Exclusive Online Only ContentEC Charges S&P With Monopoly Abuse
November 19, 2009
Ten months after launching an investigation, the European Commission Thursday formally charged Standard & Poor’s with abusing its position as the sole provider of international securities identification codes for U.S. securities by requiring European financial firms and data vendors to pay licensing fees for their use.
“This behavior amounts to unfair pricing,” the European Commission said in its statement of objections which lays the groundwork for an adverse finding against S&P. “The (numbers) are indispensable for a number of operations that financial institutions carry out – for instance, reporting to authorities or clearing and settlement – and cannot be substituted.”
The EC said that other national numbering agencies either do not charge any fees for using their identification codes or they only charge for the costs of distributing the codes and not how often they are used.
S&P through its CUSIP Global Services unit issues both 9-digit alphanumeric local identification codes called CUSIPs that are used within North America for clearing and settling trades as well as 12-digit alphanumeric codes called ISINs that add three digits to the CUSIP codes, so they can be used as international identifiers.
S&P, a division of The McGraw-Hill Companies, has eight weeks to reply to the EC’s charges and can seek a hearing to defend its position before the European Commission makes its final decision. The EC can charge companies which violate the European Union’s antitrust laws a fine of up to 10 percent of the yearly global revenues for each year the company broke the law. Firms can also agreed to make a binding commitment to avoid such conduct in the future.
“S&P disagrees with the European Commission’s preliminary assessment,” said Mark Tierney, who represents S&P in London.“We are reviewing the commission’s position and its implications for S&P’s CUSIP Global Services business and investment in Europe.’’ S&P provides the numbers under a contract with the American Bankers Association, which said it was disappointed with the EC’s decision.
“The CUSIP numbering system has provided the market with the means to effectively and efficiently manage the trading and settlement of securities worldwide,” said ABA president Edward Yingling in a statement. “If allowed to stand, this would stifle additional investment, innovation and improvements to this system that provides the identifiers that are so vital to transactions in financial markets.”
The EC’s probe into S&P follows a complaint by the European asset management association EFAMA and other investor groups in Germany, France, the U.K. and Switzerland that S&P forces information service providers, with which it has contracts, to cut off financial firms from data feeds on U.S. securities unless they agree to licensing deals with S&P. EFAMA had also complained to the Association of National Numbering Agencies, the trade group for numbering agencies, but ANNA said it could not take any action against S&P.
“We are now very confident that the complaint will succeed,” said Peter De Proft, EFAMA’s director in Brussels, also in a statement. “We expect S&P will be required by the commission to cease and desist the illegal International Securities Identification Numbers license practice in Europe.”
