Summary of transaction:
- the names of the merger parties;
The merger parties (the “Parties”) to the Transaction (as defined below) are London Stock Exchange Group plc (“LSEG”) and Refinitiv Holdings Limited (“Refinitiv Holdings”).
- a description of the transaction;
This notification concerns the proposed acquisition by LSEG of sole control over the Refinitiv business (the “Transaction”), structured as an all share acquisition, for a total enterprise value of approximately US$27 billion, as at 1 August 2019.
- a description of the business activities of the merger parties worldwide and in Singapore;
LSEG is an international financial markets infrastructure business headquartered in the United Kingdom, with significant operations in North America, Italy, France, Romania and Sri Lanka. It has approximately 5,000 employees worldwide. LSEG’s main business activities globally include capital markets, post-trade and risk management, information services and technology services.
LSEG generates revenues from customers in Singapore through its global activities in capital markets, post-trade and risk management (through LCH Group Holdings Limited), information services (through FTSE Russell) and technology services.
Refinitiv is one of the main providers of financial markets data and infrastructure, serving over 40,000 institutions in 190 countries. Refinitiv provides data and insights, trading platforms, and open data and technology platforms that connects the global financial community to transact and manage risk in a safe, effective and efficient way. Refinitiv services are generally available globally. Refinitiv offers a comprehensive range of solutions that can broadly be divided into three primary business segments: (a) data and analytics; (b) capital markets and workflow solutions; and (c) risk management services.
Refinitiv generates revenues from customers in Singapore through its global activities in data and analytics, capital markets and workflow solutions and risk management services.
- a description of the overlapping goods or services, including brand names;
The Parties overlap in index licensing to customers in Singapore (specifically, for fixed income (excl. hybrids) indices).
- a description of substitute goods or services;
From the Parties’ perspective, substitutes for the Parties’ indices would be the indices offered by other competing providers, such as Bloomberg, ICE, JPMorgan, IHS Markit and S&P.
- the applicant’s views on:
- definition of the relevant market(s);
In respect of the relevant product market, the Parties consider that no sub-segmentation of index licensing is appropriate. This is principally because there is a high degree of supply-side substitutability with respect to index licensing: most providers will provide a wide range of indices and can generate custom indices based on customer request.
In respect of the relevant geographic market, there are a number of factors that clearly indicate that all relevant markets in relation to the supply of indices are global in scope: (1) there are no material regulatory or technical barriers that prevent suppliers from operating on a global basis; (2) customer choice of indices is not dictated by where the index provider is located, most of whom are active globally; (3) the Parties’ index customers are located across the world; (4) the supply of indices generally requires a limited physical distribution network, save where the customer wants to receive the same via a physical desktop terminal; and (5) from a demand-side substitutability perspective, the conditions of purchase (including licensing fees) do not vary materially across regions and countries, in particular because the same fee schedules are used for customers irrespective of the country or region in which they are located (and who are in many cases global organisations).
Given the materially different focus of the Parties’ global portfolio of indices (LSEG in securities indices and Refinitiv in reference rate benchmarks), the lack of meaningful overlap within each asset class, the presence of numerous large providers that compete more closely with FTSE Russell in this space than Refinitiv, and the extremely limited amount of fixed income index licensing (excl. hybrids) sales to customer in Singapore by the Parties, the Parties consider that the market definition can be left open, as the Transaction will not raise competition concerns under any plausible market definition or have any material effect on any relevant market in Singapore.
However, on a conservative basis and for the purposes of the notification, the Parties have assessed the competitive impact of the Transaction having regard to the plausible market for the global market for fixed income index licensing (excl. hybrids).
- the way in which competition functions in this market;
The market for index licensing is a highly competitive market. Competition is based on price and product composition (e.g. in relation to the underlying rules, basis for calculation, product or sector exposure).
- barriers to entry and countervailing buyer power; and
The market for index licensing is characterised by relatively low barriers to entry. With modest investment, a new entrant can easily develop an appropriate methodology to create an index for specific asset classes, factors or variables which they are attempting to track. It is also increasingly possible for new entrants to enter by partnering with existing index providers, with such entrants focussing on continuous innovation in developing the index and then turning to an index provider to more broadly commercialise the index. Furthermore, there is an increasing trend for customers to “self-index”, avoiding paying any licence fees to third-party index providers and taking the indexing activity in-house.
There is strong countervailing buyer power as the customer base for index licensing is relatively concentrated. Customers do not face significant costs in switching index providers – notably, even for large asset managers that have multiple mandates benchmarked against a certain index, switching can and does happen in practice. It is also possible for the Parties’ customers, who tend to be highly knowledgeable and experienced entities in the financial sector (such as asset managers, wealth managers and the structured product desks of banks), to self-supply by creating their own indexes to discipline any attempt by the merged entity in raising prices.
In addition, due to the interconnected nature of the financial markets infrastructure ecosystem, there are numerous touch points with customers through which they could punish and damage the merged entity’s business as a form of retaliation, should the merged entity attempt to foreclose its customers or competitors, and pursuing such strategies that would weaken its commercial proposition is not plausible.
- the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).
The Transaction will not result in non-coordinated or coordinated effects:
- Multitude of existing competitors: Post-merger, the Parties will continue to face strong competition from a wide range of competitors, many of whom can be characterised as major global players that are established and have sophisticated capabilities. Notably, with respect to the supply of indices, customers continually demand new and innovative indices offering different types of exposure. Accordingly, there is strong pressure for competitors to consistently innovate, as most index providers continually bring thousands of “new” (typically variants of existing indices) index products to the market every year.
- Low incremental effect of Transaction: The aggregation in market shares for fixed income index licensing (excl. hybrids) as a result of the Transaction, whether on a global or Singapore-wide basis, is de minimis. Accordingly, the effect on competition within the market for fixed income index licensing (excl. hybrids) is marginal.
- Low barriers to entry, ease of switching and strong countervailing buyer power: As noted above, the market for index licensing is characterised by relatively low barriers to entry. There is strong countervailing buyer power as the customer base for index licensing is relatively concentrated. While the cost of switching index providers can vary according to a number of factors (for example, the complexity of the index and liquidity of the underlying constituents), even for large asset managers that have multiple mandates benchmarked against a certain index switching can and does happen in practice. The Parties’ customers also tend to be highly knowledgeable and experienced entities in the financial sector who are able to self-supply by creating their own indexes to discipline any attempt by the merged entity in raising prices.
- Coordinated behaviour is not sustainable: The market for fixed income index licensing (excl. hybrids) will remain extremely competitive post-merger and the presence of a larger number of existing competitors in the market of varying scale of operations means that it would not be possible for the merged entity to arrive at an alignment or coordination of its behaviour with other competitors. Any prospect of collusion is untenable or unsustainable. In addition, as most index providers continually bring thousands of “new” index products to the market every year, due to the pressure to innovate, such volatility makes coordination virtually impossible. Further, given the low barriers to entry, any coordinated behaviours may be easily disrupted by an opportunistic new entrant.
The Transaction will also not give rise to non-horizontal competition concerns in any plausible market in Singapore:
- The number of non-horizontal links in Singapore is limited, based on the relatively limited presence of the Parties downstream in Singapore, and the upstream market shares of the Parties in respect of each of the relevant inputs is (save for some very limited exceptions) low.
- The Parties’ customers (at all levels of the market) are generally highly sophisticated operators, and they would have a wide range of strategies at their disposal to retaliate against any attempt to implement a foreclosure strategy which damages their business.
- Any foreclosure strategy in respect of any downstream product category in Singapore would be further eliminated by the minimal presence of the Parties in the downstream activities in Singapore relative to the global sales.
 Examples of customers switching index providers include:
- BlackRock Inc. switching four of its fixed income ETFs from Bloomberg to ICE in August 2018;
- Vanguard Group switching six of its index funds from MSCI to FTSE Russell and 16 of its index funds from MSCI to CRSP;
- State Street Global Advisors switching from MSCI to Solactive in September 2018; and
- FinEx ETF switching from MSCI to Solactive in August 2019.
CCCS has completed its Phase 1 review of the Proposed Transaction on 2 July 2020. CCCS has raised competition concerns with the Parties on the Proposed Transaction, based on the information received from the Parties and third parties. More information can be found in the media release.
Following the filing of the relevant documents by the Parties to CCCS on 31 August 2020, CCCS commenced an in-depth review to further assess the effect of the Proposed Transaction in view of the concerns raised. More information can be found in the media release.
Update on 27 January 2021:
CCCS is inviting feedback on the Proposed Commitments at Annex 1 to assist with its assessment of whether the Proposed Commitments will sufficiently address the competition concerns arising from the Proposed Transaction.
When submitting confidential information, interested parties should take note of the procedures outlined in the CCCS Guidelines on Merger Procedures 2012. If the submission/correspondence contains confidential information, please also provide CCCS with a non-confidential version of the submission or correspondence.
Comments should reach CCCS no later than 12.00pm on 9 February 2021. Please write or email your comments (titled: Comments on Proposed Acquisition by London Stock Exchange Group plc of Refinitiv Holdings Limited) to:
Competition and Consumer Commission of Singapore
45 Maxwell Road
The URA Centre
Attention: Celestine Song, Assistant Director (Policy and Markets Division)