Antitrust Clearstream: General Court confirms Commission Decision Rosalind Bufton and Eduardo Martínez Rivero (1) 1 On 9 September 2009 the Court of First Instance and settlement services. Clearstream Banking AG is (now the General Court) dismissed the action for Germany’s only CSD. annulment (2) brought by Clearstream Banking AG (also known as Clearstream Banking Frankfurt or 1.2. The 2004 Decision CBF) and Clearstream International SA against the 2 June 2004 Commission decision in the Clearstream The Commission decision found that Clearstream case. The decision had found that Clearstream Banking AG enjoyed a dominant position in the Banking AG and its parent company Clearstream market for the provision of ‘primary’ clearing and International SA violated Article 82 EC (now Art- settlement services for securities issued under Ger- icle 102 TFEU) by refusing to supply certain clear- man law to CSDs in other Member States and to ing and settlement services to one of its customers international central securities depositories (IC- 3 (Euroclear Bank SA), and by applying discrimina- SDs) ( ). For certain categories of companies seek- tory prices to that same customer. ing to provide efficient and less costly services to their customers, the decision found that the use of 1. Background ‘secondary’ clearing and settlement through an in- termediary could not be a substitute for access to ‘primary’ clearing and settlement services as it does 1.1. Clearing and settlement not offer the same level of service. It also found Clearing and settlement services are necessary steps that Clearstream Banking AG, together with its par- for a securities trade to be completed. Although ent company Clearstream International, had: these services are provided by professionals such as • refused to supply clearing and settlement ser- central securities depositories to professionals such vices for registered shares to Euroclear Bank for as banks, their cost is also passed on to consumers more than two years, (for example when they buy or sell shares). Clearing is the process by which the obligations of • discriminated against Euroclear by charging a the buyer and seller are established. In some systems higher per transaction price to Euroclear than a central counterparty may fulfil a special function to national central securities depositories outside in this process but this was not the case in Germany Germany. at the time the infringements took place. Settlement is the transfer of the securities from the seller to the 1.3. Market relevance buyer, the transfer of funds from the buyer to the For many years and particularly since the introduc- seller and the corresponding entries in the securities tion of the euro, the Commission has urged market accounts. While clearing and settlement may gen- players involved in European cross-border securities erally be carried out by different types of financial to promote cheaper and more efficient services be- institutions, each institution may only perform ‘pri- cause although some reductions in costs are report- mary’ clearing and settlement for the securities that ed in the ‘First report on monitoring prices, costs it keeps in final custody. A central securities deposi- and volumes of trading and post-trading services (4)’, tory (CSD) is an entity which holds and administers the costs of cross-border securities transactions securities and enables securities transactions to be within the single market continue to be higher than processed through book entry for trades of those for national ones. Such a situation is suboptimal for securities that have been deposited with it and which promoting EU economic and financial growth. it holds in final custody. These services are defined in the Commission decision as ‘primary’ clearing (3) An ICSD’s core business is clearing and settling securi- ties — traditionally Eurobonds — in an international en- ()1 The content of this article does not necessarily reflect the vironment. There are at present two ICSDs in the EU: official position of the European Commission. Responsi- Euroclear Bank, based in Belgium, and Clearstream Bank- bility for the information and views expressed lies entirely ing Luxembourg. ICSDs can provide other services such with the authors. as intermediary services for equities. (2) Judgment of the Court of First Instance (‘CFI’) of 9 Sep- (4) http://ec.europa.eu/internal_market/financial-markets/ tember 2009 in Case T-301/04 Clearstream Banking AG and docs/clearing/2009_07_ec_report_oxera_en.pdf, Clearstream International SA v Commission. July 2009. 28 Number 1 — 2010 Competition Policy Newsletter The Commission decided to refrain from legislat- no movement in the books of the CSD where the ANTITRUST ing in this area until it had given the industry the securities are deposited. opportunity to reduce costs and achieve efficiencies through self-regulation. On 7 November 2006, trad- Clearstream contested the definition of the mar- ing and post-trading infrastructures signed a Code ket and hence the dominant position held by CBF. of Conduct on clearing and settlement. The Code In particular, Clearstream argued that a distinction aims to enhance transparency and increase competi- between primary and secondary services was arti- tion in the securities post-trading sector. To monitor ficial. Moreover, the product market should not the implementation of the Code, the Commission be assessed from the perspective of providers of set up a Monitoring Group of the Code of Conduct secondary clearing and settlement services. Instead, on Clearing and Settlement (MOG). In its report to it should be assessed from the perspective of the the Ecofin Council of November 2008 (5) ‘Improv- end customers seeking a securities transaction. As ing the efficiency, integration and safety and sound- such a transfer merely involved entries in the respec- ness of cross-border post-trading arrangements in tive accounts of buyer and seller, but not a physical Europe’, the CESR group also noted positive chang- transfer of the securities, these end customers could es in market structure due to new entrants. turn to both CSDs such as CBF and to interme- diaries for their service requirements. Competition The Clearstream decision provides legal clarity to between both groups indicated, in Clearstream’s Clearstream and to other companies active in se- view, a broader market in which CBF’s position was curities post-trading services on the responsibilities far from dominant. In fact, a significant number of of dominant companies. At its meeting in October transactions could be carried out through transfers 2009, the MOG drew the attention of service pro- between the various accounts of one intermediary, viders to the implications it has for their operations without any involvement of CBF. The fact that cer- and the aim of improving the efficiency of EU tain customers still preferred a direct link to CBF’s post-trading operations. data processing — e.g. for reasons of speed in the processing of transactions — did not, Clearstream 2. The judgment argued, justify defining a separate market. The judgment confirms both the Commission’s de- The CFI confirmed the Commission’s market defi- lineation of the market and the existence of abu- nition and rejected the applicants’ argument that sive behaviour vis-à-vis Euroclear Bank SA, a direct those requesting post-trading clearing and settle- competitor to CBF’s sister company Clearstream ment services were the sellers and the buyers of the Banking Luxembourg SA. security transaction and therefore that there should be a general market for clearing and settlement ser- 2.1. Market definition and dominance vices. This confirms that when defining markets the starting point is the need expressed by those requir- Market definition was one of the central issues in ing the product or service in question (Euroclear the case. The decision defined the relevant market Bank in this case). as the market for primary clearing and settlement services for securities issued under German law. The decision also found that, as an unavoidable trading partner, CBF held a dominant position in The Commission argued that a distinction has to the market for primary clearing and settlement of be made between ‘primary’ and ‘secondary’ clearing securities issued in accordance with German law. and settlement services, a distinction that was not a The judgment confirmed Clearstream’s dominant term used in the industry but corresponded to the position and pointed out that intermediaries, such way the market actually worked. According to the as CSDs and ICSDs, can only provide clearing and Commission’s decision primary clearing and settle- settlement services for securities issued in Germany ment is carried out by the same entity with which to their customers if they can make use of CBF’s the securities are kept in final custody and whenever services. The CFI reached the conclusion that CBF’s a change occurs on the securities account held by custody monopoly in respect of securities issued un- it. Secondary clearing and settlement, on the other der German law results in a monopoly of primary hand, is performed by intermediaries on their own clearing and settlement for those securities. books as a result of internalisation or mirror op- erations. Clearing and settlement can only be inter- The CFI referred to its case-law that a dominant nalised if both parties to the trade have a securities company has a special responsibility, irrespective account with the same intermediary. In that case