1. ACE Conference Helen Ralston, Senior Consultant November 2017
ICE Trayport merger
ACE Conference
Helen Ralston, Senior Consultant
November 2017

2. How EU utility trading works
Traders
Trading firms
Macquarie
BTG
Citadel
Mercuria
Citigroup
RWE
E.ON
Vattenfall
Gazprom …
Traders
Traders
Exchange execution
OTC execution
Trading venues
Exchange operators:
ICE (IFEU/Endex)
CME
EEX Group (EEX/ PEGAS/EpexSpot)
Nasdaq OMX
...
Brokers:
GFI / BGC
Griffin
ICAP
Marex Spectron
Tradition
Tullett Prebon …
Exchange Infrastruct ure
Exchange Infrastruct ure
Broker Platforms
Broker Platforms
Exchanges
Broker platforms
OTC trades registered
for clearing
OTC –
Bilateral
Clearing Houses
Clearing houses
Clearing Houses
Clearing house operators
CME Clearing Europe/US
ECC (part of EEX)
ICE Clear Europe
Nasdaq Clearing
...
Physical settlement/ national hubs
Physical Settlement / National Hubs
Physical Settlement / National Hubs
Strictly confidential

3. What is Trayport? Example of a Joule screen
Trayport is an independent software vendor (ISV)
Its matching engine and front-end connectivity software form important inputs to broker OTC execution venues
The core element of Trayport’s business model is venue-neutral aggregation of multiple OTC (and exchange-traded) markets into a single trading screen
Undermining this neutral proposition would destroy Trayport’s business model and attraction to users
‘Code’ refers to executing venue
Cross-venue matching not possible
Traders can customise the screen and execute any price in the stack
Strictly confidential

4. Does Trayport have market power? Depends on liquidity fragmentation
Providing an effective consolidated view of prices is critical to Trayport’s value proposition
For products where trading is less fragmented—e.g. products where one exchange has substantial liquidity—Trayport is less important
Exchanges have their own front-end screens and partner with other ISVs
Traders initiate change in this market
Source: Trayport Market Dynamics report
Strictly confidential

5. Foreclosure analysis mechanisms
strong evidence that price could not have an effect
damaging the aggregation function would seriously undermine Trayport
hard-to-detect mechanisms
would these be sufficiently effective?
hard to steal liquidity from an established venue
EEX has its own front-end screen and other ISVs
Strictly confidential

6. How did traders state they would respond to a change in Trayport pricing?
Source: Slide 88 of the CMA Financial analysis putback.
97.9% of traders would not change behaviour
Most would consolidate licences
CMA question: If licence fees for all screens that require a licence from Trayport had been 10% higher than they actually were, would you have purchased fewer Trading Gateway licences/sessions … how instead would you have executed the trading volumes that went through these screens?
WebICE/ICE is the least likely alternative route to market
Coal
Emissions
Gas
Power
Trading gateway reduction
2.1%
Remaining TP screens
61% 6%
27%
59%
Voice
39% 0%
44%
14%
ICE
15% 1%
Others
26%
Stop trading
94%
No. of responses 2 6 7
Strictly confidential

7. Incentives analysis (I)
we estimated the potential gains to ICE by considering the type of execution (rival exchange, OTC rival cleared, OTC uncleared) and product market (gas, power….) in turn
the CMA took a more general approach; it considered switching varied by type of execution only
we estimated switching based on trader responses to the CMA’s own survey and past episodes of switching. The CMA made assumptions, some of which had more influence on the results than may have been apparent—for example:
35–52% of the CMA’s assumed potential gains (depending on the scenario) arose from the assumed switching from foreclosure of rival clearing houses
given that the choice of clearing house does not depend on Trayport’s price aggregation function, this was a point of particular debate
in the mid and high scenarios, 36% of the assumed potential gains came from assumed switching from OTC uncleared volumes
the CMA presented a wide range for potential gains
the CMA ‘low’ and the Oxera ‘central’ estimates coincide
Strictly confidential

8. Incentives analysis (II) The CMA’s analysis
Low
Mid
High
14% 8%
34%
20% 0%
36%
29%
16%
17%
15% 6% 5%
Proportion of potential gains
Strictly confidential

9. Contact: Helen Ralston +44 (0) 20 7776 6623 helen.ralston@oxera.com
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