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
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
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