Expert economic evidence green lights JSE’s acquisition of Link Market Services

Genesis was appointed by the Johannesburg Stock Exchange (JSE) to provide an expert economic report and testimony in the JSE’s acquisition of share registry business Link Market Services South Africa (Link SA).

The JSE operates the largest stock exchange in South Africa, with over 300 listed companies and executing the overwhelming majority of all trades in listed equities through its trading and post-trade systems. The JSE is also the largest shareholder in Strate, the central securities depository for equities. Link SA offers transfer secretarial (TS) and custody and settlement services to listed companies. It is also a licensed central securities depository participant regulated by Strate.

As the JSE and Link SA are not in the same market nor have a customer-supplier relationship, the transaction was assessed as a conglomerate merger. The merger was initially prohibited by the Competition Commission on the grounds that the JSE would leverage its position in the exchange market to the detriment of its rivals in the TS and exchange markets. Genesis was retained to provide expert testimony before the Competition Tribunal on behalf of the merging parties in their appeal of the Commission’s decision. The Tribunal proceedings included Computershare, the largest TS service provider in South Africa, as an intervenor opposed to the merger.

The key issues raised by the Commission and Computershare were that the JSE would (i) engage in anti-competitive tying or bundling of the JSE’s listing services and Link’s TS services; (ii) use its position as a frontline regulator of listed companies to the detriment of its rivals in the TS and exchange markets; and (iii) have unassailable contact and marketing advantages by dint of being the largest exchange on the continent.

Computershare further alleged that post merger the JSE would (iv) grant Link SA access to competitively sensitive-information; (v) grant Link SA access to contact information of brokers’ clients captured with its proprietary software; and (vi) degrade interoperability between transfer secretaries and the JSE and Strate.

We provided an expert economic report that assessed each of the Commission’s and Computershare’s concerns. Genesis submitted that the JSE would have neither the ability nor the incentive to foreclose rivals in the ways posited by the Commission and Computershare.

Our analysis emphasised that because the JSE is constrained by the statutory and regulatory environment in which it operates, the conduct alleged by the Commission and Computershare would be so detrimental as to outweigh any potential benefits of such conduct. We further showed that given the dynamics of the TS market, where decisions are made based on price and service quality, the JSE’s brand would not be an insurmountable obstacle to rival TS businesses.

Finally, we argued that the merging parties’ proposed conditions would sufficiently address any anti-competitive conduct that is not explicitly prohibited by existing statutes and regulations. The conditions also addressed concerns about the potential exclusion of emerging TS service providers.

Our analysis and expert testimony contributed towards the merging being approved with the conditions submitted by the merging parties.