10, Annex 145.
114
      Notifying Parties’ response to RFI 10, Annex 146.
115
      Reply to question 15 of Questionnaire 3. Specifically, Broadridge, SmartTrade, Fluent Trade
      Technologies, Murex and CBOE FX.
116
      Notifying Parties’ response to question 7 in RFI 19.
                                                        31
 ---pagebreak---         NOE messaging services for each venue) or one market including both is not
        necessary, as the Transaction does not give rise to serious doubts as to its
        compatibility with the internal market on the basis of either market definition.
4.7.2.4. Conclusion
(135) Based on the results of the market investigation and the evidence available to it, the
        Commission considers that NOE messaging services are a separate relevant product
        market from other trade processing services, and that it is appropriate to distinguish
        the market for NOE messaging services by asset class and trade type. A further
        distinction by type of contract and execution environment is not relevant in the
        present case, where overlaps exist only with respect to FX NOE messaging. The
        conclusion on whether electronic vs. bilateral/voice execution channels and
        independent versus captive service provision are separate markets can be left open, as
        the Transaction does not give rise to serious doubts as to its compatibility with the
        internal market irrespective of such a distinction. Concretely, the Transaction leads to
        a horizontal overlap with respect to bilateral FX NOE messaging (see Section 5.4),
        the assessment of which does not change depending on the above further plausible
        distinctions.
4.7.3.    Relevant geographic market definition
4.7.3.1. Commission’s previous decisions
(136) The Commission has not previously considered the relevant geographic market
        definition for bilateral FX NOE messaging services. However, relevant geographic
        market definitions in related markets like derivative trading and clearing have
        generally been at least EEA-wide or global.117
4.7.3.2. Notifying Parties’ view
(137) The Notifying Parties submit that the relevant geographic market for the supply of
        trade processing services, including bilateral FX NOE messaging services, is global,
        given that the Parties and their competitors provide their services to customers across
        the world.
4.7.3.3. Commission’s assessment
(138) The Commission asked customers of bilateral FX NOE messaging services in the
        market investigation whether they compare offers of service providers at worldwide,
        EEA, national or any other geographic level and whether the same suppliers are
        active on these levels. In both cases, customers answered practically unanimously
        that they compared offers at worldwide level and that suppliers are active
        worldwide.118
117
        Commission decision of 1 February 2012 in Case M.6166 – Deutsche Börse/NYSE Euronext,
        paragraphs 450, 460 and 462.
118
        Replies to question 14 of Questionnaire 3.
                                                   32
 ---pagebreak--- (139) Competitors in this space did not mention any geographically narrower basis on
        which they compete.119
4.7.3.4. Conclusion
(140) Therefore, for the purposes of this decision, the Commission considers the
        geographic market of bilateral FX NOE messaging services to be worldwide.
4.8.      CCP connectivity
4.8.1. Introduction and Parties’ services
(141) CCP connectivity services consist in sending details of trades executed on a venue or
        bilaterally to a central counterparty (‘CCP’) for clearing. CCP connectivity services
        are also referred to as ‘middleware’ and are closely linked to derivatives trading
        services (as it can be a source of trades to be sent to clearing) and clearing services
        (the destination of the trade).
(142) MarkitSERV provides CCP connectivity for CDS, FX and IRDs.
(143) Traiana is mainly active in the provision of CCP connectivity in the equities asset
        class, which represents the vast majority ([80-90]%) of its CCP connectivity
        revenues. Traiana is also active, to a much lesser extent, in the FX and IRD asset
        classes for CCP connectivity.120
4.8.2.    Relevant product market definition
4.8.2.1. Commission’s previous decisions
(144) The Commission has not previously considered the relevant product market for CCP
        connectivity services. However, the Commission has considered the related market of
        trading services for derivative contracts and considered in past decisions that there
        are separate relevant product markets based on the underlying asset classes,
        execution environment, and types of contracts.121 Similarly, the Commission has
        previously assessed the relevant product market for the clearing of derivatives, and
        considered separate product markets for the clearing of derivatives by underlying
        asset class, execution environment, type of customer and type of contract.122
4.8.2.2. Notifying Parties’ view
(145) The Notifying Parties’ views with respect to the general approach to market
        definition in trade processing services markets (namely that there are separate
119
        Minutes of calls with competitors on 24 June 2021, 14:00 CET, 11 May 2021, 16:00 CET and 12 May
        2021, 11:00 CET.
120
        For completeness, the Notifying Parties indicated that Traiana also provides certain, limited
        connectivity services in the IRD and CDS asset classes. However, it submits that these services serve a
        different function from, and are not substitutable with, CCP connectivity services, as explained in
        Section 5.3 below.
121
        Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock Exchange
        Group, paragraph 727.
122
        Commission decision of 1 February 2012 in Case M.6166 - Deutsche Börse/NYSE Euronext, paragraph
        444 and Commission decision of 29 March 2017 in Case M.7995 - Deutsche Börse/London Stock
        Exchange Group, paragraph 748, 750.
                                                        33
 ---pagebreak---         product markets by asset class and trade type, see Section 4.5.2) apply also to CCP
        connectivity services, although the Notifying Parties did not detail why they
        considered this would be the case.
(146) The Notifying Parties further submit that there is limited supply-side substitutability
        between the different asset classes for CCP connectivity. This is due to the different
        functionality and impact of regulatory requirements for trade processing services
        (such as CCP connectivity) in different asset classes, and the fact that in customer
        organisations different divisions, desks and individuals are responsible for procuring
        trade processing services, such as CCP connectivity. Therefore, the Notifying Parties
        submit that expanding a CCP connectivity service from one asset class to another
        would require investment in new systems, knowledge of new products and
        workflows, and to build new client relationships.123
4.8.2.3. Commission’s assessment
(147) The results of the market investigation indicate that it is appropriate to consider CCP
        connectivity as a separate product market from other trade processing services and
        are consistent with the Notifying Parties’ submissions that there is limited supply-
        side substitutability between different asset classes.
(148) First, while most customers of CCP connectivity indicated that they do buy some
        other trade processing products from their CCP connectivity provider, the majority of
        customers also confirmed that these products are negotiated and procured separately
        (i.e. as part of separate procurement processes).124 Customers noted that trade
        processing services are “distinct per services and asset class” and explained that CCP
        connectivity serves a distinct purpose and so is procured for a different reason than
        other services.125
(149) Second, customers indicated that it is not important to procure CCP connectivity
        services together from the same company from which customers receive other trade
        processing services.126 Ultimately, customers explained that their choice of CCP
        connectivity provider (and trade processing provider more generally) is primarily
        driven by their particular needs for the specific service in question, as the decision of
        which supplier to procure from is “reviewed based on business requirements, product
        offering, commercial terms and vendor risk on a case by case basis”.127 There can,
        however, be some operational efficiencies to procuring products from one supplier,
        as this reduces complexity.
(150) Third, regarding the appropriateness of defining narrower CCP connectivity service
        markets on the basis of asset class, customers responding to the investigation
        indicated that this distinction reflects how they procure CCP connectivity (and trade
        processing more generally).128 Moreover, the competitive landscape varies
        considerably across the different asset class segments of CCP connectivity (for
        instance, MarkitSERV holds a market share [90-100]% in relation to FX, whereas its
123
        Notifying Parties’ response to RFI 4, paragraph 2.5-2.6.
124
        Replies to questions 11.1.1-11.1.3 and 11.2 of Questionnaire 1.
125
        Replies to question 11.2 of Questionnaire 1.
126
        Replies to question 12.2 of Questionnaire 1.
127
        Replies to question 11.1 of Questionnaire 1.
128
        Replies to question 11.2 of Questionnaire 1.
                                                          34
 ---pagebreak---       market share is only [5-10]% for CDS CCP connectivity and it is not active in
      relation to equities). Certain customers explained that CCP connectivity “service
      providers do not provide all services across all asset classes”, which indicates that
      supply-side substitutability is limited.129
(151) A CCP suggested that there might be a distinction between “platform-agnostic” CCP
      connectivity services, such as those of MarkitSERV and Traiana, as opposed to the
      “direct” service provided by trading venues that offer customers the ability to send
      their trades to clearing without the need for a middleware provider.130 However, the
      results of the market investigation suggest that customers consider CCP connectivity
      provided by trading venues to compete with MarkitSERV/Traiana’s CCP
      connectivity businesses, a view that was shared by a number of CCPs.131 Indeed,
      several customers indicated that trading venues are close competitors in certain asset
      segments (such as CDS and IRD in particular),132 and that it is possible to switch
      from their current (MarkitSERV or Traiana) CCP connectivity offering to a direct
      CCP connectivity service provided by trading venues (noting, however, that “there is
      only a limited number of trading venues offering direct clearing connectivity
      services”).133 In light of this, a separate product market for platform-agnostic CCP
      connectivity services does not appear appropriate.
(152) Fourth, there are indications that it would be appropriate to define a separate product
      market for CCP connectivity with respect to the execution environment, i.e. provided
      in respect of OTC derivatives (as opposed to exchange traded derivatives). The CCP
      connectivity service is the ‘middleware’ service that sends OTC trades intended to be
      cleared that have been executed on a venue or bilaterally to a CCP for clearing. With
      respect to this distinction, the Commission notes that the European Securities and
      Markets Authority authorizes CCPs based on the distinction of whether they clear
      ETDs and/or OTC derivatives.134
(153) The Commission has in previous cases found that there are separate relevant product
      markets for OTC derivatives trading and OTC derivatives clearing. 135 MarkitSERV
      only provides CCP connectivity services for OTC trades and does not provide such
      services for exchange traded derivatives. The Transaction only gives rise to
      horizontal overlaps or vertical links in relation to OTC CCP connectivity and so the
      question of whether there are separate OTC CCP connectivity and ETD CCP
      connectivity markets can be left open as the Transaction would not give rise to
      serious doubts as to its compatibility with the internal market even on a wider market
      also including CCP connectivity for exchange traded derivatives.
(154) Finally, as regards type of trade, the results of the market investigation were
      inconclusive as to whether it would be appropriate to define markets for CCP
      connectivity on the basis of bilateral and trilateral trades. In any event, the
      Commission notes that MarkitSERV exclusively provides CCP connectivity services
129
      Replies to question 11.1 of Questionnaire 1.
130
      Minutes of a call with a market participant on 12 May 2021 at 11:00 CET.
131
      Replies to question 13 of Questionnaire 1 and to questions 14.2 and 15 of Questionnaire 2.
132
      Replies to question 20 of Questionnaire 1.
133
      Replies to question 24 of Questionnaire 1.
134
      List of Central Counterparties authorised to offer services and activities in the Union, last updated 4
      January 2021: https://www.esma.europa.eu/sites/default/files/library/ccps authorised under emir.pdf
135
      See cases referred to in footnote 122.
                                                        35
 ---pagebreak---         for bilateral services, whereas Traiana mainly focuses on trilateral (prime broker)
        trades. In view of the finding that there are separate relevant product markets for CCP
        connectivity services by asset class, MarkitSERV and Traiana only overlap in
        relation to bilateral CCP connectivity services for FX and IRD.136 For FX and IRD,
        the Transaction does not give rise to serious doubts as to its compatibility with the
        internal market regardless of whether or not Traiana’s trilateral (prime broker) CCP
        connectivity services are considered to be part of the relevant product market.
        Accordingly, the question of whether narrower CCP connectivity markets should be
        defined based on trade type can be left open.
4.8.2.4. Conclusion
(155) In light of the foregoing, the Commission considers that CCP connectivity services
        are a separate relevant product market from other trade processing services, and that
        it is appropriate to define separate relevant product markets for CCP connectivity
        services by asset class. It can be left open whether a narrower product market
        delineated by type of trade or only for OTC traded derivatives would be appropriate,
        as a conclusion on this issue does not affect the outcome of the Commission’s
        assessment in the present case.
(156) Accordingly, the Commission will assess the horizontal overlap between the
        businesses contributed to the JV in FX CCP connectivity and IRD CCP connectivity.
        It will also assess the vertical links between CME’s clearing services and the JV’s FX
        CCP connectivity and IRD CCP connectivity services and CME’s OTC FX trading
        services and the JV’s FX CCP connectivity services. In each case, the Commission’s
        assessment will focus on OTC CCP connectivity, given that MarkitSERV’s CCP
        connectivity service is only offered for OTC derivatives and so the relevant
        horizontal and vertical links only arise in relation to OTC derivatives.
4.8.3.    Relevant geographic market definition
4.8.3.1. Commission’s previous decisions
(157) The Commission has not previously considered the relevant geographic market
        definition for markets concerning CCP connectivity services. However, relevant
        geographic market definitions in related markets such as derivative trading and
        clearing have generally been considered as being at least EEA-wide or global.137
4.8.3.2. Notifying Parties’ view
(158) The Notifying Parties submit that the relevant geographic market for the supply of
        trade processing services is global, given that the Parties and their competitors
        provide their services to customers across the world.138 The Notifying Parties did not
        submit a specific view with respect to CCP connectivity services, but provided
        market share estimates on a worldwide basis.
136
        Form CO, paragraph 414 and Figure 6.6.
137
        Commission decision of 1 February 2012 in Case M.6166 – Deutsche Börse/NYSE Euronext,
        paragraphs 450, 460 and 462.
138
        Form CO, paragraph 384.
                                                    36
 ---pagebreak--- 4.8.3.3. Commission’s assessment
(159) The results of the market investigation indicate that the relevant geographic market
        for CCP connectivity is likely worldwide. When asked to indicate the main factors
        for choosing a CCP connectivity provider, customers did not indicate that location
        was an important element for them.139 Rather, the vast majority of customers
        confirmed that their CCP connectivity services are purchased by comparing offers
        from providers worldwide.140 Moreover, the Parties are active worldwide without
        differentiating their CCP connectivity services by geography. The market
        investigation did not indicate any other reasons to consider that a narrower
        geographic market definition would be appropriate.
4.8.3.4. Conclusion
(160) Based on the results of the market investigation, the Commission considers that the
        relevant geographic market for CCP connectivity services is worldwide.
4.9.      Credit limit management for OTC derivatives
4.9.1. Introduction and Parties’ services
(161) Credit limit management and checking services are services provided to executing
        brokers, prime brokers and buy-side clients with the aim of managing credit risk by
        monitoring clients’ exposure and use of their available credit limits. These services
        are part of the wider market of PB give-up management services.
(162) Credit limit management services consist of credit checks pre-trade (to ensure that
        the counterparty has sufficient credit to enter into a transaction) and post-trade (so
        that executing and prime brokers can monitor and manage how much credit they have
        extended to their buy-side counterparties). Traiana provides OTC pre- and post-trade
        credit limit checking and management services (“credit limit management for OTC
        derivatives”) for IRD, CDS and FX trades through its LimitHub and ClientHub
        products.141 While some brokers have in-house solutions for credit limit management
        for OTC derivatives, Traiana is the only third party provider worldwide of credit
        limit management for OTC derivatives.
4.9.2.    Relevant product market definition
4.9.2.1. Commission’s previous decisions
(163) The Commission has not previously considered the relevant product market
        definition for credit limit management for OTC derivatives.
4.9.2.2. Notifying Parties’ view
(164) The Notifying Parties submit that the question of market definition in the market for
        credit limit management for OTC derivatives can be left open as no serious doubts as
139
        Replies to question 14.1 of Questionnaire 1.
140
        Replies to question 15 of Questionnaire 1.
141
        Traiana provides post-trade credit services for OTC FX trades and pre-trade credit services primarily
        for OTC CDS and IRD trades, see Notifying Parties’ response to question 1 in RFI 19.
                                                         37
 ---pagebreak---         to the Transaction’s compatibility with the internal market arise irrespective of how
        the market is defined. However, in their submissions, the Notifying Parties have
        considered that the relevant market for the provision of credit limit management for
        OTC derivatives would include only third party services, and would include both pre-
        and post-trade limit management and limit checking services.142
4.9.2.3. Commission’s assessment
(165) While the Commission has not previously considered credit limit management
        services directly, the results of the market investigation indicate that trade processing
        service markets may be distinguished by asset class, trade type and service type (see
        Section 4.5.2), as proposed by the Notifying Parties. Credit limit management
        services could be a separate product market (being a separate service type within PB
        give-up management services markets).
(166) Within a plausible separate market for credit limit management services, a further
        distinction by asset class and provision by third party services only is considered
        below.
(167) Regarding a distinction by asset class, customers responded in the market
        investigation that they consider trade processing services (including credit limit
        management services) for different asset classes as separate markets. 143 From a
        supply-side perspective, there may be some substitutability across asset classes.
        However, it would not seem to be the case that suppliers are easily able to switch and
        supply their trade processing services for other asset classes 144, as this requires
        connections to different market participants (which generally operate segmented by
        asset class too). Hence, separate markets by asset class seem to be plausible.
        However, whether separate markets by asset class exist for credit limit management
        services can be left open, as the Transaction does not give rise to serious doubts as to
        its compatibility with the internal market irrespective of such a distinction.
(168) Regarding a separate plausible market for the provision of third party credit limit
        management services, the market investigation did not examine this particular
        distinction. However, Traiana is the only third party supplier of credit limit
        management services globally, and for trades for which no credit limit management
        is provided by Traiana, the trading parties are managing this bilaterally. As the
        Transaction would not give rise to serious doubts as to its compatibility with the
        internal market on the narrowest plausible basis (where Traiana’s market share would
        be 100% for third party credit limit management services in the asset classes in which
        it is active, namely IRD, CDS and FX), this question can be left open as it would not
        affect the outcome of the Commission’s assessment.
(169) Regarding a plausible distinction between pre- and post-trade credit limit
        management services, the Commission notes that the Parties themselves distinguish
        between pre- and post-trade in their submission.145 However, a description of the
142
        Notifying Parties’ response to RFI 5, paragraphs 3.8ff.
143
        Reply to question 6 of Questionnaire 3.
144
        Commission Notice on the definition of relevant market for the purposes of Community competition
        law (97/C 372/03), para. 20.
145
        Form CO, paragraph 112.
                                                          38
 ---pagebreak---         services146 would suggest that whoever procures pre-trade credit limit management
        services would generally also be interested in post-trade credit limit management
        services. Hence, it is likely that, within the same asset class, pre- and post-trade
        services are not separate markets when considering the market for credit limit
        management services. However, whether separate markets by pre- and post-trade
        provision of credit limit management services exist can be left open, as the
        Transaction does not give rise to serious doubts as to its compatibility with the
        internal market irrespective of such a distinction.
4.9.2.4. Conclusion
(170) Based on the results of the market investigation and the evidence available to it, the
        Commission considers that credit limit management services are a separate relevant
        product market from other trade processing services. It is possible that it may be
        appropriate to distinguish the market for credit limit management services by asset
        class, pre- and post-trade provision and third party provision only. The conclusion on
        whether these constitute separate markets can be left open however, as the
        Transaction does not give rise to serious doubts as to its compatibility with the
        internal market irrespective of such a distinction.
4.9.3.    Relevant geographic market definition
4.9.3.1. Commission’s previous decisions
(171) The Commission has not previously considered the relevant geographic market
        definition for credit limit management for OTC derivatives.
4.9.3.2. Notifying Parties’ view
(172) The Notifying Parties submit that the relevant geographic market for the supply of
        credit limit management services is global without providing reasons for this view.147
4.9.3.3. Commission’s assessment
(173) The Commission notes that Traiana’s credit limit management for OTC derivatives
        services are used by […] CCPs, […] regulated venues and more than […] end clients
        worldwide.148 The product is the same worldwide. During the market investigation
        customers indicated that they compare offers of trade processing service providers in
        general on a worldwide basis and that the suppliers are the same on worldwide and
        narrower bases.149 The results of the market investigation did not indicate that the
146
        “Credit risk management services are provided at two main points in the OTC trading lifecycle: (a)
        pre-trade, credit checks are carried out to check that counterparties' credit limits have not been
        exceeded; and (b) post-trade, prime and executing brokers use credit risk management services to
        monitor and actively manage how much credit they have extended to their buy-side clients and across
        trading venues, and to establish, monitor, amend and terminate the legal documentation required. In
        addition, "kill switches" enable credit providers to disable clients from executing trades in real time.”
        See Form CO, paragraph 112.
147
        Notifying Parties’ response to RFI 5, paragraphs 3.8ff.
148
        https://www.cmegroup.com/services/files/traiana-credit-risk-services.pdf last accessed on 5 July 2021.
                                                           39
 ---pagebreak---         situation would be any different with regard to credit limit management services
        specifically.
4.9.3.4. Conclusion
(174) In light of the foregoing, for the purposes of this decision, the Commission considers
        the geographic scope of the market for credit limit management for OTC derivatives
        to be worldwide. In any event, given that Traiana is the only third party provider of
        credit limit management for OTC derivatives globally, the competitive assessment
        would not change even on a narrower geographic market definition.
4.10.     Trade confirmation
4.10.1. Introduction and Parties’ services
(175) Trade confirmations are a service provided to buy-side clients and brokers in
        conjunction with the trade allocations service150 to confirm that each individual trade
        allocation has been booked by the executing broker/prime broker in their respective
        internal systems. The trade confirmation provider compares the allocations specified
        by the client against the messages sent by the counterparty executing broker/prime
        broker indicating how the trade allocation has been booked. Once the provider is
        satisfied that these match, both the client and the executing broker/prime broker
        receive notification of the confirmation.
(176) MarkitSERV is the only third party provider of confirmation services in relation to
        OTC IRD, CDS and equity derivative trades, but does not provide confirmation
        services in relation to FX or commodities trades. Any trades not confirmed by
        MarkitSERV are confirmed directly between the trading parties. 151 Traiana does not
        provide trade confirmation services.
4.10.2. Relevant product market definition
4.10.2.1. Commission’s previous decisions
(177) The Commission has not previously considered the relevant product market for trade
        confirmations.
4.10.2.2. Notifying Parties’ view
(178) The Notifying Parties submit that the question of market definition for trade
        confirmation services can be left open as no serious doubts as to the Transaction’s
        compatibility with the internal market arise irrespective of how the market is defined.
        However, the Notifying Parties have assessed separate relevant product markets for
        trade confirmations delineated by asset type.152
150
        Once a trade has been executed bilaterally between two counterparties or via a tri-party relationship, the
        client can provide allocation details to the executing broker or prime broker on how the trade should be
        split amongst the client’s accounts or funds.
151
        Notifying Parties’ response to RFI 9, paragraph 7.3.
152
        Notifying Parties’ response to RFI 9, paragraphs 7.1ff.
                                                            40
 ---pagebreak--- 4.10.2.3. Commission’s assessment
(179) In line with the general finding outlined above that different trade processing services
       are different product markets, the market investigation indicated that trade
       confirmations are a separate product market. In particular, the responses of certain
       suppliers suggested that they consider trade confirmation to be a separate service 153
       and customers noted that trade confirmations are offered as a separate product.154
       While customers do sometimes procure trade confirmations from the same supplier
       as other services they receive, such as CCP connectivity, they indicated that it is
       generally not important for them to procure these services from the same source.155
(180) Regarding potential separate markets by asset class, there are indications that it is
       appropriate to consider this a separate product market. Some respondents to the
       market investigation indicated that they only procure MarkitSERV’s confirmation
       service in certain asset classes (even though they are active in, and procure other
       trade processing services from MarkitSERV in, other asset classes). 156 Moreover,
       MarkitSERV’s trade confirmation service is only active in certain asset classes
       (IRDs, CDS and equity derivatives, but not FX or commodities trades). However, as
       the Transaction does not give rise to serious doubts as to its compatibility with the
       internal market on the narrowest plausible basis (i.e. if there were separate product
       markets by asset class, noting that MarkitSERV’s share would be lower on an overall
       market for trade confirmations given that it is not active in several asset classes), it is
       not necessary to reach a conclusion on this question.
(181) Regarding the question of whether it is appropriate to define a separate product
       market for the third party provision of trade confirmation services (as opposed to
       self-supply), the market investigation did not provide any evidence to reach a
       conclusion on this. However, MarkitSERV is the only third party supplier of trade
       confirmation services, and all trades that are not confirmed by MarkitSERV are
       confirmed directly between the trading parties.157 As the Transaction would not give
       rise to serious doubts as to its compatibility with the internal market on the narrowest
       plausible basis (where MarkitSERV’s market share would be 100% for third party
       supply in particular asset classes), this question can be left open as it would not affect
       the outcome of the Commission’s assessment.
4.10.2.4. Conclusion
(182) In light of the foregoing, for the purposes of this decision, the Commission considers
       the relevant product market is the provision of trade confirmations. It can be left open
       whether there would be a separate relevant product market by asset class (which in
       this case would be relevant only for the IRD, CDS and equity derivatives asset
       classes) or for third party provision of trade confirmations, as a conclusion on this
       issue does not affect the outcome of the Commission’s assessment in the present
       case. The Commission’s assessment of the risk of foreclosure in Section 5.8 will
       focus on the narrowest plausible market definition in view of the fact that
       MarkitSERV is only active in certain asset classes and is the only provider of third
153
       Replies to questions 6.1 and 7.1 of Questionnaire 4.
154
       Replies to question 18 of Questionnaire 6.
155
       Replies to question 12 and 12.2 of Questionnaire 1.
156
       Replies to question 13 of Questionnaire 1.
157
       Response to RFI 9, paragraph 7.3.
                                                         41
 ---pagebreak---        party trade confirmations (and that on a wider market MarkitSERV’s market share
       would be lower).
4.10.3. Relevant geographic market definition
4.10.3.1. Commission’s previous decisions
(183) The Commission has not previously considered the relevant geographic market for
       trade confirmations.
4.10.3.2. Notifying Parties’ view
(184) The Notifying Parties submit that the relevant geographic market for this potential
       product market is global, although the Notifying Parties did not detail why this would
       be the case.158
4.10.3.3. Commission’s assessment
(185) The market investigation indicated that the relevant geographic market is worldwide.
       On the supply-side, there is only one provider of third party trade confirmations
       (MarkitSERV), which is active at worldwide level in all of the asset classes where it
       is present and does not alter its product offering depending on the place where they
       are supplied. On the demand-side, the customers who indicated that they procure
       MarkitSERV’s trade confirmation services are global banks, including some which
       are headquartered in the EEA and others with headquarters outside of the EEA (for
       example, the US). When describing their procurement practices, none of the
       respondents suggested that their practices regarding trade confirmation services
       would vary in different geographies (regardless of asset class).159
4.10.3.4. Conclusion
(186) Therefore, for the purposes of this decision, the Commission considers the
       geographic market of the market of trade confirmations to be worldwide, both for the
       overall market and if narrower markets by asset class or for third party provision
       were defined.
4.11.     Trade optimization
4.11.1. Introduction and Parties’ services
(187) ‘Trade optimization’ refers to a broad range of services provided throughout the
       trading lifecycle (from the pre-trade stage through to after settlement) that aim to help
       customers more effectively manage their risk and optimise their trading portfolios.
       TriOptima and Reset provide a number of trade optimization products, as set out
       below.
(188) Portfolio compression is the process through which market participants reduce
       notional amounts outstanding and line items at a CCP by replacing (netting) multiple
       offsetting derivative contracts with fewer transactions of the same net risk.
158
       Notifying Parties’ response to RFI 9, paragraphs 7.1ff.
159
       Replies to question 12-12.2 of Questionnaire 1.
                                                         42
 ---pagebreak---       Compression services can be multilateral (i.e. involving multiple parties in a single
      compression run), bilateral (through which two parties compress their portfolios) or
      unilateral (where a single client compresses its cleared positions). This process is
      important for regulatory capital requirements, which are driven by a market
      participant's gross notional outstanding exposure. TriOptima is active worldwide in
      the provision of portfolio compression through its triReduce service, which provides
      portfolio compression services across the IRD, FX and CDS asset classes. This
      product is described in more detail in Section 5.8.
(189) Portfolio reconciliation is the process of comparing two counterparties' position
      records of bilateral OTC trades as at a given business date to ensure that the two
      organisations have one consistent record for a defined portfolio (or group of
      portfolios). It is a means of ensuring that counterparties' books and records remain
      synchronised and that the effects of trade events, such as novations, amendments and
      other activities, are accurately captured. Portfolio reconciliation is a regulatory
      requirement in a number of jurisdictions (including the EU). TriOptima is active
      worldwide in the provision of portfolio reconciliation through its triResolve service,
      which provides portfolio reconciliation for OTC derivatives across all five asset
      classes (IRD, FX, CDS, equity derivatives and commodities). This product is
      described in more detail in Section 5.8.
(190) Margin management (also referred to as margin optimization, collateral management)
      consists of managing and optimising the use of securities or other assets provided as
      collateral. CCPs perform a daily mark-to-market valuation160 of cleared trades and
      impose margin requirements on trade participants. Alternatively, for uncleared
      bilaterally managed trades, the two counterparties make ‘margin calls’ to each other
      based on the mark-to-market valuation of their trades as per the pre-agreed terms.
      Margin is collateral that the holder of a financial instrument has to deposit with a
      counterparty (e.g. a broker, exchange, custody service provider or CSD) to cover
      some or all of the credit risk the holder poses for the counterparty. It generally
      consists of initial margin, the amount of collateral required by the CCP or trade
      counterparty to initiate a position, and maintenance or variation margin, the minimum
      amount of collateral that must be maintained at the CCP (or sent to the counterparty,
      in case of uncleared bilateral trades). Participants must monitor these margin
      requirements and process payments to and from the CCP/counterparty. Margin
      management services encompass the selection of collateral, matching of transaction
      details, valuation and safekeeping of the securities held as collateral and their
      monitoring, as well as optimization, substitution, settlement, and custody services.
      TriOptima is active worldwide in the provision of margin management services
      across all five asset classes (IRD, FX, CDS, equity derivatives and commodities),
      through a number of products. These products are described in more detail in Section
      5.8.
(191) Portfolio rebalancing is the general term for the process of buying or selling assets or
      trading derivatives to maintain an original or desired level of risk in a portfolio.
      Portfolio rebalancing can be multilateral (facilitating offsetting trades between
160
      Mark-to-market accounting refers to an accounting method aimed to determine the ‘fair value’ of an
      asset based on the current market price for that asset or similar ones (in contrast with some other
      methodologies that look at the past transaction value of assets without taking into account subsequent
      changes in market conditions).
                                                       43
 ---pagebreak---        multiple clients), or unilateral (specific to each client's portfolio), and may target
       different types of risk (e.g. fixing risk or basis risk for interest rates, strike risk for
       options, etc.) Risk mitigation services are supplied by third parties to assist
       companies in portfolio rebalancing. More specifically, one form of portfolio
       rebalancing is basis risk mitigation. Basis risk refers to the risk of loss arising from
       the difference between the economic or legal terms of two derivative transactions that
       are intended to hedge each other. Basis risk mitigation services provide customers
       with a way to reduce basis risk. The only type of portfolio rebalancing service in
       which the Parties are active is basis risk mitigation, in which Reset is a basis risk
       mitigation product for IRD and FX derivatives. In view of the fact that basis risk
       mitigation is the only relevant portfolio rebalancing service involved in the
       Transaction, and so the Transaction would not give rise to serious doubts as to its
       compatibility with the internal market even if a broader product market including
       other portfolio rebalancing products were considered relevant, the Commission’s
       assessment below will be limited basis risk mitigation.
4.11.2. Relevant product market definition
4.11.2.1. Commission’s previous decisions
(192) The Commission has not previously considered the relevant product market for
       portfolio compression, portfolio reconciliation, margin management or basis risk
       mitigation.
4.11.2.2. Notifying Parties’ view
(193) The Notifying Parties submit that the question of the market definition in trade
       optimization services can be left open as no serious doubts as to the Transaction’s
       compatibility with the internal market arise irrespective of how the market is defined.
       With respect to portfolio compression the Notifying Parties argue that there are
       various compression tools customers can use and estimate that out of the total
       portfolio compression market, CCPs cover approximately 60-70% of the overall
       portfolio compression activity with the remaining 30-40% covered by third party
       providers such as triReduce.161
(194) However, the Notifying Parties have considered a distinction within trade
       optimization by type of services, as well as by asset classes. More specifically, the
       Notifying Parties defined plausible markets as the (i) provision of portfolio
       compression services for OTC derivatives by third party providers (non-CCPs), (ii)
       the provision of portfolio reconciliation services for OTC derivative trades, (iii) the
       provision of margin management services for OTC derivatives, and (iv) the provision
       of basis risk mitigation services for OTC interest rate derivatives.
4.11.2.3. Commission’s assessment
(195) As detailed below, the Commission investigated whether trade optimization services
       (i) are separate product markets from other trade processing services, and/or (ii) are
       separate product markets (a) by service type , (b) by asset class and/or (c) by type of
       provider, i.e. between services provided by CCPs or by independent third parties.
161
       Notifying Parties’ response to RFI 7, paragraph 3.2.
                                                         44
 ---pagebreak--- (196) First, according to all responding competitors, the majority of customers buy trade
      optimization services separately from other trade processing products (indicating that
      it would not be appropriate to consider these trade optimization services as falling
      within the same relevant product market as one or more trade processing products).162
      Moreover, very few trade optimization suppliers offer additional trade processing
      services.163 Most customers also consider trade optimization services to be separate
      from other trade processing services.164 One customer summarizes, “[trade
      processing and trade optimization have] separate vendors with separate pricing.
      Trade processing is core to business, optimization allows for cost saves (nice to
      have).”165 As such, and in line with the conclusions for the other trade processing
      services, the Commission concludes that trade optimization services are not part of
      the same market as other trade processing services.
(197) Second, the market investigation indicated that there are separate relevant product
      markets for each different trade optimization service (namely, portfolio compression,
      portfolio reconciliation, margin management, basis risk mitigation. There appears to
      be limited demand-side substitutability across these trade optimization services. In
      fact, most customers consider that these different trade optimization services should
      constitute separate markets166 and the majority of customers say they purchase the
      various trade optimization services separately.167 Indeed, the vast majority of
      suppliers agree that these optimization services should be considered separate
      product markets. They confirm that while most customers purchase several trade
      optimization services from the same suppliers, the end users and functions at the
      customers may be different (e.g. front office users for compression services vs. back
      office users for reconciliation services).168 This is confirmed by a customer, “Some of
      the services are purchased from the same supplier but they are individual purchasing
      decisions, with separate fee schedules for supporting activities in different parts of
      the bank. [we are] generally able to purchase services from different providers and
      mix-and-match the services that we purchase from different providers”169 There also
      appears to be limited supply-side substitutability; the same suppliers are not always
      active across all services. This is confirmed by a customer, “We see different
      providers across the optimisation, compression and reconciliation spaces.”170
(198) Third, the market investigation indicated that it is appropriate to consider separate
      relevant product markets by asset class for the aforementioned products (portfolio
      compression, margin management, portfolio reconciliation, basis risk mitigation).
      From the supply-side, it is technically difficult to provide these services across asset
      classes due to the nature of the financial instruments; they can only be applied to a
      portfolio of the same asset class (IRDs, FX, CDS). The limitations to supply-side
      substitution are illustrated by the fact that TriOptima and Reset are not active across
      all asset classes for all services; for example, they are only active in some asset
      classes for portfolio compression (IRD, FX, CDS, equity derivatives) and basis risk
162
      Reply to question 4 of Questionnaire 4.
163
      Reply to question 6 of Questionnaire 4.
164
      Reply to question 7 of Questionnaire 6.
165
      Reply to question 7.1 of Questionnaire 6.
166
      Reply to question 7 of Questionnaire 6.
167
      Reply to question 4 of Questionnaire 6.
168
      Reply to question 7 of Questionnaire 4.
169
      Replies to question 4.2.1 of Questionnaire 6.
170
      Replies to question 7.1 of Questionnaire 6.
                                                    45
 ---pagebreak---        mitigation (IRD, FX). Moreover, their offerings are in some cases differentiated
       across asset classes, as can be seen in how TriOptima positions its offering. For
       example, it offers and advertises separate portfolio compression products for each of
       IRD, FX and CDS.171 There are also differences as to the competitive landscape
       across asset classes, as TriOptima and Reset’s market share can vary between asset
       classes (for example, in portfolio compression TriOptima is […] for CDS but has a
       [50-60]% market share in FX; likewise in basis risk mitigation Reset’s market share
       is [40-50]% in FX but up to [60-70]% in IRD), reflecting the different competitive
       focus, strengths and presence of rival suppliers. Most suppliers responding to the
       market investigation confirmed that they were not active in each asset class and that
       the extent of their presence in each class varies.172 From the demand-side, customers
       also indicate that these services should be considered separate product markets by
       asset class, explaining that these portfolio optimization services are “segregated per
       asset class as different optimisation requirements/opportunities”173 and “Vendors
       [are] selected on the strength of performance & cost effectiveness in each individual
       asset class per service.”174 Another customer adds that “[e]ach
       optimisation/compression service uses different forms of processing dependent on
       asset class and type of optimisation. For example, for Rates cleared compression we
       do not use MarkitWire, for uncleared we do. For Rates Optimisation, we use
       MarkitWire, for FX we do not.”175
(199) Fourth, the Commission also considered whether the aforementioned trade
       optimization services (portfolio compression, margin management, portfolio
       reconciliation, basis risk mitigation) supplied by CCPs compete in the same relevant
       product market as third party trade optimization providers. The market investigation
       indicated that customers and competitors consider that TriOptima and Reset’s closest
       competitors are other third party provides and that CCPs are not close competitors to
       them.176 However, the results of the market investigation did not provide sufficient
       information to conclude whether CCPs would fall outside of the relevant product
       market entirely. In any event, in a wider market that includes the services provided
       by CCPs, TriOptima and Reset’s market share would be lower, and so this question
       can be left open given that the Transaction would not give rise to serious doubts as to
       its compatibility with the internal market even on the narrowest plausible basis.
4.11.2.4. Conclusion
(200) In view of the above, the Commission concludes that trade optimization services
       should not be considered to be within the same product market as trade processing
       services. More specifically, the Commission concludes that there are separate product
       markets for portfolio compression, margin management, portfolio reconciliation and
       basis risk management services – in each case, these product markets are split by
       asset class. The question of whether there would be separate product markets for the
       supply of the aforementioned services by third party providers (as opposed to supply
       by CCPs) can be left open, as TriOptima and Reset are only active as third party
171
       https://www.cmegroup.com/services/trioptima/trireduce-portfolio-compression.html#overview
172
       Replies to question 5 of Questionnaire 6.
173
       Reply to question 7.1 of Questionnaire 6.
174
       Reply to question 7.1 of Questionnaire 6.
175
       Reply to question 7.1 of Questionnaire 6.
176
       Replies to questions 10-13 of Questionnaire 4 and 9-12 of Questionnaire 6.
                                                        46
 ---pagebreak---        providers and the Transaction would not give rise to serious doubts as to its
       compatibility with the internal market on either basis.
4.11.3. Relevant geographic market definition
4.11.3.1. Commission’s previous decisions
(201) The Commission has not previously considered the relevant geographic market for
       portfolio compression, portfolio reconciliation, margin management or basis risk
       mitigation.
4.11.3.2. Notifying Parties’ view
(202) The Notifying Parties submit that the relevant geographic market for each of these
       potential markets is global, although the Notifying Parties did not detail why they
       considered this would be the case.
4.11.3.3. Commission’s assessment
(203) The results of the market investigation indicate that it would be appropriate to
       consider the relevant geographic market for portfolio compression, portfolio
       reconciliation, margin management and basis risk mitigation to be worldwide (across
       all asset classes and regardless of whether CCP services are considered part of the
       relevant product market).
(204) On the supply-side, the main providers of each of these trade optimization services
       are active globally. All suppliers who responded to the market investigation stated
       that they offer these trade optimization services to customers at the worldwide level.
       They indicated further that their competitors are active on the worldwide level, and
       that fees for their trade optimization services are set at the worldwide level. One
       supplier summarizes, “[a]ll clients trade with counterparties from multiple
       geographic regions and so a multilateral optimisation services needs to build a
       network of clients from all relevant regions.”177 On the demand-side, the majority of
       customers indicated that they purchase trade optimization services at the worldwide
       level and all confirmed that suppliers are active at the worldwide level.178 Neither
       suppliers nor customers indicated any reasons to consider that these elements would
       vary by asset class or if the market were also to include CCPs providing these
       services.
4.11.3.4. Conclusion
(205) On the basis of the market investigation results and for the reasons detailed above,
       the Commission concludes that the geographic market for portfolio compression,
       portfolio reconciliation, margin management and basis risk mitigation is global,
       regardless of asset class or whether CCPs are considered to be part of the relevant
       product market.
177
       Replies to questions 9 and 9.1 of Questionnaire 4.
178
       Replies to questions 8 and 8.1 of Questionnaire 6.
                                                          47
 ---pagebreak--- 4.12.     RED codes
4.12.1. Introduction and the Parties’ services
(206) An identifier (or security identifier, if referring to equities and bonds in particular) is
       an alphanumeric code, which can be used to identify a specific financial instrument,
       entity or obligation. Within financial information, identifiers may be considered a
       type of reference data as they are used to identify or retrieve certain information
       about a financial instrument.
(207) IHSM is active in this area via its RED codes, which are relevant only for the credit
       derivative asset class. A Reference Entity Data (‘RED’) identifier is used in a CDS
       context to confirm the relationship between a reference entity and a reference
       obligation, each of which is assigned a unique (RED) code. RED codes are therefore
       principally used to support pre- and post-trade certainty on credit derivative markets.
       They are used to confirm the relationship between a reference entity and a credit
       derivative, as well as corporate actions, CDS succession events and credit events.179
4.12.2. Relevant product market definition
4.12.2.1. Commission’s previous decisions
(208) In Thomson Corporation/Reuters Group,180 the Commission did not definitively
       conclude on the relevant product market for security identifiers (referred to as
       “instrument codes” in that decision), however, it assessed separate plausible relevant
       product markets for each security identifier. The decision assessed codes provided by
       data vendors like Reuters’ RICs for purposes of identification within the vendors’
       own systems and industry-wide codes provided on a stand-alone basis like SEDOLs,
       ISINs and FIGIs.
(209) In Standard & Poor’s,181 the Commission considered security identifiers (in that case
       the relevant identifier being ISINs) as serving different purposes from other financial
       information, and particularly being used to identify a security rather than to monitor
       the markets or evaluate an investment opportunity, and found their distribution
       distinct from the distribution of other financial information. In that case, the
       Commission considered ISINs to be a separate market from other identifiers and
       distinguished further by nationality (‘US ISINs’), first-hand distribution versus
       redistribution, and distribution method (data feed, manual “look up” service).
4.12.2.2. Notifying Parties’ view
(210) The Notifying Parties submit that there are a range of alternative identifier systems
       available as potential substitutes for RED codes, which include both self-supply and
       the use of legal entity identifiers (‘LEIs’) and bond International Security Identifier
       Numbers (‘ISINs’) to identify entities and reference obligations. Although the
       existence of alternative identifier systems indicates that definition of a wider market
       may be appropriate, at its narrowest a plausible market could comprise the supply of
       RED codes alone, in which IHSM would be the sole supplier. The Notifying Parties
179
       Form CO, paragraph 544.
180
       Commission decision of 19 February 2008 in Case M.4726, Thomson/Reuters, paragraph 71.
181
       Commission decision of 15 November 2011 in Case COMP/39.592, paragraphs 19-21.
                                                     48
 ---pagebreak---        submit that the question of market definition can be left open as no serious doubts as
       to the Transaction’s compatibility with the internal market arise irrespective of how
       the market is defined.182
4.12.2.3. Commission’s assessment
(211) The market investigation results indicate that RED codes likely are a separate market.
       When asked whether competitors use RED codes as an input, answers are mixed
       between the options “Yes, we use RED codes in our business and they are essential”
       and “No we don’t use RED codes in our business”. However, no competitor chose
       the option “Yes we use RED codes in our business but they are not essential (e.g. we
       have alternative solutions)”.183 The market investigation did not provide sufficient
       evidence to reach a conclusion regarding whether RED codes constitute a separate
       product market, or could have substitutes, leading to a wider market definition.
4.12.2.4. Conclusion
(212) In any event, the product market definition in relation to RED codes, and in particular
       whether RED codes form a distinct market or are part of a larger market comprising
       other identifiers such as LEIs paired with ISINs can be left open as the Transaction
       does not give rise to serious doubts as to its compatibility with the internal market
       even on the narrowest plausible basis.
4.12.3. Relevant geographic market definition
4.12.3.1. Commission’s previous decisions
(213) In Thomson Corporation/Reuters Group,184 the Commission considered the
       geographic scope of instrument codes to be at least EEA-wide and probably global.
(214) In Standard & Poor’s,185 the Commission considered the market for first-hand
       electronic distribution and licensing of US ISINs (records and numbers) via data
       feeds to be global for the purposes of that decision.
4.12.3.2. Notifying Parties’ view
(215) The Notifying Parties submit that the relevant geographic market for RED codes is
       worldwide without providing a reason.186
4.12.3.3. Commission’s assessment
4.12.3.4. The market investigation indicated that the relevant geographic market is likely to
          be worldwide. On the supply-side, there is only one provider of RED codes
          (IHSM), which is active at worldwide level and does not alter its product offering
          depending on the place of supply. On the demand-side, the customers who indicated
          that they procure RED codes are companies that are active on a global level. When
182
       Notifying Parties’ response to RFI 5, paragraphs 3.1-3.5.
183
       Reply to question 18 of Questionnaire 4.
184
       Commission decision of 19 February 2008 in Case M.4726, Thomson/Reuters, paragraph 106.
185
       Commission decision of 15 November 2011 in Case COMP/39.592, paragraph 22.
186
       Notifying Parties’ response to RFI 5, paragraph 3.5.
                                                         49
 ---pagebreak---           describing at which level they offer their services (which use RED codes as an
          input) and compete, the respondents suggested that their activities took place on a
          worldwide level.187
4.12.3.5. Conclusion
(216) Thus, the Commission considers the geographic market of the market of RED codes
       to be worldwide for the purpose of this decision. The geographic market definition in
       a wider market comprising other identifiers that would be able to substitute RED
       codes, would likely also be global given that market participants using these kinds of
       identifiers as an input are active on a global basis.
5.        COMPETITIVE ASSESSMENT
5.1.      Analytical framework
(217) Under Article 2(2) and (3) of the Merger Regulation, the Commission must assess
       whether a proposed concentration would significantly impede effective competition
       in the internal market or in a substantial part of it.
(218) In this respect, a concentration may entail horizontal and/or non-horizontal (namely,
       vertical or conglomerate) effects. Horizontal effects are those deriving from a
       concentration where the undertakings concerned are actual or potential competitors of
       each other in one or more of the relevant markets concerned. Vertical effects are
       those deriving from a concentration where the undertakings concerned are active on
       different or multiple levels of the supply chain. Conglomerate effects are those
       deriving from a concentration where the undertakings concerned are in a relationship
       which is neither horizontal nor vertical, but are active on closely related markets. A
       concentration may involve all three types of effects. In such a case, the Commission
       will appraise horizontal and non-horizontal effects in accordance with the guidance
       set out in the relevant notices, that is to say the Horizontal Merger Guidelines188 and
       the Non-Horizontal Merger Guidelines.189
5.1.1.    Horizontal non-coordinated effects
(219) The Horizontal Merger Guidelines list a number of factors which may influence
       whether or not significant horizontal non-coordinated effects are likely to result from
       a concentration, such as the large market shares of the firms, the fact that the firms
       are close competitors, the limited possibilities for customers to switch suppliers, or
       the fact that the concentration would eliminate an important competitive force. Not
       all of these factors need to be present to make significant non-coordinated effects
       likely and it is not an exhaustive list. Finally, the Horizontal Merger Guidelines
       describe a number of factors, which could counteract the harmful effects of the
       concentration on competition, including the likelihood of countervailing buyer
       power, the entry of new competitors on the market, and efficiencies.
187
       Reply to question 9 of Questionnaire 4.
188
       Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
       concentrations between undertakings ("Horizontal Merger Guidelines"), OJ C31, 5.2.2004, paragraph
       5.
189
       Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
       concentrations between undertakings ("Non-Horizontal Merger Guidelines"), OJ C265, 18.10.2008.
                                                       50
 ---pagebreak--- 5.1.2.   Non-horizontal non-coordinated effects
(220) A concentration between companies which operate at different levels of the supply
       chain may significantly impede effective competition if it gives rise to foreclosure.190
       Foreclosure occurs where actual or potential competitors' access to supplies or
       markets is hampered or eliminated as a result of the concentration, thereby reducing
       those companies' ability and/or incentive to compete. Such foreclosure may
       discourage entry or expansion of competitors or encourage their exit.
(221) The Non-Horizontal Merger Guidelines distinguish between two forms of
       foreclosure. Input foreclosure occurs where the concentration is likely to raise the
       costs of downstream competitors by restricting their access to an important input.
       Customer foreclosure occurs where the concentration is likely to foreclose upstream
       competitors by restricting their access to a sufficient customer base.
(222) In assessing the likelihood of an anticompetitive input/customer foreclosure scenario,
       the Commission examines, first, whether the merged entity would have, post-merger,
       the ability to substantially foreclose access to inputs/customer base, second, whether
       it would have the incentive to do so, and third, whether a foreclosure strategy would
       have a significant detrimental impact on competition downstream/upstream.
5.2.     Overview of affected markets
(223) The Transaction leads to horizontally affected markets in:
       (a)     FX and IRD CCP connectivity services worldwide (Section 5.3),
       (b)     FX NOE messaging services worldwide (Section 5.4), and
       (c)     FX PB give-up messaging services worldwide (Section 5.5).
(224) In addition, the following vertically affected markets arise between the JV and the
       parents ((a) to (c)) or between the activities contributed to the JV ((d)):
       (a)     FX and IRD CCP connectivity services worldwide (upstream) on the one
               hand, and OTC FX and IRD clearing services worldwide or in the EEA
               (downstream) on the other hand – Section 5.6;
       (b)     OTC FX trading services worldwide or in the EEA (upstream) on the one
               hand, and FX CCP connectivity services worldwide or in the EEA
               (downstream) on the other hand – Section 5.7.1;
       (c)     RED identifiers for CDS worldwide (upstream) on the one hand, and certain
               trade optimization services worldwide, namely: portfolio compression for
               CDS, portfolio reconciliation for CDS and margin management for CDS
               worldwide (downstream)191 on the other hand – Section 5.8.1; and
190
       Non-Horizontal Merger Guidelines, paragraphs 17-18.
191
       For completeness there is no vertical link with basis risk mitigation services, as CME is not active CDS
       (and RED identifiers are only used in relation to CDS). There is also a vertical overlap between
       IHSM’s RED codes upstream and Traiana’s credit risk management services downstream. Traiana
       LimitHub uses RED codes as part of its limit management and limit checking functions for CDS trades,
                                                         51
 ---pagebreak---       (d)      Trade optimization services, namely portfolio compression for IRD and CDS,
               portfolio reconciliation for IRD, CDS and equity derivatives, margin
               management for IRD, CDS and equity derivatives, and basis risk mitigation
               for IRD worldwide on the one hand, and trade confirmation services for IRD,
               CDS, and equity derivatives worldwide on the other hand (there is a vertical
               relationship in both directions) – Sections 5.8.2 and 5.8.3.
(225) All markets assessed in the following Sections are considered global for the purposes
      of this decision (for those markets where possible narrower geographic markets are
      plausible, an assessment carried out on that basis would not alter the Commission’s
      conclusions).
(226) Each of these horizontally affected markets and vertically affected links are assessed
      in turn below. The Commission also considers for completeness the risk that the JV
      may seek to foreclose rival providers by bundling certain of its services together. See
      Section 5.9.
5.3.    FX and IRD CCP connectivity services worldwide192
(227) MarkitSERV provides CCP connectivity for CDS, FX and IRD trades worldwide.
      Globally, it is the market leader in FX and IRDs, processing the vast majority of
      trades in these CCP connectivity markets, whereas it has a much smaller offering in
      relation to CDS.
(228) Traiana is mainly active in the worldwide provision of CCP connectivity in equities,
      which represents the vast majority ([80-90]%) of its CCP connectivity revenues.
      Traiana is also active, albeit to a much lesser extent, in FX and IRD CCP
      connectivity worldwide.
(229) Table 2 below sets out the Notifying Parties’ estimates of the JV’s and their main
      competitors’ market shares in the supply of CCP connectivity services, on the basis
      of the number of trades processed. In line with the relevant market definition outlined
      in Section 4.8 above, the market shares are presented separately for each asset class
      on a global basis.
      enabling it to manage limits by rejecting and approving groups of CDS trades which share similar
      characteristics or specific individual CDS trades. The same reasons regarding lack of ability and
      incentive as presented in Section 5.8.1 apply to this vertical overlap. In any case, as each Party already
      has 100% in both the putative upstream and downstream markets, the Transaction will not create a
      significant impediment to effective competition in either market.
192
      The Commission’s assessment will focus on OTC CCP connectivity, given that MarkitSERV’s CCP
      connectivity service is only offered for OTC derivatives and so the Transaction would not give rise to
      serious doubts as to its compatibility with the internal market even if exchange traded derivatives were
      considered part of the relevant product market, as (i) the Parties’ market shares would be lower on each
      of these segments on such a wider market, and (ii) the relevant vertical link only arises in relation to
      OTC CCP connectivity (with trading and clearing services). References in the competitive assessment
      to CCP connectivity are to OTC CCP connectivity.
                                                          52
 ---pagebreak---          Table 2: CCP connectivity market shares by asset class based on the number of
                                             trades processed, 2019193
    Asset         MarkitSERV          MarkitSERV          Traiana         Traiana       Main         competitors
    class          (# of trades)            (%)              (# of           (%)        (%)
                                                           trades)
    CDS                 […]               [5-10]%             n.a.           n.a.       ICE Link         (90-
                                                                                        95%)
                                                                                        Trading venues (0-
                                                                                        5%)
    FX                  […]             [90-100]%            […]           [0-5]%       Bloomberg          (0-
                                                                                        5%)
                                                                                        FX Connect         (0-
                                                                                        5%)
    IRD                 […]              [80-90]%            […]           [0-5]%       Tradeweb          (5-
                                                                                        10%)
                                                                                        Bloomberg         (5-
                                                                                        10%)
                                                                                        LCH                (0-
                                                                                        5%)
    Equities             n.a.               n.a.             […]            100%        No other providers
                                                                                        identified 194
        Source: Form CO, Tables 6.9-6.11, paragraph 517 and RFI 19 Table 12.1. Notifying Parties’ best
        estimates based on DTCC TIW data, LCH SwapClear volume data.
(230) The Notifying Parties submit that the JV only gives rise to a horizontal overlap in the
        provision of FX CCP connectivity services. However, the Notifying Parties explain
        that Traiana has some limited connectivity activities in IRD, which would give rise to
        a horizontally affected market if they were considered to overlap with MarkitSERV’s
        service. The Notifying Parties argue that this should not be considered a horizontal
        overlap as Traiana does not offer a true CCP connectivity service, for the reasons
        described in recital (237) below. For completeness, the Commission also investigated
        this plausible overlap, as described below.195
193
        In terms of a potential narrower product market by trade type, MarkitSERV exclusively provides CCP
        connectivity for bilateral trades whereas Traiana focuses on trilateral trades. MarkitSERV and
        Traiana’s market shares would not be materially different from those presented in Table 2 if a separate,
        narrower product market were defined for CCP connectivity delineating by type of trade (RFI 17,
        Notifying Parties’ response to question 1). In light of this, and the assessment conducted below, the
        Commission considers that the Transaction would not give rise to serious doubts as to its compatibility
        with the internal market even on such a narrower market definition.
194
        The Notifying Parties explain that they are not aware of any other vendor offering CCP connectivity for
        equities in the same way that Traiana processes the cash leg of equity swap trades. Form CO, paragraph
        517.
195
        Traiana is also active in the CDS asset class. The Notifying Parties consider that Traiana’s service does
        not compete with MarkitSERV in the CDS asset class, as their services are fundamentally different.
        Traiana’s service is only used to process and perform client limit checking of voice trades after a trade
        has been submitted to a CCP for clearing. In contrast, the primary aim of MarkitSERV’s CCP
        connectivity service is the submission of trades to clearing. As such, the Notifying party submits that
        Traiana’s service is not a substitute for MarkitSERV’s offering. In any event, even if Traiana’s service
        were considered a form of CCP connectivity, the Parties’ combined market shares would be less than
        [20-30]% for CDS worldwide and so the Transaction would not give rise to serious doubts as to its
        compatibility with the internal market.
                                                           53
 ---pagebreak--- 5.3.1.   Notifying Parties’ view
       FX
(231) The Notifying Parties submit that the Transaction does not give rise to horizontal
       non-coordinated effects in relation to the supply of CCP connectivity in the FX asset
       class, for the following reasons.
(232) First, the Notifying Parties argue that Traiana’s FX CCP connectivity service is
       negligible. In total, Traiana sends fewer than […] FX trades to CCPs each year, out
       of a total of more than 1.35 million FX trades which are sent to CCPs each year. This
       represents a market share of less than [0-5]%.196
(233) Second, the Notifying Parties point out that Traiana’s CCP connectivity offering in
       FX is limited to two services, and argues that these do not compete with
       MarkitSERV:
       (a)     The first service consists of sending a very small volume of non-deliverable
               forwards from […] to MarkitSERV, for matching prior to being sent on to
               clearing. Traiana itself does not submit trades directly to the CCP – it is
               MarkitSERV which provides this connectivity. Therefore, the Notifying
               Parties consider that this aspect of Traiana’s service does not compete with
               MarkitSERV to provide CCP connectivity to clients.197
       (b)     The second service consists of sending a very small volume of deliverable FX
               forwards and swaps to the Hong Kong Exchange (‘HKEX’) (only). Traiana
               sends fewer than […] FX trades to HKEX each year. This implies that
               Traiana is not a competitor to MarkitSERV, given the former’s negligible
               scope.198
(234) Third, the Notifying Parties argue that MarkitSERV and Traiana’s FX CCP
       connectivity services are differentiated, as they are focused on different types of
       trades. MarkitSERV provides CCP connectivity for bilateral FX trades. In contrast,
       Traiana’s FX CCP connectivity service primarily relates to trilateral trades. Notably,
       Traiana’s service consists of acting as a clearing broker, i.e. sending prime brokerage
       trades to CCPs, with the aim of ensuring the smooth functioning of the clearing
       process for the client. This service is not provided by MarkitSERV as part of its FX
       CCP connectivity service, so the Parties are not close competitors.199
(235) Fourth, the Notifying Parties submit that the JV would face competition from a range
       of competitors, including in particular trading venues who enable customers to send
       their trades directly to clearing without the intermediation of a middleware provider
       (such as MarkitSERV).
       IRD
(236) In relation to the IRD asset class, the Notifying Parties consider that the Transaction
       does not give rise to a horizontal overlap, and argue that even if it did the Transaction
196
       Form CO, paragraph 430(b).
197
       Form CO, paragraphs 489 and 491(b).
198
       Form CO, paragraph 430(b).
199
       Form CO, paragraph 429.
                                                  54
 ---pagebreak---        would not give rise to serious doubts as to its compatibility with the internal market
       for the following reasons.
(237) First, the Notifying Parties argue that Traiana’s service does not compete with
       MarkitSERV in IRDs, as their services are fundamentally different. MarkitSERV’s
       CCP connectivity service provides clients with the ability to send their executed
       trades (of various types) to a CCP. In contrast, in the IRD asset class, Traiana’s
       service only relates to the submission of bunched order allocations to clearing.
       Bunched orders are a specific type of trading arrangement used in circumstances
       where an asset manager does not yet know to which funds a block trade will be
       allocated when the trade is made. This very limited use implies that Traiana’s service
       is not able to compete for the vast majority of MarkitSERV’s business in IRD CCP
       connectivity ([0-5]% of MarkitSERV’s business is for bunched order allocations).200
(238) Second, the Notifying Parties argue that, even if it is considered that there is a
       horizontal overlap, Traiana is a negligible player in CCP connectivity in IRDs,
       generating revenues of less than […] annually (which represents Traiana’s revenues
       in both IRDs and CDS). Traiana’s IRD CCP connectivity service is currently only
       provided to […].201 It only processes around […] trades out of a total market of 6.25
       million trades, giving it a market share of just [0-5]%.202
5.3.2.   Commission’s assessment
       FX
(239) The provision of FX CCP connectivity is a horizontally affected market on the basis
       that MarkitSERV has a market share of [90-100]% and Traiana brings an increment
       of [0-5]%. Traiana’s activities in the provision of CCP connectivity are limited, as it
       only directly submits […] to one CCP (HKEX) each year, out of a total market of
       1.35 million trades. The Commission investigated the Notifying Parties’ market share
       estimates to verify whether they are accurate. According to well-established case law,
       very large market shares of 50% or more may in themselves be evidence of the
       existence of a dominant position;203 in view of MarkitSERV’s very high market share
       a dominant position can therefore be presumed.
(240) In this regard, the market investigation indicated that the Notifying Parties’ market
       share estimates and views on competitors are credible for FX. Customers and
       competitors confirmed that MarkitSERV is the clear market leader for CCP
       connectivity in FX.204 CCPs strongly consider MarkitSERV to be an important
       source of FX trades for them, whereas generally this is not true of Traiana, with one
       explaining: “[w]e do not currently consider Traiana to be an important partner”.205
200
       Form CO, paragraph 430(c)(i). RFI 14 question 4.1.
201
       Form CO, paragraph 430(c).
202
       Commission computation based on data in RFI 9 Table 12.1.
203
       Case T-221/95, Endemol, para. 234 and Case T-102/96, Gencor, para. 205. See also Horizontal Merger
       Guidelines, para. 17.
204
       Replies to questions 13 and 20 of Questionnaire 1 and to question 15 of Questionnaire 2.
205
       Replies to questions 14.2 and 14.3 of Questionnaire 1.
                                                        55
 ---pagebreak---       This was also reflected in the data submitted by CCPs regarding the source of FX
      trades sent to them for clearing.206
(241) Moreover, the market investigation indicated that MarkitSERV’s FX CCP
      connectivity offering faces competition from trading venues, which provide
      customers with the ability to send trades executed on their venue directly to clearing.
      Customers considered that such direct connectivity providers can be an alternative to
      MarkitSERV.207 A number of CCPs supported this view, highlighting that “trading
      venues, such as Bloomberg, offer the choice to submitting trades directly to the
      CCPs”.208 Customers and competitors identified alternative providers of CCP
      connectivity in FX as including Bloomberg, FX All, Clearvision and direct
      connectivity from other trading venues.209
(242) Therefore, the market investigation did not give any reason to doubt MarkitSERV’s
      market share estimates, according to which MarkitSERV would hold a dominant
      position through its market share of [90-100]% in FX, and Traiana’s share would be
      minimal ([0-5]%).
(243) Notwithstanding MarkitSERV’s high market shares, the Commission considers that
      the Transaction is unlikely to give rise to serious doubts as to its compatibility with
      the internal market for CCP connectivity in the FX asset class, as it would not result
      in a strengthening of MarkitSERV’s dominant position, for the following reasons.
(244) First, the market investigation supported the Notifying Parties’ argument that there is
      considerable doubt as to whether Traiana’s service competes with MarkitSERV at all
      – indicating that the Transaction would not lead to a strengthening of MarkitSERV’s
      dominant position. The vast majority of MarkitSERV’s FX customers indicated that
      it was either not possible for them to replace MarkitSERV with Traiana or at best
      unclear whether they could do so. Traiana offers a niche service in respect of a small
      number of trades where it acts as a clearing broker (a service which MarkitSERV
      does not provide as part of its CCP connectivity offering). 210 One customer indicated
      that it did not consider MarkitSERV and Traiana to be alternatives, and explained
      that Traiana “offer[s] a unique service which is not interchangeable with another
      provider.”211 A customer of MarkitSERV explained that it considers there is a “lack
      of availability of alternative offerings” to MarkitSERV, and did not consider Traiana
      to be an alternative that it could switch to.212 No customers responding to the market
      investigation indicated that they have switched between MarkitSERV and Traiana in
      the last three years.213
(245) As well as there being uncertainties as to whether Traiana provides the same type of
      service to that of MarkitSERV, customers indicated that Traiana lacks the necessary
      critical mass for it to be an effective competitor.214 Dealer and broker banks
206
      Replies to question 14 of Questionnaire 1.
207
      Replies to questions 24 and 20 of Questionnaire 1.
208
      Replies to questions 14.2 and 15 of Questionnaire 1
209
      Replies to questions 13 and 20 of Questionnaire 1 and to question 15 of Questionnaire 2.
210
      Reply to RFI 19 paragraph 11.1.
211
      Replies to question 19 of Questionnaire 1.
212
      Replies to questions 23 and 23.1 of Questionnaire 1.
213
      Replies to question 25 of Questionnaire 1.
214
      Replies to question 23.2 of Questionnaire 1.
                                                       56
 ---pagebreak---       explained that the key factor driving the choice of CCP connectivity provider is the
      preference of the trading counterparty.215 Given that Traiana only submits […] FX
      trades to clearing (at one CCP), it was generally not considered realistic to switch to
      Traiana. Moreover, the vast majority of customers considered that, even if Traiana
      does provide the service they need, it is challenging or even impossible to switch
      CCP connectivity provider from MarkitSERV to Traiana, noting that this would be
      time consuming and costly.216 Accordingly, it is unclear if pre-Transaction Traiana
      could be considered as a credible alternative to MarkitSERV.
(246) Second, the market investigation supported the Notifying Parties’ claim that Traiana
      is not a particularly close competitor and so it is unlikely that the Transaction would
      strengthen MarkitSERV’s dominant position. The majority of customers did not
      identify Traiana as a close competitor of MarkitSERV, and no customers considered
      that MarkitSERV competes closely with Traiana.217 Customers explained that this is
      because while both MarkitSERV and Traiana are active in CCP connectivity (more
      generally), “Traiana and MarkitSERV serve different asset classes”.218 The fact that
      the MarkitSERV and Traiana do not compete closely is also reflected by how they
      are used by customers in practice. The Commission notes that virtually all of
      MarkitSERV’s FX trades ([…]) were sent to LCH for clearing, with the remainder
      being sent to CME. MarkitSERV did not send any trades to HKEX. In contrast,
      Traiana submitted […] FX trades to LCH and Traiana’s only activity was to submit
      […] FX trades each year to the HKEX.219 As such, customers use Traiana and
      MarkitSERV for different purposes.
(247) Third, the addition of Traiana to MarkitSERV does not strengthen MarkitSERV’s
      dominant position, because Traiana has in recent history been, is currently, and will
      continue to be, a negligible player in the FX CCP connectivity market. Traiana is not
      a new entrant nor a disruptive market participant, and it does not constitute an
      important competitive constraint on MarkitSERV. MarkitSERV has been active in
      FX CCP connectivity since 2010, and has consistently been the market leader (only
      in recent years has its position started to be eroded through increased use of direct
      connectivity from trading venues, in particular). Traiana has also been active in the
      provision of FX CCP connectivity since 2011. Yet despite being active on the market
      for ten years, Traiana has not grown into a constraint on MarkitSERV, as it holds a
      market share of just [0-5]% ([…]), is not seen as a close competitor and no
      MarkitSERV customers responding to the market investigation indicated that they
      switched to Traiana in the last three years. This reflects the different focus of the
      Parties and negligible presence of Traiana in this market.
(248) Traiana is expected to remain a marginal player in the coming years. While the
      market investigation showed that the progressive phase-in of the Uncleared Margin
      Rules220 is expected to lead to more FX trades being sent to clearing in the next three
215
      Replies to question 14 of Questionnaire 1.
216
      Replies to question 23 of Questionnaire 1.
217
      Replies to question 20 of Questionnaire 1.
218
      Replies to question 23.2 of Questionnaire 1.
219
      Form CO, Table 2.3.
220
      Regulation No 684/2012 of the European Parliament and of the Council of 4 July 2012 on OTC
      derivatives, central counterparties and trade repositories, as amended and further detailed in
      Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016 supplementing Regulation (EU)
      No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties
                                                     57
 ---pagebreak---       years,221 the impact of this would most likely be negligible for Traiana’s business.
      The Notifying Parties explained that […] of Traiana’s customers are expected to be
      affected by the next phase of the Uncleared Margin Rules, and that […].222 As such,
      Traiana is currently, and is expected to remain, a negligible player in this market that
      does not exercise a constraint on MarkitSERV.
(249) Finally, the vast majority of customers that expressed a view considered that the
      Transaction would have a neutral impact on the market for FX CCP connectivity.223
      This is driven by Traiana’s negligible presence in FX CCP connectivity and the
      differentiation between the Parties’ offering. For example, one customer explained
      that: “Markit products aren’t direct competitors with Traiana given they dominate
      separate asset classes”. Some others pointed to the fact that the Parties’ services are
      more complementary than competing. 224 Likewise, the majority of clearinghouses
      expected a neutral impact.225
(250) For completeness, even if the market were segmented between bilateral and prime
      broker trades, the Commission’s assessment would remain unchanged. Even on the
      narrower segment of FX CCP connectivity for bilateral trades (the only segment on
      which the Parties overlap), MarkitSERV would remain the largest supplier whereas
      Traiana would be an insignificant player and not a close competitor, with
      considerable doubt as to whether it even competes with MarkitSERV at all (given
      that customers do not consider switching to Traiana to be credible, as outlined
      above).
(251) In light of the above and all of the evidence available to it, the Commission
      concludes that the Transaction does not give rise to serious doubts as to its
      compatibility with the internal market for the market for CCP connectivity in the FX
      asset class, as the Transaction does not strengthen MarkitSERV’s dominant position
      in this market due to Traiana’s negligible presence and the fact that it essentially does
      not compete with MarkitSERV.
      IRD
(252) The provision of IRD CCP connectivity is a horizontally affected market on the basis
      that MarkitSERV has a market share of [80-90]% and Traiana brings an increment of
      [0-5]%.226 Traiana’s activities in the area of IRD CCP connectivity are limited, as
      they relate to just […] trades each year, out of a total market of around 6.25 million
      trades. The Commission investigated the Notifying Parties’ market share estimates to
      verify whether they are accurate. According to well-established case law, very large
      market shares of 50% or more may in themselves be evidence of the existence of a
      and trade repositories with regard to regulatory technical standards for risk-mitigation techniques for
      OTC derivative contracts not cleared by a central counterparty, as amended.
221
      Replies to question 22 of Questionnaire 1 and question 12 of Questionnaire 2.
222
      Form CO, paragraph 430.
223
      Replies to question 31 of Questionnaire 1.
224
      Replies to questions 30 and 31 of Questionnaire 1.
225
      Replies to question 23.1 of Questionnaire 2.
226
      Commission computation based on data in RFI 19 Table 21.1.
                                                        58
 ---pagebreak---       dominant position;227 in view of MarkitSERV’s very high market share a dominant
      position can therefore be presumed.
(253) In this regard, the market investigation indicated that the Notifying Parties’ market
      share estimates are credible in the IRD asset class. Customers confirmed that
      MarkitSERV is the largest CCP connectivity provider, and that TradeWeb and
      Bloomberg compete with it. In addition, customers also suggested that trading venues
      compete in the IRD asset class: “[t]he competitors for MarkitWire (for IRDS) are
      venues offering direct clearing capability”.228 In contrast, Traiana was not considered
      to be a meaningful competitor.229 The market investigation did not give any reason to
      doubt the Notifying Parties’ market share estimates, according to which MarkitSERV
      would hold a dominant position with a market share of [80-90]% in IRD CCP
      connectivity and Traiana’s share would be minimal, at [0-5]%.
(254) First, the market investigation supported the Notifying Parties’ argument that there is
      considerable doubt as to whether Traiana’s service competes with MarkitSERV at all
      – indicating that the Transaction would not strengthen MarkitSERV’s position. The
      vast majority of MarkitSERV’s IRD customers indicated that it was either not
      possible for them to replace MarkitSERV with Traiana or at best unclear whether
      they could do so. Only one IRD customer of MarkitSERV indicated that it might
      consider replacing the IRD CCP connectivity it gets from MarkitSERV with a service
      from Traiana.230 However, that customer also indicated that it expects that it could
      only substitute the services “to a limited extent”, that it would need to evaluate
      Traiana’s service first (its responses suggested that it was not familiar with Traiana’s
      specific offering in this asset class) and that it would be challenging to switch
      between these providers.231 Moreover, given that Traiana’s IRD CCP connectivity
      offering solely relates to the submission of bunched order allocations, it appears
      unlikely that Traiana could in practice replace this customer’s current use of
      MarkitSERV. No customers responding to the market investigation indicated that
      they have switched between MarkitSERV and Traiana in the last three years.232
(255) Second, the market investigation supported the Notifying Parties’ claims that Traiana
      is not a close competitor to MarkitSERV in the IRD asset classes, and so the
      Transaction would not strengthen MarkitSERV’s dominant position. When asked to
      identify the closest competitors to MarkitSERV’s offering, no customers identified
      Traiana as a close competitor in IRD. Likewise, no customers identified that
      MarkitSERV would be a close competitor to Traiana.233 Customers explained that
      this is because while both Parties are active in CCP connectivity (more generally),
      “Traiana and MarkitSERV serve different asset classes”234 Indeed, most customers
      appeared unaware that Traiana had a CCP connectivity offering in relation to IRD.235
      This is likely explained by the very significant level of differentiation between
227
      Case T-221/95, Endemol, para. 234 and Case T-102/96, Gencor, para. 205. See also Horizontal Merger
      Guidelines, para. 17.
228
      Replies to questions 13 and 20 of Questionnaire 1.
229
      Replies to questions 13 and 20 of Questionnaire 1.
230
      Replies to question 23.1 of Questionnaire 1.
231
      Replies to questions 23.1, 13.3 and 23.
232
      Replies to question 25 of Questionnaire 1.
233
      Replies to question 20 of Questionnaire 1.
234
      Replies to question 23.2 of Questionnaire 1.
235
      Replies to question 13.3 of Questionnaire 1.
                                                       59
 ---pagebreak---        MarkitSERV and Traiana’s offering. On the one hand, MarkitSERV’s core
       functionality is to submit trades to CCPs for clearing. On the other hand, Traiana’s
       service is limited to the submission of bunched order allocations to clearing, which
       represents [0-5]% of MarkitSERV’s business is for bunched order allocations. This
       means that Traiana does not compete for [90-100]% of MarkitSERV’s business.
       Indeed, one competitor explained that Traiana was not focused on providing CCP
       connectivity in IRD, rather “a smaller part of their business is to allocate parts of
       bunched orders (block trades) to the target clients of individual transactions”,236
       supporting the Notifying Parties’ claims that Traiana’s service has a fundamentally
       different purpose and focus from that of MarkitSERV’s CCP connectivity service.
(256) Third, the Notifying Parties’ own internal documents indicate that Traiana does not
       compete with MarkitSERV in the IRD asset class.237
(257) Finally, the vast majority of customers that expressed a view considered that the
       Transaction would have a neutral impact on the market for IRD CCP connectivity.238
       This is driven by Traiana’s negligible presence in IRD CCP connectivity and the
       differentiation between the Parties’ offering. For example, one customer explained
       that: “Markit products aren’t direct competitors with Traiana given they dominate
       separate asset classes”. Some others pointed to the fact that the Parties’ services are
       more complementary than competing.239 Likewise, the majority of clearinghouses
       expected a neutral impact.240
(258) For completeness, even if the market were segmented between bilateral and prime
       broker trades, the Commission’s assessment would remain unchanged. Even on the
       narrower segments of IRD CCP connectivity for bilateral trades or for prime broker
       trades, the Transaction would not strengthen MarkitSERV’s market position for the
       abovementioned reasons (in particular, as customers do not consider switching
       between them to be credible, as outlined above).
5.3.3.   Conclusion
(259) In light of the above and all of the evidence available to it, the Commission
       concludes that the Transaction does not give rise to serious doubts as to its
       compatibility with the internal market with respect to the market for CCP
       connectivity in the IRD asset class, as the Transaction does not strengthen
       MarkitSERV’s dominant position in this market due to Traiana’s negligible presence
       and the fact that it essentially does not compete with MarkitSERV.
5.4.     FX NOE messaging services worldwide
(260) The Commission concluded above that the NOE messaging market is a separate
       market that is global and further distinguished by asset class and trade type (bilateral,
       tri-party). The only asset class in which the Parties activities overlap horizontally
       with respect to NOE messaging is FX. The Parties activities further overlap in both
236
       Replies to question 15.3 of Questionnaire 2.
237
       For example, Form CO Annex 5.4(ii) document 005 “IHS Markit – Overview”, slide 24.
238
       Replies to question 31 of Questionnaire 1.
239
       Replies to questions 30 and 31 of Questionnaire 1.
240
       Replies to question 23.1 of Questionnaire 2.
                                                        60
 ---pagebreak---       bilateral and tri-party NOE messaging, i.e. FX PB give-up messaging, which are
      considered separate markets and are assessed in turn below.
(261) The Commission assesses the impact on bilateral FX NOE messaging despite the
      market not being affected at first sight (see combined market share in Table 3 of [5-
      10]%), because the market shares provided by the Notifying Parties do not seem to
      reflect the position of the Parties accurately when considering plausible narrower
      markets, as indicated by the results of the market investigation.
(262) The Notifying Parties’ estimates of IHSM’s and Traiana’s market shares in the global
      market for bilateral FX NOE messaging services in terms of average number of trade
      messages per day for 2019 are shown below in Table 3. Number of trades is
      considered a more meaningful measure than value given that FX NOE messaging
      services are charged on a per trade basis or as a subscription.
      Table 3: Global bilateral FX NOE messaging services in 2019
                                                                     # of trades       % of trades
        MarkitSERV                                                   […]               [5-10]%
        Traiana                                                      […]               [0-5]%
        Combined                                                     […]               [5-10]%
        Refinitiv                                                                      [40-50]%
        Trading platforms (incl. EBS, Refinitiv Matching,
                                                                                       [20-30]%
        Hotspot, FX All, Currenex)
        Aggregators/OMS       providers     (incl.    FlexTrade,
                                                                                       [10-20]%
        SmartTrade, Charles River, Broadridge, ION)
        Risk Management Systems (incl. Murex, Openlink,
                                                                                       [0-10]%
        Finastra)
        Total                                                        6 000 000         100%
      Source: The Notifying Parties’ best estimates based on BIS OTC Derivatives Data; Bank of England
      Foreign exchange and OTC derivatives markets turnover survey; and Euromoney Foreign Exchange
      Survey. Note: The market size is estimated based on the BIS 2019 daily average notional value of FX
      trades divided by the average size of a trade (as reported by the Bank of England). Competitor market
      shares have been sourced from management estimates.
(263) The Notifying Parties’ estimates of the Parties’ market shares in an alternative market
      that does not distinguish by trade type and includes bilateral FX NOE messaging
      services and FX PB give-up messaging services, is shown below in Table 4.
      Table 4: Global FX NOE messaging services in 2019
                                                              # of
                                                            trades         % of trades
      MarkitSERV                                             […]             [5-10]%
      Traiana                                                […]             [5-10]%
      Combined                                               […]            [10-20]%
      Total                                               6 400 000           100%
      Source: The Notifying Parties’ best estimates based on BIS OTC Derivatives Data; Bank of England
      Foreign exchange and OTC derivatives markets turnover survey; and Euromoney Foreign Exchange
      Survey.
(264) Beyond that, the Notifying Parties were not able to provide market share estimates
      for the following narrower plausible distinct markets identified: (i) independent
                                                         61
 ---pagebreak---        provision of bilateral FX NOE messaging services (as opposed to a wider market
       comprising independent and captive provision)241 and (ii) bilateral FX NOE
       messaging services provided for electronic FX trades (as opposed to a wider market
       comprising electronic and bilateral/voice trading).242 However, the Notifying Parties
       consider that market shares of Traiana and MarkitSERV in bilateral FX NOE
       messaging for electronic trades only would not differ significantly from their market
       shares in the broader market comprising FX NOE messaging for electronically and
       bilaterally executed trades.243
(265) Bilateral NOE messaging involves sending NOEs from brokers, venues and dealer
       banks to customers, and in some cases the return acknowledgement of these
       messages, that take place "pre-risk", i.e. prior to the trade entering the customer's risk
       management system. MarkitSERV provides bilateral NOE messaging services across
       a number of asset classes (CDS, equities, FX and IRDs), while Traiana provides this
       service for FX only (in addition to Traiana’s tri-party messaging services which it
       provides for FX, equities, interest rate derivatives and equity derivatives). Hence, the
       Commission assesses below the horizontal overlap with respect to bilateral FX NOE
       messaging and plausible narrower markets.
5.4.1.   Notifying Parties’ view
(266) First, regarding bilateral FX NOE messaging, the Parties are not competing for the
       same customers. Most of Traiana's bilateral NOE messaging customers are buy-side
       clients trading predominantly on a tri-party basis. Some of these clients, having
       adopted Traiana's messaging service in connection with tri-party (i.e. prime
       brokerage) services, requested that Traiana also act as the conduit for their bilateral
       post-trade notifications arising from the same dealer relationships. Therefore,
       Traiana's client base for bilateral services is predominantly buy-side customers as
       opposed to the large dealer bank clients served by MarkitSERV. According to the
       Notifying Parties, customers with significant bilateral trade volume would not chose
       Traiana as their provider of FX NOE messaging services.
(267) Second, the market for bilateral FX NOE messaging is highly competitive with
       several types of providers active in addition to the independent providers, namely
       MarkitSERV, Traiana and Refinitiv. Other providers are risk systems such as Murex,
       OpenLink, Finastra (which provides the Summit and Sophis products); post trade
       messaging vendors such as Broadridge; integration specialists/consultants such as
       Accenture and Infosys; and trading platforms, like EBS, Refinitiv Matching and FX
       all, Cboe/Hotspot, and Currenex.
(268) Third, as evidenced by recent terminations of contracts, and in addition to other types
       of providers, self-supply is a competitive constraint for the Parties in bilateral FX
       NOE messaging.
(269) Fourth, the Parties’ customers are large, powerful financial institutions, hedge funds,
       asset managers and corporations that have significant buyer power and are able to
       sponsor entry, whenever they are not content with a service offering.
241
       Notifying Parties’ response to question 1 in RFI 14.
242
       Notifying Parties’ response to question 5 in RFI 19.
243
       Notifying Parties’ response to question 5 in RFI 19.
                                                         62
 ---pagebreak--- 5.4.2.   Commission’s assessment
(270) In bilateral FX NOE messaging services, the Parties’ combined market share is [5-
       10]% according to the Notifying Parties.244 The increment from the Transaction is
       small. The Notifying Parties estimate the increment from Traiana is only [0-5]% for
       the provision of bilateral FX NOE messaging. In a market segmented by independent
       versus captive provision of FX NOE messaging services, MarkitSERV’s market
       share would likely be significantly higher than estimated by the Notifying Parties.245
       However, the increment brought about by the Transaction through Traiana is still
       very small and independent provision of FX NOE messaging services faces
       competition from captive providers as well as self-supply.
(271) This means that the Transaction likely does not change the market structure
       significantly given that Traiana is a negligible competitor. The Commission’s
       considerations are set out below in detail.
(272) First, the market investigation confirmed that customers do not generally believe that
       MarkitSERV’s and Traiana’s bilateral FX NOE messaging services compete
       closely,246 Traiana being the main provider of tri-party FX messaging services, i.e.
       FX PB give-up messaging, and competing more closely with recent entrant Cobalt.247
       It is likely that these responses from market participants would be similar for
       plausible narrower markets (independent provision, provision for electronic vs.
       bilateral/voice executed trades) given that no respondents highlighted in their free
       text responses that these distinctions have a bearing on their response.248
(273) Several respondents confirm the Notifying Parties’ view that Traiana’s and
       MarkitSERV’s services are targeted at different customers. Several customers state
       that they are not familiar with the respective other Parties’ services, as they only use
       MarkitSERV or only use Traiana.249 One customer notes that they “[do] not consider
       Traiana and MarkitSERV to be close competitors.”250
(274) This is further confirmed by a win-loss analysis of material contracts of both Parties’
       FX NOE messaging services between 2016 and 2021. During the last 5 years,
       MarkitSERV lost […] significant clients, […] of which replaced MarkitSERV’s
       services with an in-house solution and […] of which changed to a competitor.
       However, the competitor to whom customers switched was never Traiana,251
       supporting the argument that the Parties are not particularly close competitors in
       bilateral FX NOE messaging.
244
       Even if a general FX NOE messaging market (including tri-party messaging) was considered, the
       Notifying Parties’ combined market share would increase to only [10-20]%, because the market for
       bilateral messaging is significantly larger than the market for trilateral messaging. Traiana has a market
       share of [80-90]% in the market of FX PB give-up management services (which include tri-party FX
       NOE messaging services), leading to the higher combined market share in the broader market of
       bilateral and tri-party FX NOE messaging services.
245
       Responses by a competitor to RFIs on 29 and 30 June 2021.
246
       Replies to questions 17-21 of Questionnaire 3.
247
       Reply to question 9.1 of Questionnaire 3.
248
       Replies to questions 17-21 of Questionnaire 3.
249
       Reply to question 15.1 of Questionnaire 3.
250
       Minutes of a call with a customer on 28 April 2021, 10:00 CET.
251
       Notifying Parties’ response to RFI 10, Annex 145.
                                                           63
 ---pagebreak--- (275) Traiana’s bilateral FX NOE messaging service lost […] clients during the same time,
      […] of which no longer needed the service, […] of which built in-house connectivity
      and […] of which possibly moved to a competitor (no names known), while the
      remaining […] provided no reason. No customers are known to have switched to
      MarkitSERV.252 This confirms that the Parties are not close competitors in bilateral
      FX NOE messaging.
(276) In addition, the Commission notes that Traiana’s bilateral FX NOE messaging
      services seem to be ancillary to its tri-party offering […]. The same seems to be true
      vice versa where MarkitSERV is predominantly catering to customers requiring
      bilateral FX NOE messaging and only provides very limited tri-party FX NOE
      messaging – so limited, that many customers do not even seem to be aware of its
      offering; for example one customers states: “No, Markitserv does not have a prime
      services offering that we are aware of.”253
(277) Furthermore, and with respect to the competitive closeness of the Parties, customers
      consider captive providers to have similar competitive strength in the market for FX
      NOE messaging254 as the main “independent” suppliers (MarkitSERV, Traiana and
      Refinitiv). The fact that several captive providers are considered to have similar
      competitive strength as the main “independent” suppliers further indicates that
      customers consider these providers to offer competing services. One customers
      states: “MarkitSERV and Cobalt are competitors to Traiana’s FX NOE service, in
      addition to any proprietary FX NOE delivery service that any firm develops and
      supports.”255 The constraint on the JV from captive providers is supported by the fact
      that customers consider that switching to captive providers is possible.256
(278) Moreover, some captive suppliers also provide an independent offering (such as
      Refinitiv), meaning that they are well placed to expand and constrain the JV and that
      the line between captive and independent providers is blurred.257 As to the question
      whether captive providers compete between themselves for FX NOE messaging
      services, the market investigation did not explicitly examine this. However, it is
      likely that the competitive constraint posed by other captive providers in respect of
      their FX NOE messaging offering is lower than that of an independent provider.
      However, the fact that captive providers are offering FX NOE messaging for their
      own trading venue suggests that they have the general technical knowledge to apply
      this to other trading venues.
(279) Another element that constrains independent providers of FX NOE messaging
      services is self-supply. This seems to be an option, as several respondents mention
      this. For example, asked why customers procure several trade processing services
      from the same provider, one answers: “Convenience until we can build an in-house
      substitution.”258 In addition, the above mentioned win-loss analysis confirms that in-
      house solutions are a common replacement for customers cancelling either
252
      Notifying Parties’ response to RFI 10, Annex 146.
253
      Reply to question 21 of Questionnaire 3.
254
      Reply to question 15 of Questionnaire 3. Specifically, Broadridge, SmartTrade, Fluent Trade
      Technologies, Murex and CBOE FX.
255
      Reply to question 17 of Questionnaire 3.
256
      As outlined in recitals (130) and (131).
257
      See recital (129).
258
      Reply to question 7.1.2 of Questionnaire 3.
                                                      64
 ---pagebreak---       MarkitSERV’s or Traiana’s bilateral FX NOE messaging service. In fact, though not
      explicitly investigated, it is likely that customers switching to an in-house solution
      are building this solution using direct trading venue/risk management system
      providers’ or other aggregators/order management system providers’ messaging
      services as inputs. This indicates that while independent NOE messaging providers
      may not be the closest competitors to captive providers, those captive providers do
      exert a competitive constraint on independent NOE messaging providers.
(280) Fifth, in its pre-notification outreach, the Commission talked to a number of
      customers about their bargaining power vis-à-vis the Parties. One customer
      “considers that it has bargaining power as a customer against Traiana. In
      particular, this is apparent through the fact that [the customer] can and does create
      direct connections with major clients and counterparties.”259 Another customer
      “understands that it would have some bargaining power as a customer against the
      Parties, given the multiple touchpoints of [the customer] globally with each of the
      Parties.”260
(281) Sixth, customers of the Parties seem to indeed be able to sponsor entry as evidenced
      by recent examples in the trade processing markets, e.g. Access Fintech sponsored by
      J.P. Morgan, Citi, Goldman Sachs and Deutsche Bank, and Cobalt, which is
      sponsored by Citi and Singapore Exchange (as well as IHSM itself, […]).
(282) Seventh, in terms of impact, customers of trade processing services in general and FX
      NOE messaging and FX PB give-up management services in particular, have a
      positive or neutral view on the Transaction.261 Several customers echo views of the
      Notifying Parties regarding the rationale of the Transaction, i.e. that the combination
      of MarkitSERV and Traiana could lead to efficiencies in a fragmented trade
      processing services landscape. One customer explicitly mentions the possible trade-
      off between competition and efficiencies: “Negative impacts from a competition
      perspective may be offset by increased investment in the service.”262
(283) Significant competitors of the Parties in bilateral FX NOE messaging did not raise
      any concerns and noted that although their services compete, they also worked
      together in an open way (i.e. connect to each other) given the “utility like nature” of
      FX NOE messaging services.263 Furthermore, they stated that they are “particularly
      focused on FX for legacy reasons (…) and likely a stronger competitor in FX post-
      trade services than MarkitSERV (…).”264
(284) Eighth, calls with customers as well as internal documents highlight that in particular
      MarkitSERV’s services require investment to remain competitive.265 For example,
      one customer notes that “IHSM had been attempting to sell Markitwire for some
259
      Minutes of a call with a customer on 28 April 2021, 10:00 CET.
260
      Minutes of a call with a customer on 4 May 2021, 11:00 CET.
261
      Replies to questions 36-38 of Questionnaire 3.
262
      Reply to question 36.1 of Questionnaire 3.
263
      Minutes of a call with a competitor on 12 May 2021, 11:00 CET.
264
      Minutes of a call with a competitor on 12 May 2021, 11:00 CET.
265
      Minutes of a call with a customer on 4 May 2021, 11:00 CET and internal document of IHSM titled
      “Project Parthenon Opportunity overview”, slide 20.
                                                       65
 ---pagebreak---       time; even though it is a profitable business, the technology is old and in its current
      state has likely already past its peak value.”266
(285) Ninth, the concern voiced by one FX trading venue competitor that the “combination
      of ISHM and Traiana’s NOE services may lead to price increases for clients, and so
      less appetite for clients to trade on [the competitor’s FX trading venue]”267, does not
      seem plausible. Customers of FX trading venues do not chose their trading venue
      based on the prices of trade processing providers, but rather based on a trading
      venues’ liquidity, which is normally also the first criterion based on which FX
      trading venues advertise their services.268 The Notifying Parties provided an example
      of a typical relationship between the costs associated with an FX trade that is
      processed using MarkitSERV’s FX NOE messaging: “For a mid-size regional bank,
      the Parties estimate the post trade processing cost (third party costs and
      infrastructure costs but not including the cost of staff to support post trade
      processing) of an average FX trade to be approximately $6.50, of which,
      approximately $0.02 would normally be attributed to NOE messaging. Execution
      costs for the same trade could reasonably be expected to be between $300 and $600
      per trade for Spot transactions, with significantly higher costs per trade for Forward
      and Swap transactions.”269 Hence, the costs of FX NOE messaging services
      represent a fraction of other trade processing services costs and are even less
      important when considering other trading costs (e.g. charged by the trading venue). It
      seems therefore unrealistic to assume customers would be discouraged from trading
      on a certain FX trading venue, because of higher costs for FX NOE messaging
      services.
(286) On balance, the Commission concludes that the Parties do not seem to be close
      competitors in bilateral FX NOE messaging and there are sufficient alternatives
      available to market participants. Even in a hypothetical narrower market only
      including independent providers of bilateral FX NOE messaging services, potential
      competition from captive providers would pose a sufficient competitive constraint in
      addition to market participants’ ability to self-supply or sponsor entry. The share of
      independent provision of FX NOE messaging services compared to all FX trades in
      2019 was below 10%.270 This indicates that the vast majority of executed FX trades
      are not captured by the independent providers of FX NOE messaging services.
(287) With respect to a narrower market of FX NOE messaging for electronically executed
      FX trades separate from a market for FX NOE messaging for bilaterally/voice
      executed trades, the Commission observes that MarkitSERV and Traiana provide
      services for both types, as does their main competitor Refinitiv.271 The proportion of
      bilaterally/voice executed trades in FX is ca. 30%, so the smaller part of the overall
      FX trading market. MarkitSERV’s market share in an “electronic only” FX NOE
266
      Minutes of a call with a customer on 4 May 2021, 11:00 CET.
267
      Minutes of a call with a competitor on 24 May 2021, 14:00 CET.
268
      E.g. “EBS Market provides orderly, executable and genuine liquidity across all major and emerging market
      currencies.” See https://www.cmegroup.com/trading/market-tech-and-data-services/ebs/platforms html, accessed
      on 12 July 2021.
269
      Notifying Parties’ response to question 1 in RFI 15.
270
      Case team calculations based on Form CO, Annex 144 and responses by a competitor to RFIs on 29
      and 30 June 2021.
271
      Notifying Parties’ response to questions 5 and 6 in RFI 19.
                                                         66
 ---pagebreak---        messaging market would be [5-10]% (in 2019), while Traiana’s would be [0-5]%272,
       and hence the market would not be affected.
5.4.3.   Conclusion
(288) Based on the above considerations and the evidence available to the Commission, the
       Transaction does not give rise to serious doubts as to its compatibility with the
       internal market as a result of a horizontal effects in the market for bilateral FX NOE
       messaging services, or separate narrower markets distinguishing by independent
       versus captive provision of FX NOE messaging services or FX NOE messaging
       services for electronically executed FX trades or bilateral/voice FX trades.
5.5.     FX PB give-up messaging services worldwide
(289) A horizontal overlap arises in the plausible narrower market of FX PB give-up
       messaging services, which is a service type of FX PB give-up management services
       (see Section 4.6.2). In the global market of FX PB give-up messaging services,
       Traiana has a market share of [80-90]% and MarkitSERV a market share of [0-5]%
       in 2019.273
       Table 5: Global FX PB give-up messaging services
                                                              # of          % of
                                                             trades        trades
         MarkitSERV                                           […]         [0-5]%
         Traiana                                              […]        [80-90]%
                                                                            [80-
         Combined                                             […]          90]%
         Trading platforms (incl. EBS, Refinitiv
                                                                         [10-15]%
         Matching, Hotspot, FX All, Currenex)
         Others (incl. Access FinTech, Cobalt,
                                                                          [0-5]%
         TransFICC)
         Total                                              400.000        100%
       Source: BIS OTC Derivatives Data. Note: Traiana's market share is based on its share of the BIS
       2019 daily average notional value of FX PB trades. This value market share is used to estimate the
       market size in terms of number of trades (this assumes Traiana's market share in terms of value of PB
       trades is equal to its market share in terms of number of PB trades) which is used to estimate
       MarkitSERV's market share (BIS does not report data on the volume or average value of PB trades).
       Competitor market shares have been sourced from management estimates.
(290) Traiana provides FX PB give-up management services, of which FX PB give-up
       messaging services are a separate service type that is available standalone as well as
       in combination with other FX PB give-up management services.
(291) MarkitSERV does not provide FX PB give-up management services, but provides FX
       PB give-up messaging in relation to a very small volume of FX prime brokerage
272
       Case team calculations based on Form CO, Annex 144, under the conservative assumption that all
       trades processed in terms of FX NOE messaging by MarkitSERV and Traiana are for electronically
       executed trades.
273
       Form CO, Annex 105. The Notifying Parties are unable to provide market shares for plausible narrower
       separate markets, e.g. FX PB give-up messaging services for electronically executed trades, see
       Notifying Parties response to question 10 in RFI 19.
                                                         67
 ---pagebreak---        trades for a very limited number of customers. Hence, the Commission assesses
       below the horizontal overlap with respect to FX PB give-up messaging services.
5.5.1.   Notifying Parties’ view
(292) First, the Notifying Parties consider that they effectively do not compete in the
       market for FX PB give-up messaging services, given that MarkitSERV only provides
       FX PB give-up messaging services for a very small number of customers, mostly as
       part of legacy arrangements and only marginal revenues result from this activity.
(293) Second, the Notifying Parties note that Traiana is the leading competitor in FX PB
       give-up management services (including FX PB give-up messaging services) and
       faces competitive pressure mainly from FX trading venues who are also able to
       directly connect to prime brokers.
(294) Third, the Notifying Parties note that they are facing considerable bargaining power
       from their main customers, as evidenced by the fact that the top 10 customers of each
       Party account for [large proportion] of their revenue. Those customers are able to
       move significant business and/or may move to self-supply.
5.5.2.   Commission’s assessment
(295) The Commission assesses below the impact of the Transaction on the market of FX
       PB give-up messaging services, a plausible narrower separate market by service type
       in FX PB give-up management services.
(296) In the FX PB give-up messaging service market, Traiana is the dominant player with
       a market share of [80-90]% according to the Notifying Parties. MarkitSERV provides
       FX PB give-up messaging services for [0-5]% of the number of trades for which
       Traiana provides FX PB give-up messaging services. Concretely, MarkitSERV offers
       this service to a very limited number of customers in the following instances:
       (i) MarkitSERV provides FX PB give-up messaging to […] customers who use its
            bilateral FX NOE messaging service as well. The Notifying Parties claim that
            MarkitSERV only provides “pre-risk messaging”274 to these customers and not
            the full spectrum of FX PB give-up messaging that Traiana provides, which is a
            “post-risk”275 service. However, the Commission understands that while “post-
            risk” messaging services may not be able to replace “pre-risk” messaging due to
            the latter’s higher latency, this higher latency means that “pre-risk” messaging
            would seem to be able to replace “post-risk” messaging. Hence, in respect of
            these customers, MarkitSERV would seem to provide a fully comparable
            offering in terms of FX PB give-up messaging services to Traiana’s.
274
       “Pre-risk” means that messages are sent after trade execution for the purpose of updating a customers’
       risk management system. Customers usually have internal limits as to the type and amount of risk they
       can incur in their trading activities and the risk management system keeps track of this. Hence, a real-
       time update of this system is important. […].
275
       “Post-risk” means that messages are sent after trade execution but for a different purpose than updating
       a customers’ risk management system. “Post-risk” messages are used to reconcile trades in a
       customers’ middle/back-office, but do not influence whether or not new trades are executed (which
       happens in the front-office). As such latency can be slower and Traiana’s service has a latency of ca.
       […] ms.
                                                           68
 ---pagebreak---        (ii) MarkitSERV provides FX PB give-up messaging to […] customers as part of
            legacy agreements with an annual revenue of […] (MarkitSERV’s total revenue
            in 2020 from FX-related trade processing services was […]276).
(297) The market investigation supports the view of the Notifying Parties that they do not
       compete in FX PB give-up messaging services or any narrower separate markets (FX
       PB give-up messaging services for electronically executed FX trades and FX PB
       give-up messaging services for bilaterally/voice executed FX trades). While a
       connection to electronic trading venues is relevant since ca. 70% of FX trading
       volume currently takes place electronically, the Commission notes that customers
       regularly trade via both trading channels and require FX PB give-up messaging
       services regardless of the trading channel. As such, Traiana’s and MarkitSERV’s
       market share on narrower separate markets by trading channel are therefore expected
       to be similar as in a broader market and competitive dynamics are unlikely to be
       fundamentally different in any of these plausible narrower separate markets.277
(298) When asked to identify Traiana’s closest competitors in FX PB give-up management
       services, customer’s responses were limited to: “Cobalt” or “no-one”.278
       MarkitSERV is mentioned as a provider of FX PB give-up management services “in
       an ancillary capacity”.279 The Commission considers that this supports the Notifying
       Parties’ view that Traiana and MarkitSERV do not compete closely in the FX PB
       give-up messaging services market (or any plausible narrower separate markets).
(299) In terms of impact, the majority of respondents expect a neutral or positive impact of
       the Transaction on FX NOE messaging/FX PB give-up management services
       markets.280 One customer explains: “Currently Traiana has a very high market usage
       and we do not see the expected transactions impacting the rest of the market
       competition.”281 The Commission notes that MarkitSERV’s incremental market share
       is [0-5]% and hence unlikely to be able to change the market structure as a result of
       the Transaction.
5.5.3.   Conclusion
(300) In light of the above and all of the evidence available to it, the Commission
       concludes that the Transaction does not give rise to serious doubts as to its
       compatibility with the internal market with respect to FX PB give-up messaging
       services, as the Transaction does not strengthen Traiana’s dominant position in this
       market due to MarkitSERV’s negligible presence and the fact that it essentially does
       not compete with Traiana.
5.6.     CCP connectivity in FX and IRD worldwide (upstream) and clearing services
         in FX and IRD worldwide and in the EEA (downstream)
(301) CCP connectivity services of the type provided by MarkitSERV and certain trading
       venues allow customers to send trades executed on a venue or bilaterally to CCPs for
276
       Notifying Parties’ response to question 5 in RFI 6.
277
       Notifying Parties’ response to question 5 in RFI 19.
278
       Replies to question 30 of Questionnaire 3.
279
       Replies to question 32 of Questionnaire 3.
280
       Replies to questions 37 and 38 of Questionnaire 3.
281
       Reply to question 38.1 of Questionnaire 3.
                                                         69
 ---pagebreak---       clearing. MarkitSERV’s CCP connectivity service is an important source of trades
      for some CCPs in the FX and IRD asset classes. The Transaction, therefore, gives
      rise to a vertical link between MarkitSERV’s CCP connectivity service in FX and
      IRD (upstream) and CME’s clearing service in these asset classes (downstream).
(302) Upstream, MarkitSERV is the leading provider of CCP connectivity worldwide in the
      FX ([90-100]% market share) and IRD ([80-90]%) asset classes.282 As described in
      Section 5.3 above, MarkitSERV faces competition from trading venues, which
      provide customers with the ability to send trades directly to CCPs (without the
      intermediation of any middleware provider, such as MarkitSERV). Its main
      competitors in the FX and IRD asset classes are Bloomberg, FX Connect
      (TradeNexus) and TradeWeb.
(303) Downstream, MarkitSERV provides connectivity services to CME’s clearing service
      (‘CME Clearing’) in the FX and IRD asset classes (while MarkitSERV is also active
      in CDS, CME Clearing does not offer clearing in the CDS asset class).283 The
      Notifying Parties estimate that CME Clearing is a negligible player in the provision
      of OTC FX clearing services worldwide ([0-5]% market share) and is a very small
      player in relation to OTC IRD clearing services worldwide ([5-10]% market
      share).284 These market shares would be even lower on an EEA-wide market.285 The
      Notifying Parties identify that LCH is by far the largest provider in both asset classes
      worldwide and in the EEA, noting that in IRD, JSCC, HKEX, ASX, Eurex and BME
      are also active.286 This reflects the Commission’s findings in previous market
      investigations, in which it confirmed that in IRD clearing, in 2019 LCH had a market
      share of 90-100%, CME’s market share was 0-5% and Eurex and others each
      represented 0-5%.287 Likewise, the Commission found that in the EEA LCH’s market
      share in FX was 90-100%, with Eurex holding a market share of 0-5%.288
(304) The Commission assesses below the risk that the JV would seek to engage in input
      foreclosure of CCP connectivity in FX or IRD with a view to foreclosing rival CCPs.
      In view of the similar dynamics in these two asset classes, the Commission’s
      assessment is presented together for these asset classes, with relevant differences in
      the analysis noted where appropriate. Likewise, in view of the similar dynamics in
      the relevant clearing markets worldwide and in the EEA, the Commission’s
      assessment is conducted globally (as CME’s market shares would only be lower at
      EEA level). The Commission assesses below both a total foreclosure strategy
      (whereby MarkitSERV would cease providing customers with the ability to connect
282
      In terms of a potential narrower product market by trade type, MarkitSERV exclusively provides CCP
      connectivity for bilateral trades. Its market shares would not be materially different from those
      presented in this recital if a separate, narrower product market were defined for CCP connectivity
      delineating by type of trade (RFI 17, Notifying Parties’ response to question 1). In light of this, and the
      assessment conducted below, the Commission considers that for the markets of CCP connectivity in FX
      and IRD worldwide for bilateral or for tri-party trades the Transaction would not give rise to serious
      doubts as to its compatibility with the internal market even on such a narrower market definition.
283
      Form CO, paragraph 107.
284
      Form CO, paragraph 597(b).
285
      Notifying Parties’ response to RFI 17, paragraph 2.1.
286
      Form CO paragraphs 613ff, Notifying Parties’ response to RFI5 paragraph 3.17.
287
      Commission decision in Case M.9564 London Stock Exchange Group/Refinitiv Business of 13.1.2021,
      table 43 (publication pending). Market share estimates on the basis of the notional cleared volumes of
      clearing of OTC interest rate derivatives.
288
      Ibid., table 64.
                                                          70
 ---pagebreak---        to certain CCPs) and a partial foreclosure strategy (which could involve charging
       higher prices to some CCPs or degrading the technical connectivity to some CCPs,
       for instance by reducing the speed or reliability with which trades are sent to
       clearing).
(305) For completeness, the Commission notes that the Transaction is unlikely to give rise
       to a risk of customer foreclosure given that CME’s market shares in the
       (downstream) market for derivatives clearing services by asset class would not
       exceed [10-20]%.
5.6.1.   Notifying Parties’ view
(306) The Notifying Parties argue that MarkitSERV will not be able to foreclose rival
       CCPs’ access to FX or IRD CCP connectivity for the following reasons.289
(307) First, the Notifying Parties argue that in each of these asset classes there are a
       number of other providers of CCP connectivity solutions to which customers and
       CCPs could switch. This includes Bloomberg, FX Connect (TradeNexus), TradeWeb
       and other trading venues, which will all be available options for customers post-
       Transaction. The Notifying Parties claim that the time and cost of switching to one of
       these rivals is very low.290
(308) Second, the Notifying Parties argue that customers do not base their decisions on
       which CCP to use for clearing services upon which post-trade services they are using.
       Instead, customers’ choice of CCP is driven by which CCP provides the optimal
       venue for them to clear their trades. As FX and IRD CCP connectivity only
       represents a very small proportion of the cost of trading compared to clearing costs,
       customers could not be convinced to clear trades at a particular CCP simply because
       they use MarkitSERV for CCP connectivity.291
(309) Third, any foreclosure attempt would be disciplined by customers. The Notifying
       Parties explain that the market is “characterized by an open clearing model, where
       OTC trading venues are connected to several clearing houses, and where customers
       indicate how and where they want their contracts to be cleared”.292 MarkitSERV’s
       customers are large financial institutions, such as large global banks, as well as buy-
       side clients such as hedge funds, asset managers and corporations. The Notifying
       Parties argue that customers have significant buyer power and would act to discipline
       the JV in the event of any foreclosure attempt.293
(310) As regards incentive, the Notifying Parties claim that in respect of FX or IRD trades,
       MarkitSERV will have no incentive to foreclose rival CCPs’ access to CCP
       connectivity.294 They explain that CME’s market shares are limited in clearing of FX
       and IRD trades (less than [0-5]% and [5-10]% respectively). Accordingly, it only has
       a small base of sales on which it could recoup any benefits from a foreclosure
289
       Form CO, paragraph 530 onwards and 596 onwards.
290
       Form CO, paragraph 596(a).
291
       Form CO, paragraph 530.
292
       Form CO, paragraph 596(b).
293
       Form CO, paragraph 468.
294
       Form CO, paragraph 597.
                                                   71
 ---pagebreak---        strategy.295 The Notifying Parties add that the Parent IHSM would not benefit from
       any foreclosure strategy, as it would not receive the benefit of increased sales by
       CME’s clearing service.296
5.6.2.   Commission’s assessment
(311) In terms of the JV’s ability to foreclose rival CCPs in the clearing of FX and IRD
       asset classes through a strategy of foreclosing access to MarkitSERV’s CCP
       connectivity services, there are some reasons to consider that the JV may have such
       an ability. In particular, MarkitSERV is the dominant player in FX ([90-100]% share)
       and IRD ([80-90]% share) and is an important source of trades for some CCPs; for
       example, the Notifying Parties estimate that MarkitSERV processes more than [90-
       100]% of the FX trades cleared by LCH.297 However, the market investigation also
       indicated several reasons to doubt that MarkitSERV would the ability to engage in a
       successful foreclosure strategy.
(312) First, the market investigation supported the Notifying Parties’ claim that customers’
       choice of CCP is determined by factors other than their supplier of CCP connectivity
       services. Dealer and broker banks explained that (once it is established that the CCP
       offers clearing for the products they need), “[t]he clearing to a CCP or another will
       primarily be driven by the market liquidity and the client preference”. This highlights
       the network effects in clearing markets: the more participants clear the same products
       in the same CCP, the higher the liquidity in those products in that CCP which
       increases compression possibilities, reduces risk and results in lower margin
       requirements for all participants, as trades of a higher number of participants can be
       “off-set” in terms of risks. These network effects normally lead to high concentration
       of certain products clearing in particular CCPs and a low attractiveness for customers
       to clear in several CCPs or switch CCPs. 298 Other factors considered important when
       selecting a clearing provider included the margin requirements (which are also a
       result of the number of participants clearing the same products) and clearing fees at
       the CCP. In contrast, respondents considered that interoperability with CCP
       connectivity solutions for FX and IRD was much less important in their decision
       making.299 CCPs themselves agreed that factors such as product availability, clearing
       fees and reputation were more important parameters for competition between CCPs
       than interoperability with CCP connectivity solutions.
(313) Second, the market investigation suggested that CME’s small size would make a
       foreclosure strategy challenging. The market investigation confirmed that CME
       Clearing is a small player in FX and IRD, facing competition from much bigger
       rivals such as LCH.300 Indeed, as the Notifying Parties explained: “whereas LCH
       clears an average of USD 40-45 billion notional per day, CME’s cumulative cleared
       volume since 2017 is around [over USD 100 billion]”.301 Customers indicated that
       CME Clearing’s small size and limited uptake in these asset classes is part of the
       reason why it is a less attractive option for clearing than some rivals. Customers
295
       Form CO, paragraph 531.
296
       Form CO, paragraph 597(c).
297
       Form CO, paragraph 597.
298
       Replies to questions 7 and 10 of Questionnaire 1.
299
       Replies to question 7 of Questionnaire 1.
300
       Replies to question 5 of Questionnaire 1 and questions 8 and 9 of Questionnaire 2.
301
       Form CO, paragraph 589.
                                                         72
 ---pagebreak---       explained that there would need to be significantly greater client/counterparty
      demand for and liquidity at CME Clearing before they would consider increasing
      their use of it to clear their trades.302 Therefore, the small size and limited uptake of
      and liquidity at CME Clearing (compared with its rivals) would hinder the JV’s
      ability to convince its customers to switch to CME Clearing for FX and IRD from
      other CCPs simply on the basis of access to MarkitSERV’s CCP connectivity
      products for these asset classes.
(314) Third, the JV’s ability to convince customers to switch to CME Clearing for FX and
      IRD clearing services is further limited by the fact that it is difficult for customers to
      switch CCPs. The vast majority of customers considered that it was challenging, or
      even impossible, to switch between CCPs.303 As well as noting that switching would
      only be possible insofar as the new CCP offered clearing for the products required by
      the customer, they highlighted that there would be material technical challenges and
      operational risks in switching CCP. Customers again pointed to the fact that some
      CCPs lack liquidity, which constitutes a barrier to switching.304 In line with this, the
      majority of customers confirmed that they have not switched (all or a large part of
      their needs) from one CCP to another in the last three years.305 These barriers indicate
      that it could be a considerable challenge for MarkitSERV to convince customers to
      switch CCP for clearing FX and IRD trades simply on the basis of access to
      MarkitSERV’s CCP connectivity products for these asset classes.
(315) Fourth, the JV’s ability to engage in a foreclosure strategy is limited by the likely
      strong response of customers. When asked how they would respond if the JV stopped
      providing connectivity to third party CCPs or worsened connectivity conditions, the
      majority of customers who expressed a view explained that they would switch to an
      alternative solution. Even if MarkitSERV is today the dominant CCP connectivity
      provider in FX and IRD, with few strong alternatives, customers explained that
      access to alternative CCPs (in particular LCH) is crucial so “the market would find
      alternative solutions”. One customer considered that attempting a foreclosure
      strategy by MarkitSERV would amount to “abandoning a market where they are
      established”. Another added that a total foreclosure attempt “would promote
      competition instantly from other providers… It would limit the trade processing
      servie to only income from CME trade flow and risk losing all other CCP activity”.306
      This sentiment also applies to a partial foreclosure strategy, where a customer
      explained that “the clearing volumes are generally more important than the
      middleware and we would therefore most likely look for an alternative middleware
      service provider”.307 Some rival CCPs also noted that customers may retaliate to
      defeat a foreclosure strategy, explaining that “this could be a commercial challenge
      to the JV as the customers may find alternative solutions… this scenario is hopefully
302
      Replies to question 6 of Questionnaire 1. For completeness, the Commission notes that it is unlikely
      that a sufficient number of customers would switch as to remove customers’ concerns regarding
      liquidity and limited uptake at CME Clearing given that LCH holds a 90-100% market share in FX and
      IRD and that there are network effects from customers continuing to use the LCH as their CCP.
303
      Replies to question 8.1 of Questionnaire 1.
304
      Replies to question 8 of Questionnaire 1.
305
      Replies to question 9.1 of Questionnaire 1. Indeed, the limited examples of switching generally
      suggested that switching only tends to take place in the case of shock events such as the market exit of
      a provider or Brexit.
306
      Replies to questions 26.3 and 27.3 of Questionnaire 1.
307
      Replies to questions 26 and 27 of Questionnaire 1.
                                                        73
 ---pagebreak---       unrealistic… we would expect a very strong and unanimous reaction from regulators,
      market participants, service providers, etc”.308
(316) Fifth, the JV is unlikely to have the ability to engage in a successful partial
      foreclosure strategy centred on raising fees to customers wishing to send FX or IRD
      trades to third party CCPs, or raising fees to rival FX or IRD CCPs with a view to
      increasing their cost base and making their prices uncompetitive:
      (a)      Regarding a strategy to selectively discriminate fees for customers depending
               on whether they use CME Clearing or a rival CCP, such a strategy is unlikely
               to successfully foreclose rival CCPs for FX or IRD. When customers were
               asked to identify the factors driving their choice of CCP connectivity
               provider, they generally placed only limited weight on fees (it was only the
               fifth most important factor on average).309 This is supported by data submitted
               by the Notifying Parties, which showed that generally the fees paid by
               customers are a small proportion of the cost of trading compared with clearing
               costs.310 As explained below, already pre-Transaction, it appears that clients
               are prepared to incur higher costs so that they can clear their trades at their
               CCP of preference, so it is unlikely that an increase in connectivity costs
               (which form a smaller part of the overall costs of trading) would significantly
               influence their choice.
      (b)      Regarding a strategy to increase fees charged by rival CCPs for FX or IRD
               clearing, as outlined in recital (312) above, clearing fees were not the most
               important aspect driving a customer’s choice of CCP. This is further
               supported by the fact that already pre-Transaction CME Clearing does not
               charge its clients for clearing FX trades “given its limited traction”.311 In
               comparison, clearing costs at rival CCPs can be material. 312 Despite this
               commercial strategy, CME Clearing remains a small player in FX clearing,
               with a market share of [0-5]%. Rival CCPs appear to generate significant
               margins in clearing and so may be able to absorb an attempt to increase
               fees.313 In view of the foregoing, it appears unlikely that the JV could
               successfully increase rival CCPs’ cost base to such an extent that would
               convince MarkitSERV’s customers to switch their FX or IRD clearing to
               CME Clearing.
(317) In light of the foregoing, it is unlikely that the JV would have the ability to engage in
      a successful strategy to totally or partially foreclose rival CCPs by restricting or
      worsening access to MarkitSERV’s CCP connectivity service in FX or IRD.
(318) In terms of the JV’s incentive, the market investigation indicated that the JV is
      unlikely to have the incentive to use MarkitSERV’s CCP connectivity service to
      totally or partially foreclose rival CCPs in clearing IRD and FX trades.
308
      Replies to question 21 of Questionnaire 2.
309
      Replies to question 14 of Questionnaire 1.
310
      Form CO, paragraph 532-538.
311
      Form CO, paragraph 586.
312
      Form CO, paragraph 532-538.
313
      Form CO, paragraph 537. For example, LCH’s 2019 accounts indicated that it earned EUR 861 million
      in revenues, had gross profits of EUR 723 million and an EBITDA of EUR 464 million. Similarly, ICE
      (albeit mainly active in the credit asset class) generated clearing fees in 2019 of US 1.1 billion.
                                                           74
 ---pagebreak--- (319) First, reducing or worsening access to third party CCPs for FX and IRD might
      undermine the attractiveness of MarkitSERV and harm its ability to attract and retain
      customer business. The vast majority of customers indicated that operational
      reliability was a “very important” factor for them in selecting their CCP connectivity
      provider; this was the most significant driver of banks’ choice, together with the
      preference of the client/counterparty. The next most important factors were indicated
      to be the reputation of the CCP connectivity provider and the speed with which trades
      are sent to clearing.314 This indicates that a foreclosure strategy by MarkitSERV
      could put at risk its ability to retain its customer base, as it would become less
      attractive to customers (which may in turn negate or reduce MarkitSERV’s ability to
      successfully foreclose rivals).
(320) Second, a foreclosure strategy may also undermine the relevance of MarkitSERV for
      its customers and its CCP partners for FX and IRD. Some major CCPs indicated that
      they consider that it is important from MarkitSERV’s perspective to be able to
      provide connectivity to them. For example, in IRD, one CCP explained: “[i]f
      MarkitSERV was not able to offer their clients access to process [rates trades as our
      CCP], this could lead to clients switching to alternative platforms (e.g.
      TradeWeb/Bloomberg)”.315 This is supported by the fact that more than 90% of the
      FX and IRD clearing markets are represented by third parties. If MarkitSERV were
      to reduce its access to the major CCPs, and only provide effective connectivity
      services in respect of [0-5]% of FX trades and [5-10]% of IRD trades, this would put
      at risk its relevance for the overwhelming majority of customers.
(321) Third, the market investigation indicated that risks outlined in recitals (319) and
      (320) are real, because customers would retaliate against a foreclosure strategy.
      Customers strongly considered that this retaliation risk meant that the JV would not
      have an incentive to engage in foreclosure.316 They explained that the JV would not
      have such an incentive because this would “jeopardize [MarkitSERV’s] market
      leadership and reputation by deterioration of service”, “this would have a very
      negative affect on their reputation”.317 The strategy would backfire – one customer
      explained that “the market would find alternative solutions”, with another agreeing
      that “many market participants would look for a new provider to enable their
      clearing flow to LCH”. One customer explained that a foreclosure attempt “would
      promote competition instantly from other providers”.318 The market investigation
      indicated that customers would switch away from MarkitSERV rather than accepting
      a worse product offering or inability to access the CCP they wish to use.319
      Customers also identified that such a strategy could be perceived as anti-competitive
      and draw regulatory scrutiny.320
(322) Fourth, the JV would have only a very small base of revenues on which it could reap
      the rewards of a foreclosure strategy. CME Clearing represents a negligible
      proportion of FX trades sent to clearing ([0-5]%) and a small proportion of cleared
      IRD trades ([5-10]%). As explained above, customers face barriers in switching
314
      Replies to question 14 of Questionnaire 1.
315
      Replies to questions 17 and 17.1 of Questionnaire 1.
316
      Replies to question 27.3 of Questionnaire 1.
317
      Replies to question 27.3 of Questionnaire 1.
318
      Replies to question 26.3 of Questionnaire 1.
319
      Replies to questions 26.3, 27 and 27.3 of Questionnaire 1.
320
      Ibid.
                                                        75
 ---pagebreak---        CCPs and, in particular, to a CCP with limited liquidity and uptake such as CME
       Clearing. It would therefore be a challenge for MarkitSERV to displace a significant
       proportion of customers to CME Clearing (while putting at risk its CCP connectivity
       revenues). The gains from a foreclosure attempt may therefore be limited.
(323) Fifth, an input foreclosure strategy would require a change of business strategy for
       MarkitSERV, and pursuant to the Shareholders Agreement, IHSM’s consent is
       required for the approval of the business plan and budget of the JV.321 While a
       successful input foreclosure strategy might benefit the parent CME (which controls
       CME Clearing and so would receive all profits from increased FX or IRD clearing
       revenues), IHSM would not benefit from such a strategy since it would lose profits
       from foregone upstream FX or IRD CCP connectivity sales by MarkitSERV, but
       without a corresponding increase in downstream profits (given that it is not active in
       clearing). Effectively, IHSM would take half of the risk and half of the losses of a
       foreclosure strategy, and receive none of the gain if the strategy succeeds. Given that
       IHSM (IHS Markit) is synonymous with and well-known to be a parent of
       MarkitSERV, it cannot be excluded that reputational damage felt by MarkitSERV
       following the foreclosure strategy may also impact IHSM. Therefore, it is unlikely
       that IHSM would approve any foreclosure strategy.
(324) In light of the foregoing, the Commission concludes that the JV would not have the
       incentive to engage in a strategy to totally or partially foreclose rival CCPs by
       restricting or worsening access to MarkitSERV’s CCP connectivity service in FX or
       IRD.
(325) In terms of the impact of a foreclosure strategy, given that the Commission finds that
       it is unlikely that the JV would have the ability to foreclose and that the JV does not
       have the incentive to foreclose, there is no need to reach a conclusion on the impact
       of a potential foreclosure strategy. 322
5.6.3.   Conclusion
(326) In light of the above and all of the evidence available to it, the Commission
       concludes that the Transaction does not give rise to serious doubts as to its
       compatibility with the internal market from the risk of input or customer foreclosure
       with respect to FX or IRD CCP connectivity services (upstream) and CCPs clearing
       services in these asset classes (downstream).
321
       Form CO, paragraph 175.
322
       For completeness, the Transaction does not give rise to serious doubts as to its compatibility with the
       internal market in relation to a concern that CME Clearing would post-Transaction have a competitive
       advantage through access to MarkitSERV’s CCP connectivity data. First, the JV would lack the ability.
       IHSM has in place very strict policies regarding client data, such as ring-fencing raw data.
       MarkitSERV’s terms also contain confidentiality provisions and require MarkitSERV not to use
       information other than for the purpose which it is provided (Reply to question 11 in RFI 8). Second,
       breaching these contractual provisions may harm MarkitSERV’s reputation with customers, as well as
       reducing rival CCPs’ willingness to work with MarkitSERV. Third, it should be recalled that CME
       Clearing’s market share is less than [0-5]% in FX and less than [5-10]% in rates; accordingly, the
       impact of such a strategy would likely be limited.
                                                          76
 ---pagebreak--- 5.7.     OTC FX trading services
5.7.1.   Customer foreclosure of FX trading services worldwide or EEA-wide (upstream) -
         FX CCP connectivity services worldwide (downstream)
(327) The Commission assesses below the risk that, post-Transaction, the JV’s FX CCP
       connectivity services (downstream) could refuse trade flow from rivals of CME’s FX
       trading venue EBS (upstream) and only provide connectivity to EBS for sending
       trades to clearing.
(328) Upstream, the Notifying Parties estimate that EBS’s market share for FX trading
       services worldwide is [0-5]%.323 Estimates reported by the Bank of International
       Settlements indicate that EBS’s market share for FX trading services would be low
       ([5-10]%), as set out in the following Figure.
323
       The Commission also assessed possible input foreclosure concerns, i.e. the risk that, post-Transaction,
       CME’s FX trading venue EBS (upstream) could work exclusively with the JV’s FX CCP connectivity
       services or favour the JV’s FX CCP connectivity services (downstream) to the disadvantage of rival
       CCP connectivity providers worldwide. The Commission concluded that in terms of ability, EBS’s
       market share upstream ([0-10]%) would seem to be too limited to award it sufficient market power to
       foreclose rivals downstream. In possible narrower separate markets upstream (electronic anonymous
       FX trading services), EBS may have a greater market share. However, in terms of incentives, with
       MarkitSERV’s market share in FX CCP connectivity downstream being [90-100]%, there is limited
       market share to gain through foreclosure of upstream FX trade flows from EBS. Moreover, CME as a
       parent of the JV would have limited incentives to foreclose rivals of the JV downstream, as CME
       would only receive 50% of the benefit of any increase in revenues downstream via stake in the JV,
       while bearing 100% of the losses in its FX trading venue upstream (as well as facing all of the risk of
       reputational damage from such a strategy). In terms of impact, both competitors downstream
       (Bloomberg and State Street) are vertically integrated with FX trading venues upstream which both
       have likely significantly higher market shares than EBS. If EBS were to foreclose its trade flow to those
       rival FX CCP connectivity providers, this would be more likely to harm EBS’s position in FX trading
       markets. Customers prefer to “shop around” and trade on multiple venues, so if a venue tried to create a
       vertical silo and reduce access, FX traders would likely (all else being equal) find that venues’ offering
       less attractive. FX trading venue competitors responding to the market investigation rate the impact of
       the Transaction as mixed, with 50% expecting a negative impact (replies to question 17 of
       Questionnaire 5). However, given the limited ability and incentives to engage in exclusionary conduct,
       the Commission concludes that the Transaction is unlikely to give rise to serious doubts as to its
       compatibility with the internal market as a result of non-horizontal effects in the markets for FX CCP
       connectivity services and OTC FX trading services in terms of input foreclosure.
                                                          77
 ---pagebreak---                              Figure 2: FX trading venues’ market shares
      Source: BIS quarterly review, FX trade execution: complex and highly fragmented, December 2019 324
(329) The Notifying Parties submit that EBS’s market share remains small in each of the
      plausible narrower product markets envisaged in Section 4.3.2. In particular the
      Notifying Parties estimate that:
      (a)      by type of contract, EBS’s market share in the global OTC FX spot trading
               market is [0-5]% and in the global market for OTC FX derivative trading it is
               [0-5]%. The Notifying Parties further estimate that EBS’s market share across
               all contract types is well below [10-20]%.325
      (b)      by currency, EBS’s market share across all contract types is well below [10-
               20]%.326
      (c)      by trading channel, EBS’s market share in the global market for electronic
               OTC FX trading services is [0-5]% ([0-5]% if only considering electronic FX
               spot trading and [0-5]% if only considering electronic OTC FX derivative
               trading. In support of these estimates, according to a regular survey by
324
      https://www.bis.org/publ/qtrpdf/r_qt1912g.htm
325
      Based on the Triennial Central Bank Survey of Foreign Exchange and Over-the-counter (OTC)
      Derivatives Markets, last published in 2019 - Notifying Parties’ response to question 10 in RFI 14.
326
      Ibid.
                                                        78
 ---pagebreak---                   Euromoney, EBS’s market share in the market of electronic multi-dealer FX
                  platforms is around [5-10]%.327
        (d)       for “anonymous” versus “disclosed” trading, EBS’s global market shares
                  would still be well below [10-20]%.328
(330) At EEA level, CME’s market share would be even lower, in particular, because less
        than [5-10]% of EBS’s trading volumes (and less than [0-5]% of its revenues) are
        accounted for by EEA customers.329
(331) In view of the fact that the Notifying Party’s market share estimates remain less than
        [10-20]% under any of the above plausible product and geographic market
        definitions, and that the market investigation did not indicate any reasons why the
        risk of input foreclosure would vary or be greater in relation to any of the plausible
        narrower product or geographic markets described above, in its assessment below the
        Commission focuses on the market shares for FX trading services worldwide.
(332) Downstream, as outlined in Section 5.3 above, MarkitSERV is the leading provider
        of CCP connectivity worldwide in the FX ([90-100]% market share) asset class.330
        MarkitSERV faces competition from trading venues, which provide customers with
        the ability to send trades directly to CCPs (without the intermediation of any
        middleware provider, such as MarkitSERV). Its main competitors in the FX asset
        class are Bloomberg, TradeNexus and TradeWeb.
5.7.1.1. Notifying Parties’ view
(333) The Notifying Parties believe that the JV has no ability or incentives to foreclose
        rival FX trading venues. This is mainly because only […] MarkitSERV customers
        currently use the connectivity between EBS and MarkitSERV for sending trades to
        CCPs, which indicates that those services are not essential for trading venues.
(334) Furthermore, the Notifying Parties argue that the key parameter for choosing a
        trading venue is not the availability of certain trade processing providers but rather
        the liquidity for trading on that venue.
5.7.1.2. Commission’s assessment
(335) With respect to the risk that, post-Transaction, the JV’s FX CCP connectivity
        services (downstream) could refuse trade flow from rivals of CME’s FX trading
        venue EBS, the Commission notes, first, concerning the ability to foreclose, that
327
        https://www.euromoney.com/Media/documents/euromoney/pdf/FX-2019-Results-Presentation.pdf,
        slide 33 (under name NEX, the parent company, that CME bought in 2018), accessed on 11 July.
328
        Notifying Parties’ response to question 2 in RFI 10.
329
        Form CO, footnote 174.
330
        In terms of a potential narrower product market by trade type, MarkitSERV exclusively provides CCP
        connectivity for bilateral trades. Its market shares would not be materially different from those
        presented in this recital if a separate, narrower product market were defined for CCP connectivity for
        bilateral trades (i.e. delineating by type of trade; RFI 17, Notifying Parties’ response to question 1). In
        light of this, and the assessment conducted below, the Commission considers that in respect of this
        market the Transaction would not give rise to serious doubts as to its compatibility with the internal
        market even on such a narrower market definition.
                                                             79
 ---pagebreak---       clearing of FX trades is currently not the norm and only a very small proportion of
      FX trades are cleared.
(336) Apart from that, several of EBS’s FX trading venue competitors with higher market
      shares are not currently connected to MarkitSERV.331 However, those are the FX
      trading venues that are themselves vertically integrated and own their own FX CCP
      connectivity providers. Nevertheless, CCP connectivity services from MarkitSERV
      do not seem to be essential as indicated by mixed responses to the question how
      important MarkitSERV is (none of the respondents to the market test indicated that
      CCP connectivity services from MarkitSERV were “very important”, and there was
      an equal distribution of answers across “important, “somewhat important”, “not
      important” and “other”).332 Indeed, none of EBS’s competitors’ trade flow is
      currently sent for clearing via MarkitSERV. However, a number of venues are
      currently testing this service with MarkitSERV.333
(337) Second, in terms of incentives, IHSM’s EBITDA margins downstream are much
      higher ([…])334 than EBS’s EBITDA margins upstream ([…])335. It is unlikely,
      therefore, that it would be profitable for the JV to give up margin downstream (where
      margins are higher) in order to gain market shares upstream (where margins are
      lower). Apart from that, the JV is jointly controlled by both parents and it is unlikely
      that IHSM would approve the implementation of a foreclosure strategy that would
      decrease revenues for the JV (in which it holds a 50% stake) in order to benefit
      CME’s FX trading business (in which IHSM does not own any stake).336
(338) A competitor in FX trading services notes the following with respect to incentives:
      “(…) one of the joint venture parties, CME, also offers its own FX trading services
      through its FX trading business, EBS, potentially providing some incentive post
      transaction to engage in exclusionary behaviour. However, [the competitor] is not in
      a position to know how profitable such a strategy would be. [The competitor] would
      not expect a complete cessation of connectivity to MarkitSERV because the more
      trades it processes, the more revenue it earns.”337
(339) Thirdly, in terms of impact, it seems unlikely that a refusal to connect to other trading
      venues than EBS would marginalize those trading venues to a significant extent. This
      is mainly because of customers’ bargaining power and preference to trade on
      multiple trading venues, which is precisely one of the reasons for using a third party
      aggregator of trade flows to send trades to CCPs.
(340) In this respect, one competitor indicated that a refusal to supply connectivity services
      to rival trading venues would be challenged by customers: “If the new JV intends to
331
      For example Bloomberg and GlobalLink, State Street’s FX trading venues trading also under the names
      FX connect and Currenex).
332
      Reply to question 12 of Questionnaire 5.
333
      Notifying Parties’ response to question 11 in RFI 19.
334
      Notifying Parties’ response to question 3 in RFI 8.
335
      Notifying Parties’ response to question 4 in RFI 9.
336
      The same arguments hold for a vertical concern voiced by a FX trading venue competitor: “JV may try
      to unfairly encourage customers to use CME’s trading platforms, including EBS, instead of rivals. For
      example, it could worsen commercial or operational conditions for other trading venues that use its
      NOE services. The impact on CBOE could then be that clients would materially reduce or stop using
      CBOE’s platforms.” Minutes from a call with a competitor on 24 July 2021, 14:00 CET.
337
      Reply to question 16 of Questionnaire 5.
                                                        80
 ---pagebreak---         challenge the openly accessible market structure in terms of STP by way of making
        access difficult or impossible, it could provide their own trading venues a stronger
        position (if those are the only access points); this however may be challenged by the
        market participants who prefer multiple trading venue access.”338
(341) FX trading venue competitors rate the impact of the Transaction as mixed, 50% of
        informative responses believing in a neutral impact and 50% believing in a negative
        impact.339 However, given the limited ability and incentives to engage in customer
        foreclosure, and in view of the foregoing, equal access and fair treatment of FX
        trading venue competitors seems to be the more likely result of this Transaction.
5.7.1.3. Conclusion
(342) Based on the above considerations and the evidence available to it, the Commission
        considers that the Transaction is unlikely to give rise to serious doubts as to its
        compatibility with the internal market as a result of non-horizontal effects in the
        markets for FX CCP connectivity services and OTC FX trading services, in terms of
        customer foreclosure.
5.7.2.    Assessment of concerns with respect to commercially sensitive data
(343) One competitor raised concerns with respect to data gathered by MarkitSERV in the
        course of providing its trade processing services, which the competitor considers as
        commercially sensitive. This data is available to MarkitSERV as a result of its FX
        CCP connectivity and bilateral FX NOE messaging services: “(…) the joint venture
        would have unrivaled access to valuable data that could provide it and its parent
        with a competitive advantage.”340
(344) With respect to this data, the competitor submitted that MarkitSERV, with its unique
        position in the market connecting trading venues and CCPs across several asset
        classes, has a unique view that would provide CME as an operator of exchanges and
        trading venues (and concretely EBS, the OTC FX trading venue) with an unfair
        competitive advantage. The competitor notes: “CME may be able to unfairly exploit
        the knowledge it would gain over the needs and trends of the clients to the
        disadvantage of its competitors, including [the competitor].”341 By contrast, the
        competitor remarks with respect to its own ability to gather data: “The data that [the
        competitor] holds on clients is therefore limited by the services it offers, as well as
        for reasons of regulatory compliance (SEC and CFTC regulations).”342
(345) In addition, the competitor considers that this data also affords “a competitive edge
        when making sales to clients, as having good information on clients’ activities is
        important when competing for new business.”343
(346) In terms of ability to foreclose, the Commission notes that MarkitSERV has a
        dominant position in FX CCP connectivity ([90-100]% market share), while in
338
        Reply to question 16 of Questionnaire 5.
339
        Reply to question 17 of Questionnaire 5.
340
        Reply to question 19 of Questionnaire 5.
341
        Minutes of a call with a competitor on 24 June 2021, 14:00 CET.
342
        Minutes of a call with a competitor on 24 June 2021, 14:00 CET.
343
        Minutes of a call with a competitor on 24 June 2021, 14:00 CET.
                                                         81
 ---pagebreak---       bilateral FX NOE messaging, the combined market share of the JV would be
      significantly lower and would not seem to award the JV a full market overview. In
      addition, the Commission recalls that only a small volume of FX trades are currently
      cleared, and hence, even the very high market share MarkitSERV has in FX CCP
      connectivity is unlikely to provide it with the full market overview that would create
      a significant advantage for CME as a parent of the JV.
(347) Apart from that, the competitor did not provide any further detail on which data
      exactly could be used to create a significant advantage for the JV’s parent CME.
      While MarkitSERV is a strong competitor in several FX trade processing services, it
      is unclear which data could be so valuable for an FX trading venue as to provide a
      significant advantage, when MarkitSERV is currently not commercialising any data
      gathered in the course of trade processing services to any trading venue.344
      Furthermore, MarkitSERV's terms contain confidentiality provisions and require
      MarkitSERV to not use information for any purpose whatsoever other than the
      purpose for which it was provided. It is credible that a breach of this obligation
      would have the potential to harm MarkitSERV’s reputation and credibility as an
      independent trade processing services provider.
(348) Based on these considerations it does not seem likely that the Transaction would
      enable the JV to foreclose competitors of one of the parents by virtue of the
      information it holds.
(349) In terms of incentives to foreclose, the Commission notes that IHSM currently has in
      place very strict policies regarding client data and internal oversight with respect to
      those policies. This includes for example ring-fencing of raw data and strict policies
      on data use.345
(350) Furthermore, the Commission does not find it likely that the JV will internally agree
      (and concretely that IHSM would approve) on the use of information which could
      potentially create reputational harm to the JV (and, by extension, IHSM) to the
      benefit of only one of the JV’s parents. CME would gain all of the profits from a
      successful foreclosure strategy, whereas IHSM would not receive any such benefit,
      only the risk of reputational damage and customer retaliation against the JV’s
      products.
(351) In terms of impact, the Commission considers the concern with respect to
      commercially sensitive data insufficiently substantiated for two reasons: (i) no other
      market participant raised any similar concerns, and (ii) when asked for an example,
      the competitor raising the concern referred to a possibility for MarkitSERV to have a
      complete market overview and use this to the advantage of a trading venue with
      respect to equity derivatives, not FX products.
(352) With respect to the data providing the JV “a competitive edge when making sales to
      clients”, the Commission considers that this is indeed one of the possible benefits of a
      vertical integration within a value chain, which is not per se anti-competitive. In this
      case, the vertical integration is considered less concerning given that other
      competitors are equally vertically integrated, e.g. State Street owns a CCP
344
      Notifying Parties’ response to question 11 in RFI 14.
345
      Notifying Parties’ response to question 11 in RFI 8.
                                                        82
 ---pagebreak---         connectivity service as well as owning an FX trading venue (GlobalLink) and
        Refinitiv provides FX NOE messaging for third party venues while itself owning FX
        trading venues (Refinitiv Matching and FX all).
(353) In any case, the Commission does not consider it likely that if data was used to
        benefit CME’s EBS (e.g. for providing leads for marketing purposes to sales teams),
        that this would have the effect of marginalizing rival FX trading venues. This is
        mainly because market participants in this market seem to use multiple trading
        venues and therefore likely would not stop using other FX trading venues even if
        EBS was able to acquire market participants as new customers.
5.7.2.1. Conclusion
(354) Based on the above considerations and the evidence available to it, the Commission
        considers that, the Transaction does not give rise to serious doubts as to its
        compatibility with the internal market as a result of leveraging (commercially
        sensitive) data gathered as part of the JV’s activities in FX NOE messaging and FX
        CCP connectivity and using it for the benefit of CME’s FX trading venue.
5.8.      Trade optimization services
(355) TriOptima and Reset’s market shares in the relevant plausible markets for 2020 based
        on revenues are as shown below.346 As outlined in Section 4.11, there are separate
        product markets for each of portfolio compression, margin management, portfolio
        reconciliation and basis risk management, in each case split by asset class.347
346
        Form CO, Annex 127. The Notifying Parties estimate that market shares were similar in 2019 and in
        2018, with TriOptima’s market share in portfolio compression being higher in 2018.
347
        The Commission’s assessment in this Section is on the basis of a narrower market that only includes
        third party providers (as opposed to supply by CCPs). Traiana is only active as a third party provider.
        Accordingly, its market share would be lower in a broader market including CCPs. As a result, the
        Transaction does not give rise to serious doubts as to its compatibility with the internal market on either
        basis and it can be left open whether CCPs should be considered part of the relevant product market.
                                                           83
 ---pagebreak---           Table 6: TriOptima and Reset’s global market shares in trade optimization
                                       services by asset class in 2020
      Service/Asset       Overall       Interest        FX           Credit        Equity      Commodities
      class                             rate                         default       derivatives
                                        derivatives                  swaps
      Portfolio           [65-75]%      [70-80]%        [50-         [90-          n/a         n/a
      Compression                                       60]%         100]%
      (TriOptima:
      triReduce)
      Portfolio           [90-          [90-100]%       [90-         [90-          [90-100]%   [90-100]%
      Reconciliation      100]%                         100]%        100]%
      (TriOptima:
      triResolve)
      Margin              [10-20]%      [10-20]%        [10-         [10-          [10-20]%    [10-20]%
      Management                                        20]%         20]%
      (TriOptima:
      triBalance,
      triCalculate,
      triResolve
      Margin,
      IMEM)
      Basis       risk    [60-70]%      [60-70]%        [40-         n/a           n/a         n/a
      mitigation                                        50]%
      (Reset)
      Source: Form CO, Tables 6.14 and 6.15, reply to question 3 of RFI 5,
(356) The Notifying Parties submit that they are not able to estimate the market shares of
      competitors in portfolio compression, portfolio reconciliation and margin
      management (split by asset class).348 In basis risk mitigation services, the Notifying
      Parties expect that tpMATCH accounts for at least 30%, and each of BGC and
      Dealerweb account for up to 5%, though the Notifying Party did not provide
      estimates split by asset class.349
(357) TriOptima and Reset’s product offering and the competitive landscape in each of
      portfolio compression, portfolio reconciliation, margin management and basis risk
      mitigation are as follows.
      Portfolio compression
(358) TriOptima’s triReduce is a web-based multilateral compression service. triReduce
      schedules specific compression events (‘runs’) by product. Participants submit an
      existing portfolio of trades that they wish to compress together with their tolerances
      (e.g. of risk level). triReduce calculates a proposal to compress the participants’
      trades (by replacing multiple offsetting trades with a single one) which is neutral in
      terms of the impact on market risk and which reduces overall notional exposure for
      participants within the risk tolerances they have provided. Before the compression
      proposal can become legally binding: (i) it must be accepted by all participants, and
      (ii) CCPs must review and confirm that, pursuant to the compression proposal, the
      CCP is cash flow- and market risk-neutral throughout. Once these steps are
      completed, the proposal can become legally binding and the participants can
348
      The Notifying Parties submit that they are not aware of any commonly accepted delineations of these
      segments or of any third party estimates of the total size of each of these segments.
349
      Notifying Parties’ submission to Commission on 10 June 2021.
                                                         84
 ---pagebreak---       implement the compression result in their respective systems. From a trade lifecycle
      perspective, compression occurs post-execution so the relationship is centred around
      buy-side, sell-side participants, and CCPs.350
(359) In portfolio compression services, according to trading optimization competitors,
      Quantile is the closest competitor of triReduce, followed by Capitalab.
      ClearCompress, Capitolis and LMRKTS are also named by a few as close
      competitors of triReduce.351 This is confirmed by customers, who generally indicated
      that Quantile was triReduce’s closest competitor and that Capitalab is also a very
      close competitor. For example, one customer identifies that triReduce’s closest
      competitors are “Capitallab [sic], Quantile, Capitolis”. Another customer specified
      that “Quantile services [compete] in terms of general product offering and market
      concentration. However, other competitors emerge on bilateral space or specific
      asset class”.352 Regarding the competitive landscape across the different asset classes
      in which triReduce is active (IRD, FX, CDS), competitors did not indicate that there
      would be any differences as to which competitors compete most closely with
      triReduce.353 One customer considered that there are some differences in the focus of
      these providers: “Quantile for rates, Lmrkts for FX”. However, other than this
      respondent, customers did not indicate that there would be significant differences in
      the competitive landscape in the different asset classes (with the exception that in
      CDS triReduce does not have any close competitors as it holds a [90-100]% market
      share).354 Therefore, the Commission concludes that for portfolio compression
      services across all asset classes, triReduce’s closest competitor is Quantile, with
      Capitalab also being a very close competitor. Other providers such as
      ClearCompress, Capitolis and LMRKTS also compete closely with triReduce, albeit
      to a lesser extent.
      Portfolio reconciliation
(360) TriOptima’s triResolve is a platform which provides portfolio reconciliation services
      for OTC derivatives across all asset classes. Participants submit data on their end of
      day portfolios in a specified format, and triResolve essentially provides clients with
      the possibility to regularly check their positions to make sure they match with those
      of their counterparties. This type of portfolio reconciliation is a regulatory
      requirement in a number of jurisdictions (including Europe355). Customers of this
      service include the operations and risk departments of banks, which are required to
      reconcile their portfolios regularly under applicable regulations, as well as buy-side
      customers such as hedge funds, asset managers and corporates, which are required to
      carry out monthly reconciliations.356
(361) In portfolio reconciliation services, according to trading optimization competitors,
      Acadia is the closest competitor of triResolve, followed by Quantile.357 According to
      customers, triResolve is the “market standard” and “recognized industry platform”.
350
      Form CO, paragraphs 66ff.
351
      Replies to question 11 of Questionnaire 4.
352
      Replies to question 10 of Questionnaire 6.
353
      Replies to question 11 of Questionnaire 4.
354
      Reply to question 10 of Questionnaire 6.
355
      As per Article 11.1 of Regulation (EU) No 648/2012 of 4 July 2012 (“EMIR”).
356
      Form CO, paragraphs 71ff.
357
      Reply to question 10 of Questionnaire 4.
                                                      85
 ---pagebreak---       Customers did not consistently identify any providers as close competitors to
      triResolve.358 Neither competitors nor customers identified any variation in this
      competitive landscape by asset class. Therefore, the Commission concludes that for
      portfolio reconciliation services across all asset classes, triResolve is the clear market
      leader and its closest competitors are Acadia and Quantile.
      Margin management
(362) TriOptima provides margin management services through a number of margin
      management products:
      (a)     triBalance is an initial margin ("IM") optimization service for bilateral and
              cleared exposures covering IRD, FX and Equity asset classes;
      (b)     triCalculate is an X-Value Adjustment ("xVA") and valuations analytics
              service covering all the main OTC asset classes, which reports and validates a
              number of different "valuation adjustments" that banks must make when
              assessing the value of derivative contracts that they have entered into.
      (c)     triResolve Margin calculates and reconciles the variation margin for OTC
              bilateral trades and assists clients to optimise the margin on their positions.
              The service calculates margin calls from exposure, credit agreement and
              collateral balance data, communicates margin calls with counterparties
              electronically, and provides a dashboard for managing the daily workflow and
              exceptions in the margin process; and
      (d)     Initial Margin Exposure Manager ("IMEM") calculates and reconciles
              uncleared initial margin from ISDA sensitivities data. IMEM is a service
              offered in commercial partnership with Acadia. triResolve develops and
              maintains the service while AcadiaSoft contracts with clients and hosts the
              service in their data centres.359
(363) In margin management services, according to trading optimization competitors,
      CloudMargin is the closest competitor of TriOptima, followed by Acadia and
      Cassini.360 Capitalab, Quantile and Calypso are also named by a few as close
      competitors of TriOptima. According to customers, Quantile and Capitalab is the
      closest competitor, followed by CloudMargin and Acadia.361 Neither competitors nor
      customers identified any variation in this competitive landscape by asset class.
      Therefore, the Commission concludes that TriOptima faces competition from a
      number of close competitors across all asset classes for margin management services.
358
      Reply to question 9 of Questionnaire 6.
359
      Form CO, paragraph 73.
360
      Reply to question 12 of Questionnaire 4.
361
      Reply to question 11 of Questionnaire 6.
                                                  86
 ---pagebreak---        Basis risk mitigation
(364) Reset is a multilateral basis risk mitigation service for IRD and FX derivatives.
       Customers submit a portfolio of trades to Reset. Reset then analyses the portfolio and
       suggests trades to reduce exposure against daily fluctuations in benchmark rates
       within risk constraints pre-defined by the users. Reset is not a trading platform and
       does not execute the recommended trades. Trades recommended by Reset are
       executed on CME’s trading venues or off-venue, i.e. without using a trading venue.
       Whether a trade is executed through a CME platform or off-venue depends on the
       customer's location and applicable regulatory requirements.
(365) In basis risk mitigation services, trading optimization competitors were not aware of
       which suppliers would be close competitors to Reset.362 tpMatch was named by
       several customers as the closest competitor.363 Neither competitors nor customers
       identified any variation in this competitive landscape by asset class. The Commission
       notes that multi-sourcing appears to be prevalent also in basis risk mitigation
       services. About half of responding customers indicate that they multi-source basis
       risk mitigation services from both Reset and tpMatch.364 Therefore, the Commission
       concludes that Reset’s closest competitor for basis risk mitigation across all asset
       classes is tpMatch.
5.8.1.   Input foreclosure of RED codes worldwide (upstream) – portfolio
         compression/portfolio reconciliation/margin management for CDS worldwide
         (downstream)
(366) RED codes are used as an input for some of trade optimization services provided by
       the TriOptima business and other suppliers. RED codes are only used in the CDS
       asset class. More specifically, RED codes are used as an input for triReduce's
       portfolio compression services, concretely its CDS compression cycles, and for
       triResolve’s portfolio reconciliation services in order to reconcile CDS trades. While
       RED codes are not used by TriOptima in margin management services, they are used
       as an input by some of TriOptima’s competitors in this market. RED codes are not
       used by Reset, or by its competitors in basis risk management and so this plausible
       market will not be further assessed.
(367) Upstream, under the narrowest plausible market definition, IHSM has a 100% market
       share in the supply of RED codes worldwide. RED is directly delivered to its users
       by IHSM within a data feed alongside a user interface, as well as being distributed by
       third party data vendors such as Bloomberg and Refinitiv. RED is widely distributed
       across CDS market participants.365
(368) Downstream, the JV’s market share would be [90-100]% for CDS portfolio
       compression services, [90-100]% for CDS portfolio reconciliation services and [10-
362
       Reply to question 13 of Questionnaire 4.
363
       Reply to question 12 of Questionnaire 6.
364
       Reply to question 4.3 of Questionnaire 6.
365
       Form CO, paragraphs 613ff; Notifying Parties’ response to RFI 5 paragraph 3.17.
                                                       87
 ---pagebreak---         20]% for CDS margin management services. Its competitors in these trade
        optimization services are described at the start of this Section 5.8.366
(369) The Commission assesses below the risk that the JV would seek to engage in input
        foreclosure of RED codes with a view to foreclosing rival trade optimization
        providers. The risk of customer foreclosure is not assessed because depending on the
        upstream market definition either IHSM is the only provider of RED codes (and so
        there are no rivals to foreclose) or, on a wider plausible market definition including
        similar identifiers, the JV would account for a negligible proportion of demand for
        identifiers.367
5.8.1.1. Notifying Parties’ view
(370) The Notifying Parties argue that IHSM will have no ability or incentive to foreclose
        access to RED codes worldwide for the following reasons.368
(371) First, with regard to ability, the Notifying Parties argue that the success of the RED
        code relies on widespread market use of the identifiers (the product was built for
        wide adoption of the identifier) and withholding or restricting access would seriously
        undermine the RED offering. Indeed, IHSM already uses RED codes in its trade
        processing services but has not sought to restrict competitor access to RED codes
        pre-Transaction.
(372) Second, with regard to ability, the Notifying Parties note that a number of
        TriOptima's competitors in portfolio compression and portfolio reconciliation
        (including Quantile, LMRKTS, Capitalab, Duco, Vermeg, DTCC and CloudMargin)
        do not license RED codes, which shows that they would not be an essential input for
        competing in the downstream markets.
(373) Third, with regard to ability and incentive, the Notifying Parties argue that RED
        codes are used only in relation to OTC credit trades (CDS). TriOptima’s 2019
        worldwide portfolio compression revenues from CDS compression were […],
        representing just [0-5]% of total portfolio compression revenues. Similarly,
        TriOptima’s 2019 portfolio reconciliation revenues from CDS were less than […],
        representing just [5-10]% of total portfolio reconciliation revenues.
(374) Fourth, with regard to incentive, customers choose trade optimization providers
        based on the algorithms the providers use and the types of trades they optimise and
        compress. Similarly, the Notifying Parties note with respect to portfolio
        reconciliation that customers may use different vendors to reconcile the same trade
        data set based on other characteristics, e.g. tenor of trades; as such, market shares
        may not reflect market power.369
(375) Fifth, with regard to incentive, the Notifying Parties argue that IHSM would have no
        incentive to foreclose access to RED codes due to the structure of the JV. IHSM
366
        As there are separate relevant product markets by asset class for these services, and as RED codes are
        only used in CDS, the Commission’s assessment is focused on the CDS asset class.
367
        The JV would represent less than [0-5]% of demand for identifiers. Notifying Parties’ response to RFI
        12 question 2.
368
        Form CO, paragraph 617.
369
        Notifying Parties’ response to RFI 7, paragraph 3.3.
                                                          88
 ---pagebreak---         would lose 100% of the revenues from limiting supply of RED codes and would only
        capture 50% of any hypothetical benefits that would accrue to the JV.
5.8.1.2. Commission’s assessment
(376) The Commission assesses below IHSM’s ability and incentive to engage in input
        foreclosure of RED codes with a view to foreclosing rival providers of CDS portfolio
        compression, CDS portfolio reconciliation and CDS margin management services.
        For convenience, in this Section 5.8.1.2, the competing providers of these services
        will be referred to as “rival CDS trade optimization providers”.
(377) In terms of its ability, the market investigation showed that RED codes do not appear
        to be an essential input for rival CDS trade optimization competitors. In line with the
        Notifying Parties’ submissions, only three rival CDS trade optimization competitors
        indicated that they use RED codes in their business and none of these three are
        considered the closest competitors to TriOptima by competitors or customers in CDS
        portfolio compression, CDS portfolio reconciliation or CDS margin management.370
        More specifically by asset class, the JV is already pre-Transaction the only provider
        of CDS portfolio compression and so does not have any competitors to foreclose. In
        CDS portfolio reconciliation a foreclosure strategy would be unlikely to bring about
        any significant market change given that triResolve is already considered to be the
        “market standard” and “recognized industry platform” and its few close competitors
        do not use RED codes.371 Regarding CDS margin management, where TriOptima has
        a market share of [10-20]%, it appears that it is possible for competitors to compete
        effectively without having access to RED codes. In particular, TriOptima does not
        use RED codes as an input (and has not previously requested access to RED codes
        either) and several major competitors, including a number identified as close
        competitors to TriOptima, do not use RED codes. Accordingly, the JV’s ability to
        foreclose its closest competitors appears limited.
(378) In light of the above, the Commission considers that it is unlikely that the JV would
        have the ability to foreclose rival CDS trade optimization providers by refusing or
        worsening their access to RED codes.
(379) In terms of its incentive, the JV would not stand to gain significantly from a strategy
        to foreclose rival providers of CDS portfolio compression, CDS portfolio
        reconciliation and CDS margin management services by foreclosing their access to
        RED codes. As indicated above, not all rival CDS trade optimization providers use
        RED codes and TriOptima’s closest competitors in CDS portfolio compression, CDS
        portfolio reconciliation and CDS margin management appear not to.372 The majority
        of customers of RED codes indicated that a foreclosure strategy could lead to
        retaliation against the JV. More specifically, they indicated that, if faced with a
        foreclosure strategy, they would ask their customers (i.e. buy- and sell-side clients,
        who are likely also customers of IHSM, CME and the JV) to lobby IHSM on their
        behalf to resolve the issue. One customer noted: “RED codes are used by our
        customers as unique identifiers for credit derivatives and they will need to help us to
        get the data from IHSM.”373 Indeed, these competitors considered that the impact of
370
        Reply to question 18 of Questionnaire 4.
371
        Reply to question 9 of Questionnaire 6.
372
        Reply to question 18 of Questionnaire 4.
373
        Reply to question 18.2 of Questionnaire 4.
                                                   89
 ---pagebreak---       the Transaction is likely to be neutral on the various markets for trade optimization
      services,374 implying that they are not concerned by a potential foreclosure of RED
      codes (for any of the JV’s CDS trade optimization services) due to the likely reaction
      of end-customers or otherwise as they consider the JV is likely to lack the incentive
      to engage in such a strategy.
(380) Indeed, customers’ responses indicated that the JV would have little to gain from
      attempting an input foreclosure strategy. Only half of responding customers indicated
      that they need RED codes to be available in the trade optimization services they use,
      and none of these indicated that they would switch trade optimization providers if
      RED codes were no longer available in the rival trade optimization service providers
      they use; instead, they would stick to their current providers regardless.375 As such, a
      foreclosure strategy would result in reduced sales of RED codes to rival CDS trade
      optimization providers, with the JV unlikely to experience a sufficient increase in its
      sales of CDS portfolio compression, CDS portfolio reconciliation and CDS margin
      management services to offset this loss.
(381) In relation to this point, the Commission notes that multi-sourcing appears to be very
      prevalent in the procurement of certain CDS trade optimization services, such as
      CDS margin management services, because customers wish to benefit from different
      providers’ algorithms to manage and reduce their risks.376 This is summarized by one
      customer, “[O]ptimisation services are selected on ability to delivery risk reducing
      results and maximise the success of each run entered. Additionally the scope and
      products supported.”377 All responding customers indicate that they multi-source
      trade optimization services, i.e. procure the same service from several suppliers.378
      Furthermore, customers appear to multi-source from several suppliers, not just two,
      indicating that the reason for multi-sourcing is not simply to have a back-
      up/alternative but rather to benefit from the (differentiated) services provided by each
      supplier. Indeed, customers continue to on-board new suppliers, even where they
      already source the service in question from two or more suppliers.
(382) In this regard, many of TriOptima’s services relevant for CDS use an ‘all you can
      eat’ fee model. This means that even if a customer were to decide to abandon (or
      reduce) its multi-sourcing strategy and instead procure exclusively (or more) with
      TriOptima, the JV would not benefit from increased fees. Given that multi-sourcing
      is prevalent and so it is likely that most customers already procure from TriOptima
      and some of its rivals (i.e. there are few customers only sourcing from rivals but not
      TriOptima), this means that such a foreclosure strategy would not result in a
      significant increase in revenues for TriOptima.379
(383) Finally, IHSM, who supplies the RED codes and who would normally have the
      incentive to increase rather than restrict usage of RED codes 380, would only obtain
374
      Reply to question 21 of Questionnaire 4.
375
      Reply to question 15 of Questionnaire 6.
376
      Reply to question 16 of Questionnaire 6.
377
      Reply to question 16 of Questionnaire 6.
378
      Reply to question 4.3 of Questionnaire 6.
379
      Notifying Parties’ response to RFI 10, paragraph 6.
380
      Financial instrument identifiers are subject to strong network effects, because the greater the adoption
      of an identifier by market participants, the more attractive it is to other market participants to also use
      the same identifier when trading with counterparties for efficiency purposes.
                                                         90
 ---pagebreak---         50% of the limited potential gains, while facing 100% of the losses from reduced
        RED code revenues.
(384) In light of the above, the Commission considers that it is unlikely that the JV would
        have the incentive to foreclose rival CDS trade optimization providers by refusing or
        worsening their access to RED codes.
(385) Given that the Commission does not find that IHSM would have the ability or
        incentive to foreclose, there is no need to assess the impact of a potential foreclosure.
        Nevertheless, the Commission finds that for the reasons described in recital (377), the
        impact of a potential foreclosure on the relevant markets for CDS portfolio
        compression, CDS portfolio reconciliation and CDS margin management would be
        limited. In particular, RED codes do not appear to be an important input for the JV’s
        closest competitors.
5.8.1.3. Conclusion
(386) Based on the above considerations and the evidence available to it, the Commission
        considers that the Transaction is unlikely to give rise to serious doubts as to its
        compatibility with the internal market as a result of non-horizontal effects in the
        markets for RED codes worldwide (upstream) and CDS portfolio compression, CDS
        portfolio reconciliation and CDS margin management worldwide (downstream), in
        terms of input foreclosure.
5.8.2.    Customer foreclosure of portfolio compression, portfolio reconciliation, margin
          management and basis risk mitigation services for IRDs, CDS and equity
          derivatives worldwide (upstream) – trade confirmation services for IRDs, CDS and
          equity derivatives or overall worldwide (downstream)
(387) Upstream, Section 5.8 describes TriOptima and Reset’s market shares and
        competitors in the provision of IRD/CDS/FX portfolio compression,
        IRD/CDS/FX/equity derivatives portfolio reconciliation, IRD/CDS/FX/equity
        derivatives margin management and IRD/FX basis risk mitigation services. As
        described below, the vertical link only relates to the IRD/CDS/equity derivatives.
        Therefore, in this Section 5.8.2, for convenience the aforementioned services
        (portfolio compression, portfolio reconciliation, margin management and basis risk
        mitigation) in these three asset classes will be referred to as “IRD/CDS/equity
        derivatives trade optimization services”.
(388) Downstream, MarkitSERV is a third party provider of trade confirmation services.
        MarkitSERV is the only third party provider of trade confirmation services for IRDs,
        CDS and equity derivative trades (accordingly it has a 100% market share on these
        plausible markets). In these asset classes, any trades not confirmed by MarkitSERV
        are confirmed directly between the trading parties and do not fall under a potential
        (third party) trade confirmation market.381 MarkitSERV is not active in relation to FX
        or commodities trades; in these asset classes the main competitors are Swift (FX,
        commodities), Equias (commodities) and ICE e-confirm (commodities). The
381
        Notifying Parties’ response to RFI 9, paragraph 7.3. Accordingly, on a wider market that includes also
        trades confirmed by trading parties themselves the JV would have an even lower ability and incentive
        to try to engage in customer foreclosure (as many more companies engaging in trade confirmation
        would procure the upstream services).
                                                         91
 ---pagebreak---       Notifying Parties are not able to estimate MarkitSERV’s market shares in a plausible
      overall market for trade confirmation services for all asset classes provided by third
      parties, though given that such broader shares would take into account the presence
      of competitors in FX and commodities, MarkitSERV’s market share would in any
      event be lower than its shares in the IRD, CDS and equity derivatives asset classes.382
(389) The Transaction gives rise to a vertical link between IRD/CDS/equity derivatives
      trade optimization services and third party trade confirmation services (overall or on
      the aforementioned asset classes). This is because TriOptima and Reset’s
      IRD/CDS/equity derivative trade optimization services use MarkitSERV’s trade
      confirmation services as an “output channel” for their services in the sense that trade
      terminations or new trades are sent via MarkitSERV to CCPs:
      (a)     Both triBalance and triReduce, when providing portfolio compression and
              margin management services, involve terminating existing trades as part of
              generating a new portfolio of trades. For cleared trades, triBalance and
              triReduce generally terminate trades with the CCP directly, i.e. MarkitSERV
              does not intermediate. The CCP may then send the trade on to MarkitSERV
              for processing or not, according to the customer’s wishes. In a small number
              of cases for cleared trades, triBalance/triReduce may send the trade directly to
              MarkitSERV for termination ([…]). For uncleared trades, triBalance and
              triReduce either send the trade termination directly to MarkitSERV ([…]) or
              not at all, depending on the customer’s wishes.
      (b)     Other portfolio compression and margin management providers may choose
              to send termination instructions for non-cleared trades to MarkitSERV on a
              similar basis. A method for receiving termination instructions would be
              initially agreed between the provider and MarkitSERV, […]383 […]384 […].
      (c)     There are also residual trades, i.e. new trades created as part of portfolio
              compression, which can be submitted directly to MarkitSERV by the
              compression provider or by the customer of the provider.385 MarkitSERV
              requires a client authorisation letter from each of the provider's clients in
              order to process new trades or terminate old trades.386
      (d)     In portfolio reconciliation, providers typically connect to MarkitSERV's
              systems via an API to allow these providers to process trades on behalf of
              their clients.
      (e)     Trades recommended to clients by Reset may be passed to MarkitSERV for
              trade processing once they have been executed directly by firms or on venue.
              Other basis risk mitigation service providers have a similar relationship with
              MarkitSERV, i.e. they recommend trades to their customers. These
              recommended and executed trades may eventually be passed on to
              MarkitSERV for trade processing but there is no direct connectivity.
382
      Notifying Parties’ response to RFI 19 questions 13-14.
383
      […].
384
      […].
385
      Notifying Parties’ submission to Commission on 18 June 2021.
386
      Notifying Parties’ submission to the Commission dated 18 June 2021, paragraph 4.8.
                                                       92
 ---pagebreak--- (390) Given that MarkitSERV holds a 100% market share worldwide in IRD/CDS/equity
        derivatives trade confirmation services,387 there is a vertically affected market
        between IRD/CDS/equity derivatives trade optimization (upstream) and
        IRD/CDS/equity derivatives trade confirmation services (downstream).
(391) The Commission assesses below the risk that the JV may seek to engage in a
        customer foreclosure strategy to foreclose rival IRD/CDS/equity derivatives trade
        optimization providers by refusing or worsening their access to MarkitSERV’s
        “output channel” of IRD/CDS/equity derivatives trade confirmation services.
(392) The Commission does not further assess input foreclosure, i.e. the risk that the JV
        forecloses its trade optimization services to rival trade confirmation providers, as this
        is not relevant, since MarkitSERV is the only third party provider globally of
        IRD/CDS/equity derivatives trade confirmation services and there are no rivals to
        foreclose for these asset classes. On a broader trade confirmation market
        encompassing other asset classes, MarkitSERV would have no incentive to foreclose
        rivals. In particular, it does not compete directly with any rivals,388 given that the
        only third parties providing trade confirmation services are active in other asset
        classes from MarkitSERV and it is unlikely that these services are substitutable
        across asset classes from a demand-side perspective. Therefore, the Transaction
        would not give rise to serious doubts as to its compatibility with the internal market
        in respect of input foreclosure on any plausible basis.
5.8.2.1. Notifying Parties’ view
(393) The Notifying Parties argue that IHSM will have no ability or incentive to foreclose
        access to MarkitSERV’s trade confirmation services (for IRD/CDS/equity derivatives
        or overall) or otherwise favour TriOptima or Reset to the detriment of its
        competitors, for the following reasons.389
(394) First, with regard to ability, the Notifying Parties note that the majority of trades for
        which portfolio compression and margin management services are utilised are
        cleared, and as such instructions are normally submitted to the CCP directly rather
        than via MarkitSERV. For example, based on Quarter 1 2021 data, approximately
        93% of Euro-denominated interest rate swaps (“IRS”), 94% of GBP-denominated
        IRS and 96% of USD-denominated IRS (the three largest asset sub-classes that are
        subject to portfolio compression) were cleared. Further, the proportion of cleared
        trades is increasing in response to regulation. Indeed, a large majority ([…]) of
        cleared trade terminations that are sent to MarkitSERV are sent via NettingSync,
        which is a platform connecting MarkitSERV to various CCPs, and MarkitSERV is
        unable to attribute these terminations to upstream competitors. Only a small volume
        of terminations on cleared trades ([…] of cleared terminations) are sent to
387
        The Notifying Parties are not able to estimate MarkitSERV’s market shares for an overall trade
        confirmation services across all asset classes (worldwide). However, there are some competitors active
        in certain asset classes where MarkitSERV is not present (e.g. Swift in FX, Equias, ICE and Swift in
        commodities) [Notifying Parties’ reply to RFI 19, questions 13-14]. It can therefore be assumed that
        MarkitSERV’s market share would be lower on such an overall market than for IRD, CDS or equity
        derivatives.
388
        See previous footnote.
389
        Form CO paragraph 617.
                                                          93
 ---pagebreak---       MarkitSERV directly by the compression provider and therefore MarkitSERV can
      attribute terminations to competitors.
(395) As regards new trades arising from portfolio compression or margin management
      services, of the […] trade optimization competitors of TriOptima that connect to
      MarkitSERV, new trades resulting from optimization services can only be identified
      for […]. For the remaining […] competitors, trades cannot be attributed to the
      competitors because they send trades to MarkitSERV for a variety of reasons (on
      their own behalf or on behalf of their clients) other than trade optimization, and it is
      not possible to ascertain whether a particular trade is being sent in their capacity as a
      trade optimization competitor or otherwise.
(396) Similarly, MarkitSERV has no ability to discriminate against other basis risk
      mitigation providers in favour of Reset as there is no requirement for trades to be
      identified as being executed for the purpose of basis risk mitigation when they are
      sent to MarkitSERV. […].
(397) Further, MarkitSERV has no ability to foreclose other providers of trade optimization
      services as trades recommended by basis risk mitigation service providers do not
      need to be processed by MarkitSERV before being sent to clearing. These trades
      could be sent by the trading venue to clearing directly or through competing trade
      processing providers (e.g. in FX, trades recommended by Reset are typically
      processed by Refinitiv).
(398) Second, with regard to incentive, customers choose trade optimization providers
      based on the algorithms the providers use and the types of trades they optimise and
      compress. Similarly, the Notifying Parties note with respect to portfolio
      reconciliation that customers may use different vendors to reconcile the same trade
      data set based on other characteristics, e.g. tenor of trades; as such, market shares
      may not reflect market power.390 The ability for the customers to send trades to
      MarkitSERV’s trade confirmation service from their trade optimization provider is of
      very limited importance when selecting a trade optimization provider compared to
      the algorithms offered and the trade types covered by the service. Accordingly, any
      decision by MarkitSERV to favour TriOptima or Reset would have no impact on a
      customer's choice of provider.
(399) Third, with regard to incentive, the Parties' business models are based on providing
      connectivity across as many elements of the trading environment as possible.
      MarkitSERV would have no incentive to favour TriOptima or Reset as it would risk
      losing the revenue and margin across its entire trade processing business for no
      foreseeable benefit in additional TriOptima or Reset revenues. In particular, the vast
      majority of MarkitSERV's revenue is generated from large financial institutions who
      also use trade optimization services, and who are able to exert significant buyer
      power when negotiating with the Parties. These customers could retaliate to any
      decision by MarkitSERV to favour TriOptima or Reset by moving business to other
      trade processing providers or in-house.391
390
      Notifying Parties’ response to RFI 7, paragraph 3.3.
391
      Notifying Parties’ submission to Commission on 10th June 2021.
                                                        94
 ---pagebreak--- (400) The Notifying Parties add that MarkitSERV has never in the past refused to connect
        to a new provider on request and proactively connects to new providers. For
        example: (i) MarkitSERV engaged in significant work with […], including
        supporting a new venue type even though it would be the only broker using it; and
        (ii) MarkitSERV recently connected to […] which is launching a new business model
        but is not yet live.392
(401) Similarly, the Notifying Parties note that TriOptima's business case is premised on
        the ability to connect broadly to market participants, notably trading venues, CCPs,
        and trade processors. With respect to the TriOptima services that connect to
        MarkitSERV (triReduce, triBalance) as well as Reset, the Notifying Parties note that
        100% of the revenues generated by these services require connectivity with other
        third party providers.393
5.8.2.2. Commission’s assessment
(402) The Commission assesses below the JV’s ability and incentive to engage in a
        customer foreclosure strategy to foreclose rival third party IRD/CDS/equity
        derivatives trade optimization providers (i.e. the narrowest plausible upstream
        market).
(403) In terms of its ability, based on the information provided in recitals (394) to (397),
        the Commission takes note that, in the vast majority of cases, MarkitSERV is not
        able to identify whether a trade termination or new trade instruction that is sent to it
        by a trade optimization competitor is sent in that company’s capacity as a provider of
        competing trade optimization services or in another context (e.g. as a trade on its own
        behalf or on behalf of its clients). Therefore, in the vast majority of cases,
        MarkitSERV does not have the ability to target and foreclose its competitors.
(404) Further, the market investigation confirmed the Notifying Parties’ view that
        connectivity with MarkitSERV’s trade confirmation service is not key to being able
        to compete effectively in the markets for IRD/CDS/equity derivatives trade
        optimization services. Most providers of portfolio compression, portfolio
        reconciliation, margin management and basis risk mitigation services do not have
        direct connectivity with MarkitSERV’s trade confirmation service for the output of
        their own trade optimization services; rather, most competitors send trade instructions
        directly to trading venues or CCPs or only to their clients.394 Very few send trade
        instructions via middleware providers such as MarkitSERV. This was confirmed by
        the customers, who generally do not rely on MarkitSERV’s trade confirmation
        services as an output channel of the trade optimization services they use; most
        customers request their trade optimization providers to send outputs directly to their
        CCPs or middleware providers, but only one customer mentioned that they use only
        middleware providers such as MarkitSERV’s trade confirmation service.395
(405) In the same vein, cooperation with MarkitSERV (for instance to collaborate to bring
        to market new or improved products) does not appear key to being able to compete
        effectively in the markets for IRD/CDS/equity derivatives trade optimization.
392
        Notifying Parties’ submission to Commission on 29th June 2021.
393
        Notifying Parties’ submission to Commission on 29th June 2021.
394
        Reply to question 15 of Questionnaire 4.
395
        Reply to question 14 of Questionnaire 6.
                                                       95
 ---pagebreak---       According to trade optimization providers, the key to achieving effective innovation
      is cooperation with customers, followed by CCPs.396 As such, MarkitSERV would
      likely not be able to significantly impede effective competition by hindering
      innovation in the trade optimization markets by withholding its cooperation with
      TriOptima’s competitors.
(406) In light of the above, the Commission considers that it is unlikely that the JV would
      have the ability to foreclose rival providers of IRD/CDS/equity derivatives trade
      optimization services (i.e. competitors of TriOptima and Reset in the markets of
      portfolio compression, portfolio reconciliation, margin management and basis risk
      mitigation services for IRDs, CDS and equity derivatives worldwide) by refusing or
      worsening their access to MarkitSERV’s trade confirmation services for
      IRD/CDS/equity derivatives or overall.
(407) In terms of its incentive, the JV would not stand to gain significantly by foreclosure
      of MarkitSERV’s trade confirmation services for IRD/CDS/equity derivatives or
      overall. On the customers’ side, the majority of responding customers indicated that
      (regardless of asset class or optimization product) they would not switch trade
      optimization providers if MarkitSERV withdrew or deteriorated connectivity of its
      trade confirmation service with their trade optimization provider; instead, they would
      stick to their current providers regardless.397 They indicated there are solutions to
      enable them to keep doing so. In particular, one customer explained the alternatives
      and the trade-off between the choice of trade optimization provider and the
      availability of MarkitSERV connectivity of that provider, “In FX, for example, we
      prefer to have several solutions. We have an in-house booking method which we
      could use if MarkitSERV withdrew or deteriorated the connectivity to third party
      optimisation service providers. While direct connectivity is preferable, we would
      leverage our in-house tools and continue to use our current service providers.”398
(408) This is consistent with the Commission’s finding that the choice of trade optimization
      provider depends on factors other than the availability of connectivity with
      middleware providers. As one customer summarizes, “…optimisation services are
      selected on ability to delivery risk reducing results and maximise the success of each
      [compression] run entered. Additionally the scope and products supported.
      Connectivity is only an aspect of selecting optimisation services, not an overriding
      factor. As such if changes to current infrastructures occur, the basis for changing
      provide would be predominantly based on the above[mentioned factors].”399
(409) Indeed, multi-sourcing appears to be very prevalent in trade optimization services,
      and particularly in portfolio compression services and margin management services,
      because customers wish to benefit from different providers’ algorithms to manage
      and reduce their risks.400
(410) Moreover, most of Traiana’s trade optimization services either use an ‘all you can
      eat’ fee model or have lower fees for higher volumes. Given that multi-sourcing is
      prevalent and so it is likely that most customers already procure from Traiana and
396
      Reply to question 16 of Questionnaire 4.
397
      Reply to question 16 of Questionnaire 6.
398
      Reply to question 16.1 of Questionnaire 6.
399
      Reply to question 16.1 of Questionnaire 6.
400
      Reply to question 16 of Questionnaire 6.
                                                 96
 ---pagebreak---         some of its rivals, this means that the potential gains of a foreclosure strategy would
        be limited as even if a particular competitor is foreclosed, to the extent the customer
        already multi-sources from both that competitor and TriOptima/Reset, the latter
        would not gain significant additional fees.401
(411) Indeed, already pre-Transaction, TriOptima offers interconnectivity with Acadia, a
        direct and close competitor in margin management.402 This supports the argument put
        forward by the Notifying Parties that TriOptima values wider connectivity with
        market participants, even competitors.
(412) In light of the above, the Commission considers that it is unlikely that the JV would
        have the incentive to foreclose rival trade optimization providers (i.e. competitors of
        TriOptima’s and Reset in the markets of portfolio compression, portfolio
        reconciliation, margin management and basis risk mitigation services for IRDs, CDS
        and equity derivatives worldwide) by refusing or worsening their access to
        MarkitSERV’s trade confirmation services.
(413) Given that the Commission does not find that there would be ability or incentive to
        foreclose, there is no need to assess the impact of a potential foreclosure.
        Nevertheless, the Commission finds that there would be the potential for customers to
        exert significant countervailing buyer power in case of a potential foreclosure.
        MarkitSERV's total revenues (across various services) from those customers that
        MarkitSERV is aware of that use rival portfolio compression providers amount to
        […].403 This represents […] of MarkitSERV’s total 2019 revenues, […]. Indeed,
        MarkitSERV’s top eight customers account for more than […] of its revenues, and all
        of them use at least two other trade optimization providers.404 As such, they could
        exert significant pressure on the JV by threatening to switch to other trade processing
        services such as in-house solutions or sponsor entry (e.g. by increasing connectivity
        with trading venues). The market investigation confirms this; one competitor
        explains, “We think it would be unlikely for MarkitSERV to withdraw or deteriorate
        connectivity to Quantile as this would not be in the best interest of our mutual
        clients.”405 Another states, “Since the service [of connectivity between optimization
        provider and MarkitSERV] is primarily used by our clients for integration/ reporting
        to industry bodies, the impact would be felt highest by our mutual clients…The
        primary barrier to withdrawing such service is loss of revenue from clients…clients
        will be very unhappy and react very strongly to such [foreclosure] behaviour”406
5.8.2.3. Conclusion
(414) Based on the above considerations and the evidence available to it, the Commission
        considers that the Transaction is unlikely to give rise to serious doubts as to its
        compatibility with the internal market as a result of non-horizontal effects in the
        markets for portfolio compression, portfolio reconciliation, margin management
        (upstream) and basis risk mitigation services for IRD, CDS and equity derivatives
401
        Notifying Parties’ response to RFI 10, paragraph 6 and response to RFI 11, paragraph 4.1.
402
        https://www.cmegroup.com/services/trioptima/triresolve-portfolio-reconciliation-and-collateral-
management/im-compliance.html#features
403
        Notifying Parties’ submission to Commission on 29th June 2021, Annex 143.
404
        Form CO, Annex 83.
405
        Replies to question 19.4 of Questionnaire 4.
406
        Replies to question 19.4 of Questionnaire 4.
                                                         97
 ---pagebreak---        worldwide and trade confirmation services for IRDs, CDS and equity derivatives or
       overall worldwide (downstream), in terms of customer foreclosure.
5.8.3.   Input foreclosure of trade confirmation services for IRDs or overall worldwide
         (upstream) – portfolio reconciliation and margin management services for IRDs
         worldwide (downstream)
(415) In addition to the foregoing, in some circumstances trade confirmation services can
       be upstream of trade optimization services, as in some limited cases MarkitSERV
       sends trade confirmations and data to trade optimization providers, as described
       below.
(416) Currently, MarkitSERV does not send trade confirmations or other trade data directly
       to TriOptima or Reset. However, MarkitSERV’s trade confirmation services send
       non-cleared IRD trades to LCH SwapAgent (only). MarkitSERV sends these trades
       on behalf of customers for LCH SwapAgent to provide certain trade optimization
       services, in particular portfolio reconciliation and margin management. Given that
       TriOptima is also active in portfolio reconciliation and margin management, there is
       a vertical link between MarkitSERV’s trade confirmation service for IRD or overall
       worldwide (upstream) and TriOptima’s portfolio reconciliation and margin
       management service for IRD worldwide.407
(417) Upstream, MarkitSERV is the only third party provider of confirmation services in
       relation to IRD, CDS and equity derivative trades, and as such has 100% in the
       worldwide markets for trade confirmation of those asset classes. In these asset
       classes, any trades not confirmed by MarkitSERV are confirmed directly between the
       trading parties, and thus do not fall under the (third party) trade confirmation
       market.408 MarkitSERV does not provide confirmation services in relation to FX or
       commodities trades. On an overall market across all asset classes, its market share is
       likely to be lower (although the Notifying Parties were not able to provide an
       estimate).409
(418) Downstream, Section 5.8 describes TriOptima’s market shares and competitors in the
       provision of IRD portfolio reconciliation and IRD margin management.
(419) Accordingly, the Commission considers below the risk that the JV would engage in
       input foreclosure, namely by restricting access to these trade confirmations or other
       trade data from MarkitSERV’s trade confirmation service, with a view to foreclosing
       rival downstream IRD portfolio reconciliation or margin management providers
       worldwide. On the basis that neither TriOptima, Reset nor any of their competitors
       use MarkitSERV’s trade confirmation services as an input for their portfolio
       compression or basis risk mitigation services, these services will not be further
       discussed in this Section. Likewise, as the only asset class in which MarkitSERV’s
       trade confirmation service is used for portfolio reconciliation or margin management
       is IRD (by LCH SwapAgent), only this asset class will be assessed below.
407
       Notifying Parties’ response to RFI 9, paragraph 8.4.
408
       Notifying Parties’ response to RFI 9, paragraph 7.3. If the relevant market were not limited to third
       party providers but were also to include counterparties’ own trade confirmations, MarkitSERV’s
       market shares would be even lower and (in line with the reasons set out below) its ability and incentive
       would be even lower.
409
       See footnote 387.
                                                         98
 ---pagebreak--- (420) On the basis that MarkitSERV is the only provider of trade confirmation services in
        these asset classes and so the JV does not receive trade confirmations from any
        upstream rivals (as there are none) or indeed from MarkitSERV, the Commission
        considers the Transaction does not give rise to a risk of customer foreclosure.
5.8.3.1. Notifying Parties’ view
(421) The Notifying Parties argue that IHSM will have no ability or incentive to foreclose
        access to MarkitSERV’s trade confirmation data as an input to IRD portfolio
        reconciliation and margin management services, or otherwise advantage TriOptima
        with the trade confirmation data available to MarkitSERV for the following
        reasons.410
(422) First, with regard to ability, the JV’s portfolio reconciliation and margin management
        services require different data than that gathered by MarkitSERV. TriOptima uses a
        client's own position data across an asset class or product, in order to optimise the
        client's risk position. TriOptima requires a customer's complete positions in an asset
        class or product class (i.e. a record of every trading position made by that customer)
        that the customer wishes to optimise. This information is held within a customer's
        risk department, and is provided directly from the customer to TriOptima.
(423) In comparison, MarkitSERV holds transaction data, which a customer sends to
        MarkitSERV for post-trade processing, usually at the time of execution.
        MarkitSERV's data is therefore not an up to date, nor complete, record of a
        customer's positions, which cannot be used by TriOptima for portfolio reconciliation
        and margin management. In particular, MarkitSERV does not always know if a trade
        is live or has been terminated by the trading parties and not been notified to
        MarkitSERV. In addition, MarkitSERV only covers a selection of asset classes and
        instruments, whereas TriOptima covers a wider range of asset classes and
        instruments. As such, according to the Notifying Parties any information that
        MarkitSERV could provide to TriOptima would be of limited value, as TriOptima’s
        customers would still need to provide them with up to date position data and trades
        not covered by MarkitSERV.
(424) Second, with regard to ability, the Notifying Parties argue that customers generally
        do not want to run compression and optimization services across their entire trade
        portfolio. Instead, customers themselves select a subset of trades to be sent for
        compression, optimization and portfolio reconciliation and margin management
        depending on their specific requirements. Therefore, even if MarkitSERV had perfect
        position data, sharing this data with TriOptima (which react to customers’ specific
        optimization requests) would provide no benefit to customers.
(425) Third, with regard to ability and incentive, MarkitSERV is restricted in the
        information that it can share both by its user agreements and its internal procedures.
        In particular, under MarkitSERV's client agreements, client data can only be shared
        at an aggregated, anonymised and non-discernible basis. Such information is of no
        use for portfolio reconciliation and margin management purposes.
410
        Notifying Parties’ response to RFI 9 questions 7-8 and RFI 11 question 2.
                                                          99
 ---pagebreak--- (426) Finally, with regard to ability and incentive, the Notifying Parties note that IHSM
        previously operated a credit compression service, which was shut down in 2016 as it
        was deemed unviable. Prior to that time, IHSM's credit compression service relied on
        customers sending it their trade positions, rather than using MarkitSERV data.
        Customers choose providers based on the algorithms they use and types of trades
        they optimise and compress. The fact that MarkitSERV was unable to profitably
        operate a compression service, illustrates that MarkitSERV data confers no advantage
        (which would apply equally in relation to portfolio reconciliation and margin
        management).
(427) The Notifying Parties therefore consider that there are no effective use cases for
        MarkitSERV data that would give TriOptima a competitive advantage vis-à-vis their
        competitors and in any case MarkitSERV is restricted by its user agreements and
        internal procedures.411
5.8.3.2. Commission’s assessment
(428) The Commission assesses below the JV’s ability and incentive to engage in input
        foreclosure, namely by restricting access to these trade confirmations or other trade
        data from MarkitSERV’s trade confirmation service, with a view to foreclosing rival
        downstream providers of IRD portfolio reconciliation and margin management
        services.412
(429) In terms of its ability, the market investigation corroborated the Notifying Parties’
        view. First, the large majority of competitors indicated that MarkitSERV is overall
        not a key data source for IRD portfolio reconciliation and margin management
        service providers. Most competitors source trade data as an input for their IRD
        portfolio reconciliation and margin management services directly from the clients or
        CCPs, with the emphasis on clients being the key source of data. Only one
        competitor mentioned middleware providers (such as MarkitSERV) as an important
        source of data for them.413
(430) This was confirmed by the customers; most customers send their trade data to their
        IRD portfolio reconciliation and margin management providers directly or request
        their CCPs to do it. A minority request their middleware providers (such as
        MarkitSERV) to do it, and none of these customers use only this channel.414 This
        supports the Notifying Parties’ argument that MarkitSERV’s trade confirmation data
        does not appear essential or sufficient for the customers’ IRD portfolio reconciliation
        and margin management needs. The Commission therefore concludes that
        MarkitSERV’s trade confirmation data is not an important input for portfolio
        reconciliation and margin management services providers, meaning that the JV
        would not have the ability to foreclose rivals in the downstream markets for IRD
411
        Notifying Parties’ submission to Commission on 18 June 2021.
412
        The Commission conducts this assessment on the basis that LCH SwapAgent is considered to be a third
        party provider of margin management services in these asset classes. In the event that it were not
        considered to be a third party provider (on the basis that LCH more broadly has some activities as a
        CCP), then on the narrowest plausible market definition limited only to third party providers,
        MarkitSERV does not provide trade confirmations to any third party competitors and so an input
        foreclosure strategy is implausible.
413
        Reply to question 14 of Questionnaire 4.
414
        Reply to question 13 of Questionnaire 6.
                                                         100
 ---pagebreak---         portfolio reconciliation and margin management services (i.e. competitors of
        TriOptima worldwide).
(431) In terms of its incentive, the Commission notes that as set out above in recitals (407)
        to (411), customers are not likely to switch for IRD portfolio reconciliation and
        margin management providers in case of foreclosure and customers multi-source,
        indicating that they likely are already customers of both TriOptima and (several of)
        its rivals. The potential gains of a foreclosure strategy would be limited as to the
        extent the customer already multi-sources from both that competitor and TriOptima,
        the latter would not gain significant additional fees (given that “all you can eat” fee
        models are the norm).415
(432) Therefore, the Commission finds that the JV would have no incentive to engage in
        foreclosure of MarkitSERV’s trade confirmations for IRD or overall to competitors
        or otherwise exclusively favour TriOptima’s portfolio reconciliation and margin
        management service using MarkitSERV’s trade data.
(433) Given that the Commission does not find that there would be ability or incentive to
        foreclose, there is no need to assess the impact of a potential foreclosure.
        Nevertheless, the Commission finds that there would be the potential for customers to
        exert countervailing buyer power in case of a potential foreclosure, as described in
        recital (413).
5.8.3.3. Conclusion
(434) Based on the above considerations and the evidence available to it, the Commission
        considers that the Transaction is unlikely to give rise to serious doubts as to its
        compatibility with the internal market as a result of non-horizontal effects in the
        markets for trade confirmation services for IRDs or overall worldwide (upstream)
        and portfolio reconciliation and margin management services for IRDs worldwide
        (downstream), in terms of input foreclosure.
5.9.      Conglomerate effects
(435) The Commission considers below whether the JV would be likely to bundle or tie
        together (various) combinations of its services and whether this would lead to
        anticompetitive conglomerate effects arising from the Transaction. In particular, the
        Commission considers conglomerate effects from various combinations arising from
        the Transaction among those services for which the JV’s market share would be 30%
        or more, in particular: (i) MarkitSERV’s trade confirmation services (by asset class
        or overall) worldwide, (ii) MarkitSERV’s FX or IRD CCP connectivity services
        worldwide, (iii) TriOptima and Reset’s trade optimization services (i.e. portfolio
        compression, portfolio reconciliation, margin management and basis risk mitigation
        services by asset class) worldwide, (iv) Traiana’s FX PB give-up management
        services worldwide and (v) Traiana’s credit limit management services worldwide.416
415
        Notifying Parties’ response to RFI 10, paragraph 6 and response to RFI 11, paragraph 4.1.
416
        The Commission did not consider in depth combinations between Traiana’s credit limit management
        services on one side and MarkitSERV’s trade confirmation services or CCP connectivity services on
        the other side, given all market shares in the relevant markets were 100%, and there were no indications
        of potential entrants being deterred by the JV. The Commission also did not consider overlaps relating
                                                            101
 ---pagebreak--- 5.9.1.   Notifying Parties’ view
(436) The Notifying Parties submit that the JV will have no ability to foreclose rivals for
       the following reasons.
(437) First, OTC trading services are often highly customised and differentiated between
       providers, i.e. even where two rivals provide the same service, they will often be
       targeting different segments of the market. This will make customers less willing to
       switch provider to purchase a bundled offering (because their current product may be
       particularly well suited to their requirements), reducing the JV’s ability to foreclose
       rivals.417
(438) Second, although some of the Parties’ customers (such as banks) often purchase a
       range of services, different services are typically procured by different divisions,
       desks and individuals within the same organisation. For example, different
       individuals within a bank will be responsible for purchasing trade processing and
       portfolio compression services. As such, the Parties' ability to use bundling or tying
       strategies is significantly reduced as they would face the added challenge of trying to
       negotiate sales across multiple individuals.
(439) Third, MarkitSERV and Traiana provide services that automate the processing of
       OTC trades. Firms can perform many of these services themselves, e.g. through
       direct connectivity, or other service providers that are available. Therefore, providers
       that are active in relation to other parts of the OTC trading value chain can process
       trades directly, and the Parties have no ability to foreclose rivals.
(440) The Notifying Parties submit that the JV will have no incentive to foreclose rivals for
       the following reasons.
(441) First, the Parties' business models are based on providing open and non-
       discriminatory connectivity across as many elements of the trading environment as
       possible. This will continue post Transaction as the JV’s combined service will be
       agnostic as regards the execution and clearing venues. The Parties would have no
       incentive to limit access to their services as this would run counter to the rationale of
       the Transaction, which is focussed on providing enhanced services to customers
       across the OTC trading lifecycle.
(442) Second, many of the services provided by the JV relate to markets of relatively low
       value. The JV would have no incentive to risk foregoing revenues in relatively large
       markets (e.g. trade processing) to foreclose rivals in significantly smaller markets
       (e.g. FX Retail Aggregation). As noted in the Commission's guidelines "it is unlikely
       that the merged entity would be willing to forego sales on one highly profitable
       market in order to gain market shares on another market where turnover is relatively
       small and profits are modest".
(443) Third, a bundling or tying strategy would not be profitable. This is because the OTC
       post trade processing services provided by the JV are not economic complements
       to FX NOE messaging services as both MarkitSERV and Traiana are already active in this market pre-
       Transaction with low market shares ([5-10]% and [0-5]% respectively) and do not bundle it with their
       other trade processing activities.
417
       Form CO, paragraphs 524ff.
                                                     102
 ---pagebreak---        (e.g. a price increase of one service will not reduce demand for another service).
       There are also limited benefits of one-stop shopping, so this is unlikely to be a key
       driver in customers choosing between a bundled offer or purchasing individual
       services on a standalone basis. A bundled offering of OTC post trade processing
       services is therefore unlikely to be attractive to customers unless it is offered at a
       significant discount compared to purchasing individual services. The need to offer a
       significant discount for a bundled service reduces the profits (and therefore incentive)
       of bundling as a strategy.
(444) Moreover, in relation to the link between the trade processing services provided by
       MarkitSERV and the clearing services provided by CME, the Notifying Parties claim
       that their incentives are very unlikely to be aligned. IHSM would have no incentive
       to pursue a bundling or tying strategy with the aim of foreclosing the market for
       trading or clearing, as it would not receive any of the benefits of such a strategy.
5.9.2.   Commission’s assessment
(445) First, as regards ability, the Commission notes that the JV has a 100% market share
       in the markets for trade confirmation services (MarkitSERV) and credit limit
       management services (Traiana), as well as high market shares in certain CCP
       connectivity markets, trade optimization markets and FX PB give-up management
       services markets. This would indicate that the JV may have the ability to use its
       strength in these markets to tie or bundle other products. Moreover, there appears to
       be significant overlap in the customer bases of the various services at entity level.418
(446) However, the market investigation indicates that customers do not have strong
       incentives to one-stop shop419 for various trade processing services. Almost all
       responding customers indicated that they would not stop using rivals’ products if the
       JV bundled its trade optimization services with trade confirmation services or CCP
       connectivity services420, or its FX PB give-up management services with
       MarkitSERV’s trade processing services.421 Customers explained that they would
       assess the merits of the products available from the JV and its rivals on a case-by-
       case basis, and indicated that other elements beyond just pricing drive their
       preference for trade processing and optimization products.422 For example, one
       customer noted “Naturally we would assess the bundled package and costs
       advantages - however, operational reliability is just as important as pricing for
       us”.423 Customers confirmed that their choice of supplier is driven by product-
       specific factors such as “market coverage”, “support level, reliability and client
       preference” as well as crucially whether business requirements are met. These are
       considered on a case-by-case basis for product procurement decisions.424 In line with
       this, customers indicated that they might consider a bundle but would not necessarily
       accept it, e.g. “[the customer] would evaluate, to ensure sustainable economics,
       whether to accept or not a bundle offer”, “We would have to review the contract and
       make a decision based on what was presented”, “It depends on the products, if i need
418
       Form CO, Annex 086 and Annex 143, Notifying Parties’ submission to Commission on 29 June 2021.
419
       Non-horizontal Merger Guidelines, paragraph 104.
420
       Replies to question 17 of Questionnaire 6 and question 28 of Questionnaire 1.
421
       Replies to question 39 of Questionnaire 3.
422
       See previous Sections in relation to each relevant product.
423
       Replies to question 28 of Questionnaire 1.
424
       For example, replies to questions 11.1.2 and 12.1 of Questionnaire 1.
                                                         103
 ---pagebreak---       them and if they are complimentary to what I need”, “if this was to be the case we
      would discuss and debate any new opportunities”, “It would depend on the
      technology impact to changing, the productivity and the cost” and “Our decision
      would be determined by the pricing offered and the alternatives available”.425
(447) Finally, customers can and do multi-source across the various trade processing and
      trade optimization products. This is confirmed by a customer who explains that,
      “Some of the services are purchased from the same supplier but they are individual
      purchasing decisions, with separate fee schedules for supporting activities in
      different parts of the bank. [we are] generally able to purchase services from
      different providers and mix-and-match the services that we purchase from different
      providers”426 Therefore, notwithstanding the JV’s high market shares, customers
      would not necessarily accept the bundle and cease procuring from rival suppliers but
      would in each case consider alternative options available and choose the option that
      best suits their needs. The market investigation showed that customers’ primary
      criterion for choosing trade processing is which service best meets their needs, rather
      than whether they already procure other products from a given supplier.
(448) As to the question of how important certain services are for customers and whether
      this would indicate that the JV could leverage them vis-à-vis other services, the
      Commission notes the following:
(449) With respect to MarkitSERV’s trade confirmation services, these would not seem to
      be of particular importance for two reasons: (a) any trades not confirmed by
      MarkitSERV (in those asset classes where MarkitSERV is active) are confirmed
      directly between the trading parties, so in case MarkitSERV were to attempt to use
      trade confirmation services as leverage, market participants could simply choose to
      confirm trades directly, and (b) as set out in recital (407) other related services such
      as trade optimization services seem to be of far more importance for customers than
      trade confirmations.
(450) With respect to MarkitSERV’s CCP connectivity services, while these are important
      infrastructure for many market participants, a number of responses to the market
      investigation indicate that (a) alternatives exist (e.g. through self-supply)427 and (b)
      the value of CCP connectivity services compared to compression services, for
      example, is considered lower by market participants.428 This is also confirmed in
      response to the question whether customers would stick to their current trade
      optimization providers if MarkitSERV were to deteriorate its connectivity to
      TriOptima’s rivals: the majority of relevant respondents to the market investigation
      indicated that they would stick to their current trade optimization providers.429
(451) With respect to TriOptima and Reset’s trade optimization services, while these are
      considered important by customers, a bundling or tying strategy would likely not lead
      to customers stopping purchases from rival trade optimization providers. The reason
      for this is that multi-sourcing appears to be very prevalent in trade optimization
425
      Replies to question 17 and 18 of Questionnaire 6, question 39 of Questionnaire 3 and questions 28 and
      29 of Questionnaire 1.
426
      Reply to question 4.2.1 of Questionnaire 6.
427
      Replies to question 16.1 of Questionnaire 6.
428
      Replies to question 16.1 of Questionnaire 6.
429
      Replies to question 16 of Questionnaire 6.
                                                      104
 ---pagebreak---       services, and particularly in portfolio compression services and margin management
      services. Customers multi-source to benefit from different providers’ algorithms to
      manage and reduce their risks. Therefore, a bundling or tying strategy would be
      unlikely to have a significant impact on the competitive dynamics in the trade
      optimization services market.
(452) With respect to Traiana’s FX PB give-up management services, these are important
      for customers. However, a bundling or tying strategy would likely not be successful
      as the customer base is concentrated and consists of large banks which have
      bargaining power vis-à-vis Traiana (see Section 5.4.2). Furthermore, in this market,
      there is a recent entrant (whose entry was sponsored by large customers of Traiana)
      that is considered an alternative.
(453) With respect to Traiana’s credit limit management services, while Traiana is the only
      undertaking to provide these services globally as a third party provider, trading
      counterparties can and do alternatively simply provide this service to each other
      bilaterally when trading. None of the customers responding to the market
      investigation alerted the Commission to a bundling or tying risk with respect to credit
      limit management services and similar considerations with respect to customers’
      bargaining power as for FX PB give-up management services (of which credit limit
      management services is a service type) apply.
(454) In light of the above, the Commission considers that it is unlikely that the JV would
      have the ability to engage in anticompetitive bundling or tying of the aforementioned
      services.
(455) Second, as regards incentive, the Commission notes that pre-Transaction, customers
      do ‘mix and match’ trade processing services of the Parties with the products of other
      companies, and it is unlikely that the JV could compel them to change this practice
      following the Transaction. For instance, as described in recital (409), multi-sourcing
      appears to be very prevalent in trade optimization services, and particularly in
      portfolio compression services and margin management services, because customers
      wish to benefit from different providers’ algorithms to manage and reduce their
      risks.430 As such, bundling or tying would not be likely to lead to a significant
      reduction of sales prospects faced by single-component rivals, such as trade
      optimization providers, in the market.
(456) In the same vein, the JV’s rivals in the FX PB give-up management services and CCP
      connectivity services markets are primarily trading venues and CCPs themselves. As
      such, they would not be likely to lose significant sales in case of bundling by the JV,
      as their services in PB give-up management and CCP connectivity are ancillary to
      their offerings in the core markets of trading and clearing. For example, CCP
      connectivity is unlikely to be used to bundle trade processing or connectivity
      services, given that CCP connectivity is a facilitating service that customers use to
      intermediate between these two, more valuable and significant services (as indicated
      by the fact that customers would rather switch CCP connectivity provider than
      tolerate a foreclosure strategy reducing their access to CCPs).431
430
      Reply to question 16 of Questionnaire 6.
431
      Replies to question 26 and 27 of Questionnaire 1.
                                                       105
 ---pagebreak--- (457) Indeed, neither Notifying Party currently engages in bundling among their respective
       various trade processing services, despite potential complementarity and common
       customers. For instance, although almost all responding trade optimization customers
       indicated that they use portfolio compression, portfolio reconciliation and basis risk
       management services432, Reset and TriOptima services are sold as standalone
       products, have separate pricing schedules, are sold under separate agreements, and
       function as standalone products. In particular, Reset is sold to individual traders and
       within TriOptima, triReduce and triBalance are sold primarily to X-Value
       Adjustment ("XVA") desks and triResolve (including triResolve Margin, triCalculate
       and IMEM) is sold to middle and back office functions. In this sense, almost all of
       the sales for these products are made on a standalone basis and there is no product
       suite offering spanning TriOptima and Reset.433 Similarly, MarkitSERV already
       provides trade processing services across multiple asset classes but has not attempted
       to bundle any of these services.434 In this regard, the Transaction would not
       significantly alter the Parties’ incentives as compared to the situation pre-
       Transaction. The Parties’ past behaviour,435 therefore, indicates a lack of incentive for
       bundling these services. In addition, none of the respondents to the market
       investigation alerted the Commission to existing practices in that respect.
(458) Similarly, for Traiana’s services, a customer notes with regard to the JV’s likelihood
       to offer a forced bundling post-Transaction, “we note that Traiana could already
       bundle their offering within FXPB and have not done so”, and “Traiana already do
       this [commercial bundling] as part of their contract negotiations, but we are able to
       remove unwanted or unused components from the agreement”.436
(459) In light of the above, the Commission considers that it is unlikely that the JV would
       have either the ability or the incentive to engage in anticompetitive bundling or tying
       of services.
5.9.3.   Conclusion
(460) In light of the above and all of the evidence available to it, the Commission
       concludes that the Transaction does not give rise to serious doubts as to its
       compatibility with the internal market as a result of possible non-coordinated effects
       through a conglomerate bundling or tying strategy relating to the JV’s products.
432
       Reply to question 4 of Questionnaire 6.
433
       Notifying Parties’ submission to Commission on 9 June 2021.
434
       Form CO, paragraph 569.
435
       Non-horizontal Merger Guidelines, paragraph 109.
436
       Replies to question 39 of Questionnaire 3.
                                                      106
 ---pagebreak--- 6.     CONCLUSION
(461) 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
                                               107