GFI Group Inc / Trayport Ltd
OFT closed case: Completed acquisition by GFI Group Inc of Trayport Limited
Affected market: Inter-dealer broking
The OFT’s decision on reference under section 22(1) given on 28 May 2008. Full text of decision published on 2 June 2008.
GFI Group Inc (GFI) is an inter-dealer broker (IDB), providing IDB services for over-the-counter derivative products and related securities.
Trayport Limited (Trayport) licenses trading system software to third parties, including GFI, to use to trade global financial products. It supplies its core GlobalVision product to banks, traders, brokers and exchanges. Trayport’s turnover for the year ended 31 January 2008 was £14 million.
GFI has acquired the entire issued share capital of Trayport. As the turnover of Trayport is below £70 million the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is not met.
The OFT considered whether the share of supply test in section 23(2) of the Act was met. In this respect the OFT consulted with both the parties and a number of third parties. The parties submitted that their respective business activities could not on any reasonable basis be said to overlap. Trayport licenses third parties with trading system software which an IDB can use to establish an electronic trading platform (usually referred to as electronic broking). As well as electronic broking, GFI also provides specialist intermediary services to its clients by trading wholesale financial products over the telephone (so-called voice broking).
A number of third parties suggested that the parties could be said to overlap in the supply of trading services for certain non-oil energy products for the purposes of the share of supply test. Third parties submitted that Trayport’s GlobalVision product replicated many of the services typically provided by IDBs, and in particular that GlobalVision carried out, in electronic form, many of the tasks typically carried out by voice IDBs. Furthermore, it was argued to the OFT that this view was supported by ICAP/EBS,[see note 1] where the OFT found that electronic and voice IDB services could be considered together for the purposes of the share of supply test (even though it subsequently considered them to be complementary, rather than substitutable, in its substantive assessment). Third parties generally acknowledged that the merging parties did not directly compete against each other (in so far as an IDB was clearly providing a different type of service from Trayport’s trading system software), but submitted that the wording of the share of supply test was sufficiently broad to allow the OFT to capture the distinctive services provided by each of them.
OFT Guidance makes it clear that the relevant goods or services to which the jurisdictional test is applied need not amount to a relevant economic market. It is also the case that the Act provides the OFT with a margin of appreciation in determining how the share of supply test should be applied. However, the OFT does not believe that, in this case, it would be appropriate to treat the products and/or services supplied by each of GFI and Trayport prior to the merger as being of a similar description. This is because, as explained below, the OFT considers that the relationship between Trayport, on the one hand, and GFI (and other IDBs), on the other hand, is purely vertical in nature, because the GlobalVision software is an input to the provision of IDB services; it is not an IDB service or a substitute to it.
As set out above, Trayport provides GlobalVision software for use by IDBs (including GFI) to facilitate the supply of electronic broking services to an IDB’s clients. Trayport does not itself purport to offer trading or broking services, and the use of the GlobalVision system does not allow trades to be carried out independently of an IDB. [see note 2] Third parties claimed that the GlobalVision system carried out a number of functions also provided by brokers e.g. providing pricing information to buyers and sellers, matching parties with counterparties and generally facilitating communication between an IDB and its clients. However, while GlobalVision is the software over which these functions are carried out, they could not be carried out without the presence of an IDB. The GlobalVision software is not a ready-to-use tool over which these functions can take place as soon as GlobalVision is licensed, but must be adapted by the IDB for its own use. Such adaptation includes installing details of the types of agreements to be traded on the platform, installing the IDBs customised controls and rules on trading processes and enabling clients access to its trading system.
While GlobalVision may simplify the IDB’s role in the trading process, and even reduce the need for a large number of IDBs in relation to non-oil energy trading, the OFT does not believe that this should be treated as equating to an overlap in the share of supply of trading services. GlobalVision is an input into the trading process, a software tool facilitating electronic broking by IDBs (similar to, albeit far more sophisticated than, a telephone used to facilitate voice broking). The fact that GlobalVision might be considered to be an essential element in relation to some non-oil energy trading markets, and is developed especially for these markets, does not affect the OFT’s conclusion in this regard.
Finally, the OFT does not regard its conclusion as inconsistent with ICAP/EBS, since in that case both parties provided IDB services and the share of supply test was met on that basis.
Therefore, on the basis of all the information available to it, the OFT has decided that the completed acquisition of Trayport Limited by GFI Group Inc does not qualify for investigation under the merger provisions of the Act, because neither the UK turnover test nor the share of supply test in section 23 of the Act is met. A relevant merger situation has, therefore, not been created.
1. OFT decision, Completed Acquisition by ICAP plc of EBS Group Limited (20 June 2006).
2. Each trade that is displayed through the GlobalVision system must be placed through an IDB. This should be contrasted with the OFT's decision in ICAP/EBS, where EBS was a provider of electronic IDB services.