1. 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

2. Outline Background Ability to foreclose Incentive to foreclose
Conclusions

3. Background

4. 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

5. 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)

6. Theory of harm
ICE
Rival exchanges
Brokers
Trayport

7. Ability to foreclose

8. 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

9. 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

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

11. 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

12. 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!

13. Incentive to foreclose

14. 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

15. 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

16. 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

17. Conclusions

18. 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

19. 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?

20. 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