10.1.1. Product Market Definition
(198) Collateral is offered by one party to a bilateral agreement as a guarantee of performance. Collateral management can be carried out in-house, where the collateral flows are monitored for own accounts, or it can be outsourced to a third party in the context of so-called tri-partycollateral management as compared to "bilateral collateral arrangements" between the two parties to a transaction.
(199) Depending on the provider's service profile, collateral management services ("CMS") may encompass, inter alia, the selection of collateral, matching of transaction details,
well as optimisation, substitution, settlement or custody services. Due to the increased requirements as to the efficient management of collateral, companies nowadays tend to reorganise collateral management and, for instance involve optimisation tools.
(200) NYX is not active in the provision of CMS. DB via Clearstream Banking Frankfurt ("CBF") and Clearstream Banking Luxemburg ("CBL") provides CMS services as a stand-alone service (tri-party CMS) and in connection with other service offerings92. In addition, DB provides CMS as an integrated part of Euro GC Pooling, a cash-driven general collateral segment of the trading platform Eurex Repo. Other tri-party CMS providers include companies such as Euroclear, Bank of New York Mellon and JP Morgan.
(201) Since collateral management services may be, and frequently are, provided independently of other post-trading services, it follows that they may plausibly constitute a market in their own right. The Commission received comments supporting this view that CMS should be distinguished from other post-trade services including clearing, settlement and custody93. As to the latter, it has also been submitted that CMS does not have to be provided by the custodian of the collateral94. The CMS market can be regarded as a market downstream from the markets for trading and clearing.
(202) At a relatively advanced stage of the procedure, the Commission received comments from certain CMS providers raising foreclosure concerns on the basis that the relevant product market should be defined at the level of each clearing-house/CCP (that is to say each collateral pool), since the CMS that clearing members and their underlying clients require, for instance, in connection with trading and clearing on Eurex is not the same as the CMS they require in connection with trading and clearing on other infrastructures. Furthermore, according to these complainants, a CMS provider needs a data feed from the CCP on transactions cleared by that CCP and on the resulting exposure (variation) of the market participant in question in order to perform its services.
(203) The Notifying Parties do not agree with this proposed narrow product market definition and argue that CMS always involves multiple business lines where collateral provision is required and that CMS does not differ significantly as to whether it relates to collateral to be posted with infrastructures such as CCPs or CSDs, with market participants in the context of bilateral OTC transactions, or with central banks.
(204) The CMS which clearing members and their clients demand with respect to trading and clearing on one trading venue/CCP may indeed be specific and not interchangeable with services required for other infrastructures. There are, however, also reasons, including those discussed below (see assessment), that suggest a wider market based on, for instance, supply side substitutability between the provision of CMS for different collateral takers such as different CCPs. The fact that a transaction feed is needed for a
92
For instance, Triparty Repo Service and Triparty Securities Lending Service.
93
See attachment to Euroclear's reply to questionnaire Q6 of 13 July 2011, Market Definition, paragraphs 5.9.3 and 5.9.4 [...]*; see submission of Bank of New York Mellon of 26 September 2011, paragraph 20 [...]*.
94
See attachment to Euroclear's reply to questionnaire Q6 of 13 July 2011, Market Definition, paragraphs 5.9.4 [...]*.
CMS provider in order to perform the respective service is not relevant as such for the purpose of market definition.
(205) The Commission can, however, leave open the question of whether the collateral management service market should be further subdivided on the basis of individual pools of collateral since, regardless of how the market is defined, no competition concerns arise.
10.1.2. Geographic market definition
(206) The Notifying Parties consider that the CMS market is global because CMS providers can deploy their services globally. Other market participants suggested national markets, for instance, because of the strong involvement of central banks in collateralised transactions, or, alternatively, European wide or Euro-zone markets with a view to the different time zones for trading and interbank transactions in other regions such as Asia or the US.
(207) For the purposes of the present Decision, the precise geographic market definition can, however, be left open since the transaction does not raise competition concerns under any of the alternative definitions.
10.2. COMPETITIVE ASSESSMENT
(208) NYX is not active in the provision of CMS. Consequently, the transaction does not result in horizontal effects. Since the provision of CMS is a market which is downstream to the activities of the Notifying Parties in trading and clearing, in several of which they have very high market shares, it needs to be assessed whether the transaction might result in vertical effects.
(209) It has been argued by certain providers of CMS that NYX's and DB's strengthened position in the upstream markets as a result of the notified transaction - in combination with DB's operation of a "closed vertical silo" including Eurex Clearing - might bring about (input) foreclosure risks and deprive users of a free choice of CMS providers. These providers argue that the combined entity would be able to further add to its critical mass in clearing services (of DB/Eurex Clearing) as a result of the migration of the volumes that are currently being traded on Euronext and LIFFE. Due to the Notifying Parties' strong position in clearing, the claim is that they would be in a position to induce users of its clearing services to also use DB's Clearstream, the provider of post-trading services such as settlement and CMS
(210) Furthermore, according to these providers, the notified transaction would enable DB/Eurex to continue and expand its existing business practices in this regard, which allegedly consist in not giving competing CMS providers data feeds on transactions cleared by Eurex Clearing and in not being willing to open accounts to which users can post collateral with competitors of Clearstream, which de facto makes Clearstream the only third party CMS provider for all collateral posted against positions at the CCP of the merged entity.
(211) The Notifying Parties submit that […]*95. Moreover, as to the collateral Eurex Clearing members have to post in relation to their risk exposure, CBF in its capacity as the German CSD only acts as the designated custodian, which would not prevent any other provider of CMS from providing CMS to clearing members of Eurex Clearing . Although Eurex Clearing members may appoint Clearstream as their CMS provider, they are not required to do so, […]*. Finally, Eurex does not provide Clearstream with any real-time information in connection with Clearstream's provision of CMS for Eurex Clearing members; each and every member of Eurex Clearing receives real-time information about its trades and exposures and can forward this information to any provider of CMS that they choose96.
(212) First, the Commission takes the view that any conduct on the part of DB/Eurex which is independent of the notified transaction does not need to be assessed pursuant to the rules of the Merger Regulation since a merger-specific effect does not arise97. There are also no indications that specific practices such as the alleged refusal to provide transaction feeds could or would be "expanded" as a result of the notified transaction. (213) Secondly, as regards the posting of collateral and safekeeping on accounts at
Clearstream, the merger has no impact on CBF's function as the German CSD (see also Recital (133)).
(214) Since the Commission under the Merger Regulation is required to assess only those effects that arise as a result of the notified transaction, it will focus on the issue of whether the integrated margin pool upstream is likely to foreclose competing and non- integrated CMS providers downstream from access to an essential input and thereby put them at a disadvantageous competitive position.
(215) The Commission has not found evidence of foreclosure of non-integrated CMS providers as a result of the integrated margin pool upstream. First, according to information provided by the Notifying Parties, […]*98. As a result, Eurex Clearing members are free to choose their own CMS providers and manage their collateral without using Clearstream's CMS. There are no reasons to believe that the merger will alter this situation in any respect. Secondly, in response to third party comments that Clearstream's strong position in CMS results from its relationship with Eurex clearing, the Notifying Parties submit that […]*99.
(216) Therefore, it is concluded that the notified transaction does not raise merger-specific competition concerns in relation to the provision of collateral management services.
95
Notifying Parties' submission of 4 October 2011 in response to the Commission's Request for Information ("RFI") of 29 September 2011, executive summary, third bullet point.
96
Notifying Parties' submission of 4 October 2011 in response to RFI of 29 September 2011, paragraph 17.
97
This is without prejudice to the conformity of any such conduct pursuant to Articles 101 and/or 102 TFEU.
98
Notifying Parties' submission of 4 October 2011 in response to RFI of 29 September 2011, executive summary, third bullet point.
99
Notifying Parties' submission of 4 October 2011 in response to RFI of 29 September 2011, paragraphs 12 and 14.