November 24, 2011 7:01 am

UK authorities clear BATS takeover of Chi-X

The takeover of Chi-X Europe by US rival BATS Global Markets has been formally cleared by UK antitrust authorities in a move that is likely pave the way for a listing of the third-largest US exchange next year.

The new company, to be known as BATS Chi-X Europe, will take about a quarter of all European equities trading and consolidate its position as the region’s largest share trading venue. It will also account for 40 per cent of trading in FTSE 100 stocks, behind only the London Stock Exchange.

Formal clearance of the deal by the Competition Commission on Thursday could also be the starting point for a listing by BATS on its own market next year. It filed a prospectus for an initial public offering with US authorities in May but weak equity markets and an unexpected referral of the Chi-X deal to the UK regulators have delayed the process. BATS has needed to know the outcome of the inquiry in order to value the company.

Joe Ratterman, chief executive of BATS Global Markets, said the enlarged company would create “an even more formidable competitor in pan-European securities trading, offering greater market efficiencies for the entire investing community”.

Both companies emerged from the European Commission’s Markets in Financial Instruments Directive of 2007, which encouraged competition in cash equities to Europe’s incumbent national stock exchanges. Chi-X was particularly successful, using faster technology and cheaper prices to carve out its market share in just four years.

However, analysts have said that further significant market share gains are likely to be limited, while fierce pressure has whittled down market trading fees as low as 0.30 basis points per trade.

The deal is likely to be concluded before the end of the year and a recent data centre move by BATS in London will speed the integration of the two companies.

The deal was first agreed in February and worth more than $300m but there was surprise in the industry when the deal was referred by the Office of Fair Trading to the Competition Commission in June.

In its provisional finding in favour of the deal last month, the Competition Commission said customers, such as banks and brokers, could prevent BATS Chi-X Europe from exploiting its position by taking their business elsewhere or sponsoring the creation of a rival.

The third quarter saw Chi-X Europe trade €546.6bn worth of shares and take nearly a fifth of the overall European market. BATS Europe reached €154.2bn and took a 5.5 per cent market share.

Among BATS’s plans for European markets is a move into derivatives trading and building on Chi-X Europe’s plans to develop new European market indices. Chi-X Europe also planned to challenge rivals such as NYSE Euronext and the London Stock Exchange over the market data fees they charge information providers such as Reuters and Bloomberg.

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