Cade approves with restrictions the transaction between BM&F Bovespa and Cetip

On the judgment session of 22 March 2017, the Tribunal of the Administrative Council for Economic Defense – CADE approved, the transaction regarding the union of activities between  BM&FBovespa S/A – Bolsa de Valores, Mercados e Futuros (BVMF) and Cetip S/A – Mercados Organizados. The transaction is related to the stock market and of over-the-counter market in Brazil (Merger 08700.004860/2016-11).

The transaction was approved with restrictions, since the markets of both parties presented elevated entry barriers, mostly about what concerns the infrastructure’s access of the Central Depositary Services (CSD, in its acronym in Portuguese). CADE understood that this market has elements of natural monopoly, making the existence of another CSD in the country inefficient.

Thus, to approve the transaction, the companies committed, by means of a
Merger Control Agreement (ACC in its acronym in Portuguese), to guarantee the access to third parties to their infrastructure on fair, transparent and non-discriminatory terms. The restrictions are defined in the Reporting Commissioner’s vote. The majority of the Tribunal followed Commissioner Paulo Burnier da Silveira’s vote.

Merger Control Agreement

According to the agreement, the parties have to open a period of negotiation up to 120 days with any interested party in hiring the services provided by the CSD and, in case of failure in the negotiations, the potential entrants may trigger the arbitration mechanism to solve any controversy.

The arbitration will be conducted by an Arbitral Tribunal composed by three arbitrators and will take place in the City of São Paulo. The procedures will fulfill the 2012 Arbitration Rules of the Brazil-Canada Chamber of Commerce’s Center for Arbitration and Mediation. According to the 2012 Arbitration Rules, each party should indicate one arbitrator to compose the Arbitral Tribunal, who will agree upon a third arbitrator nomination. The third arbitrator will chair the Arbitral Tribunal.

The ACC determines that the Arbitral Tribunal will be able to decide about any aspect related to the price and/or the scope of the access' rules to the CSD services. The Arbitral Tribunal's decision is binding and not subjected to appeal. A copy of the arbitral decision will be sent to CADE and to the Brazilian Securities and Exchange Comission (CVM, in its acronym in Portuguese) up to five days from the notification of the decision. 

“The ACC arbitration clause aims to solve potential private disputes regarding price definition and/or access’ rules for hiring the services to be provided by the monopolistic agent. This arbitration solution follows the OECD recommendations and is based on foreign experiences”, Burnier said.

The ACC also foresees commitments related to corporate governance, which contribute to avoid competition concerns that may affect end-consumers.

CADE’s Acting President, Gilvandro Araujo, highlighted the institutional cooperation between CADE and CVM during the case analysis: “We had an active cooperation with CVM, from the beginning of the proceeding at the General Superintendence to the judgement of the Administrative Tribunal. This cooperative work enabled a convergence between the competition authority’s decision and the sectorial regulator, as the dialogue between public institutions should be”.