ICE / Trayport Merger Chris Doyle Martina Prosperetti Assistant Director of Economics, CMA Martina Prosperetti Economic Advisor, CMA All view expressed are our own ACE Conference 16 November 2017

Outline Background Ability to foreclose Incentive to foreclose Conclusions

Background

ICE (downstream) Traders buy and sell energy products ICE is a venue that hosts this trading ICE (may) compete with other exchanges and brokers Venue competition characterised by a network effect

Trayport (upstream) Supplier of software that underpins energy trading Various pieces of software – but collectively a platform Traders use a Trayport screen Venues use Trayport as a distribution channel (and more)

Theory of harm ICE Rival exchanges Brokers Trayport

Ability to foreclose

Rival venues depend on Trayport All major third parties expressed concerns Brokers Rival exchange Coal Emissions Gas Power Trayport software 50% 60% 65% 45% 25% 95% 55% Other software 2.5% * Numbers in the table are the mid-points of share ranges Some voice trading – but overstated

Rival venues cannot switch away Venues want to reach traders Trayport offers access to 90% of European energy traders Trayport’s rivals offer access to very few traders No viable alternatives to Trayport

High barriers to entry/expansions Strong indirect network effects Trading venues and traders single-home Past attempt of establishing new Trayport failed

Trayport could harm rival venues Trayport only a small % costs, so focus on non-price foreclosure mechanisms All rivals expressed major concerns, and provided many examples of non-price mechanisms Key concern: harm rival’s ability to innovate Frustrating product development & innovation Lowering service levels

Need to identify specific mechanisms? Technical complexity of the industry How detailed can and should we be? We relied on competitors’ evidence and parties’ internal documents But ultimately Trayport is an essential input!

Incentive to foreclose

What is the role of vertical arithmetic? Is it necessary, and if so how detailed should it be? We rather focussed on the critical economic issues Used a wide range of evidence – much not quantitative But agree there needs to be some quantification We used a high level quantification & sensitivity testing

Switching from rival exchanges ICE is the largest exchange so well placed to gain Switching in products where ICE has existing volumes Switching in products where ICE has no existing volumes

Other elements of the assessment Gain volumes from brokers Protect ICE’s existing volumes Gain first-mover advantage in new products Some costs of foreclosure – but limited

Conclusions

Outcome Ability, incentive and effect ==> SLC ICE shouldn’t own the critical & unique input to all its rivals Ruled out a FRAND remedy – industry too complex Required ICE to sell Trayport Appealed but upheld

Some broader reflections The unique role of Trayport was key Vertical concerns often in “traditional” industries But here a vertical concern in the “new” economy More of these new economy vertical concerns in future? New economy, but old framework & evidence work fine?

ICE / Trayport Merger Chris Doyle Martina Prosperetti Assistant Director of Economics, CMA Martina Prosperetti Economic Advisor, CMA All view expressed are our own ACE Conference 16 November 2017