EU Commission: Banking and energy conglomerates don’t threaten competition!

Joaquín Almunia, Vice-President of the EC in charge of Competition, gave a press conference announcing the EC decision to impose fines to Lundbeck and other pharma companies for delaying market entry of generic medicines. (EC Audiovisual Services, 19/6/2013)

Joaquín Almunia, Vice-President of the EC in charge of Competition, gave a press conference announcing the EC decision to impose fines to Lundbeck and other pharma companies for delaying market entry of generic medicines. (EC Audiovisual Services, 19/6/2013)

At a time when the financial sector in the eyes of the wider public all over the world, and more so in Europe and the US, is to be held responsible for the real economy crisis and the unemployment burst, the European Commission dares to approve the acquisition of NYSE-Euronext (NYX) by the InterContinental Exchange. For one thing it is revealing that this acquisition was not the other way around.

NYSE-Euronext owns the many centuries old stock exchanges of New York, Paris, Amsterdam, Brussels, Lisbon and the London NYSE Liffe market. Liffe specialises in European financial derivatives, while the buyer, ICE, has a history of only thirteen years founded in 2000 and now trading in energy and commodity derivatives. It recently extended its business in the lucrative US financial derivatives market. We will see why ICE bought the NYX and not the other way around. It is also interesting to note that the EU Commission’s green light for this acquisition doesn’t pose any condition as it usually happens.

Globalisation oligopolies

Unquestionably this business move can be seen in the context of the fast globalisation of key market and clearing platforms which obtain now planetary dimensions. The new NYSE-Euronext/ICE exchange will be third in the world after the Hong Kong Exchanges and Clearing & CME. The three of them are managing the bulk of the global derivatives markets the depth of which is impossible to estimate but it may be as high as $600 trillion. Those derivative markets are totally unregulated and no authority has any control on them. They are free to send us all to a new crisis whenever they like.

No conditions at all

The EU Commission’s decision to clear this acquisition without any condition is in sheer contradiction with another Commission initiative, to create a transparent platform for financial products trading in the EU. It is as if the Commission on the one hand is trying to protect the EU citizens from financial exploitation and on the other to allow the formation of a huge international derivatives trading group, a constant threat for the global economy.

According to the decision {“The Commission’s investigation found that the proposed transaction would not raise competition concerns in any of these fields: canola and rapeseed, cocoa, coffee, sugar derivatives and US equity index derivatives, barley, corn and milling wheat, foreign exchange derivatives and bond trading}”.
Why? Because the Commission found that NYX and ICE are offering contracts belonging to different product markets, so their activities do not overlap.

This is almost true. The NYX is specialising in European financial products that is derivatives of stocks, bonds, including futures and options based on short-term interest rates, individual shares, equity indices, swaps, government bonds and only a small range of soft and agricultural commodities (cocoa, coffee, sugar).

At the same time the ICE is basically an American commodity exchange offering derivatives and clearing platforms for agricultural produce, credit, currency, emissions, energy and equity index products. As a result there is only limited overlapping between NYX and ICE business in the agricultural products sector. This overlapping may have created breaches of fair competition conditions but still the EU decision says, “The Commission examined in particular the effects of the proposed acquisition on competition in the markets for the provision of trading and clearing services for certain exchange traded derivatives (“ETDs”), in particular agricultural (canola and rapeseed) and soft commodities derivatives and US equity index derivatives. The Commission’s investigation found that the proposed transaction would not raise competition concerns in any of these fields”.

Yes but what about the forest?

The Commission may be right that in those particular derivative markets the overlapping cannot create a threat to competition. However the issue is not that. There is nowhere in the Commission’s decision the slightest reference to the possible effect on the real economy markets from this acquisition that will create a huge new derivatives provider and clearing platform. The Commission pretends it sees only the trees and not the forest. The very business logic of ICE is to grow through acquisitions. It started as an energy derivatives market and gradually it became a world player extending its business to agricultural products, US shares and bonds, money trading and futures.

Of course this ICE group did not make this wonderful career alone. How could it? According to market sources behind it there are powerful names like Goldman Sachs, Morgan Stanley, British Petroleum, Total, Shell, Deutsche Bank and Société Générale. Those are the real forces behind the ICE and that is why it bought the NYX and not the other way around.

Given that those banking and energy firms practically control large parts of the entire western financial and energy markets there is an obvious and huge threat to fair completion. If they decide to sit for a few hours in the same table, with people from the other one or two major western banking and real economy consortia, they can set prices in many real economy markets like energy, agricultural goods and even shares and bonds.

In the Commission’s decision there is not the slightest reference to that. Not a word about the possibility that this new huge group of NYX-ICE may control the price of oil, oil products, basic agricultural raw materials, stocks, bonds and other real and financial economy products through the manipulation of derivative trading on those real values. This is the core reality of our brave new world’s economic and financial system, where a handful of American and European giants in the banking and the energy sectors control everything. Despite that, the Commission sees no breach of fair competition legislation in this new acquisition.

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