On 17 August 2021, the Competition and Markets Authority (CMA) announced that it had fined ION Trading Technologies Ltd and its Irish parent, ION Investment Group Ltd (together ION), £325,000 for two alleged breaches of an initial enforcement order (IEO) issued in relation to the CMA's Phase 2 investigation into ION's completed acquisition of its trading software rival, US-based Broadway Technology Holdings (Broadway). ION was primarily sanctioned for allegedly maintaining its already “very close collaboration” with Broadway by, in particular, engaging in a bid proposal in which Broadway was held out as already part of ION – in contravention of the requirements that the parties remain operationally separate and act independently whilst the CMA’s review remained ongoing.
Initial Enforcement Orders
IEOs are an important feature of the UK's voluntary merger control regime, in which transactions meeting the jurisdictional thresholds can be completed without prior clearance from the CMA. Unnotified mergers nevertheless remain at risk of being 'called in' by the CMA for review.
Where the CMA exercises its power to examine an already completed transaction, it will routinely impose an IEO to prevent the parties from further integration of their businesses or doing anything which might otherwise prejudice the CMA's investigation or obstruct the imposition of appropriate remedies (which may ultimately be required to address identified concerns). IEOs are, in the CMA's words, a vital tool for ensuring the CMA "has the full range of remedy options open to it if required by the findings of the investigation".
Where the merging parties wish to do something which is restricted under the terms of the IEO, they must seek a derogation from the CMA in advance. Parties must also submit regular compliance statements to the CMA confirming compliance with the IEO and inform the CMA of any 'material developments' relating to their businesses. This is in addition to the general obligation actively to keep the CMA informed of such material developments.
The CMA has the power to fine parties up to 5% of their combined global turnover in the event an IEO is breached "without reasonable excuse".
On 6 February 2020, ION completed its acquisition of a controlling stake in Broadway. The parties did not notify the transaction to the CMA despite both being active in the global supply of sell-side front-office systems for FI electronic trading.
Having become aware of the transaction through its own market intelligence function, the CMA 'called in' the transaction and (on 2 April 2020) imposed an IEO on the parties.
The merger was ultimately cleared following a phase 1 review on 10 November 2020 (after an undertaking in lieu of reference to phase 2 was agreed). During its review the CMA had become concerned that the parties had not abided by the terms of the IEO and communicated its concerns to ION. As a result, the CMA issued directions in May 2020 which required, among other things, that employees of both parties, their customers and suppliers all receive written notice explaining the existence and terms of the IEO.
Between April and June 2020, the CMA raised a number of questions regarding the parties’ activity and subsequently (on 30 November 2020, nearly three weeks after the transaction had been cleared by the CMA) issued a formal request for information.
Based on its investigation, the CMA determined that ION and Broadway had, in breach of the IEO, submitted a response to a bid proposal which was the "result of extensive and detailed exchanges [between the two parties] after the IEO came into force". The response allegedly presented the parties’ merger as an "integral part of the proposal". This breach had occurred only a day after the IEO agreed with the CMA had come into force, preventing the two businesses acting independently on the market as they were required to do under the terms of the IEO. For this breach, the CMA imposed a £300,000 fine.
The CMA also imposed a further £25,000 fine for ION's alleged failure to provide information required for compliance monitoring. The CMA noted that there were "material inaccuracies and/or omissions" in ION's responses to CMA enquiries. These and the breach of the requirement to operate independently reportedly continued for a number of weeks. The CMA decided that ION had no reasonable excuse for its failures to comply with the IEO.
This decision comes at a time when the Government is consulting on proposals to give the CMA even more stringent powers to impose procedural penalties on parties, and potentially even make individual directors personally accountable for the accuracy and completeness of information provided to the CMA – see Proposed UK competition law reforms – ‘he ain’t heavy, he’s my micro-economic sibling’ and Competition and consumer policy reforms: power to the CMA.
This particular fine marks the eighth time in just over three years that the CMA has issued a fining decision (one having been withdrawn following an appeal to the Competition Appeals Tribunal) for failure to abide by the terms of an IEO – underscoring a discernible trend of the CMA actively pursuing merging parties for procedural violations. Procedural breaches of the merger control rules (in particular violations of 'standstill' obligations – whether under EU or national laws) have been very topical over recent years (in Europe and beyond). These UK cases are, however, particularly interesting as they arise in the context of a voluntary merger regime – i.e. where there is no legal obligation to notify a transaction and where parties can (and often do) close their deals without the CMA's prior approval.
The fact that this and other cases were ‘called in’ also highlights the complications and subsequent risk of closing transactions without first notifying and receiving CMA clearance. Indeed, despite the voluntary nature of the UK regime, there are potential material risks in proceeding without notification and/or unconditionally.
In justifying the £325,000 fine, the CMA specifically noted "general deterrence" as a key factor – a consideration which has clearly been a central concern of the CMA in its previous fining decisions. Despite aggravating factors, such as non-compliance with information requests, the fine imposed remained significantly below the statutory maximum (only 0.3% of the parties’ UK turnover). However, there has been an uptick in scrutiny and level of fines and the CMA has indicated that it will continue to impose higher fines for future IEO breaches.
Parties subject to IEOs need to work closely with specialist advisors to ensure they understand the stringent obligations as part of their UK (and indeed international) merger control strategy and avoid (even inadvertently) falling foul of the requirements under an IEO.
Authored by Alice Wallace-Wright, Christopher Peacock, Matt Giles and Harry MacGregor.