LSE issuer fee increases – the OFT's verdict

United Kingdom

On 2 July 2004 the OFT published its report into the large increases in issuer fees made by the London Stock Exchange (LSE) in April 2002. Its verdict was that had the original increases been maintained, they would have had a significant adverse effect on competition and that the Competition Commission (CC) would have been asked to investigate further.

The OFT's investigation was carried out using its competition scrutiny powers under the Financial Services and Markets Act 2000 in respect of recognised investment exchanges. It covered the LSE's annual fees and its admission to trading fees for UK equity on its main market together with corresponding fees on the Alternative Investment Market (AIM). The investigation was prompted by sharp increases in these fees made in April 2002. The exact level of the increases varied between companies but in some cases, the fees increased by more than 100%. The LSE's justifications for the increases included the need for its Issuer Services arm to improve its performance as a profit centre, the need to maintain a strong commercial and financial position so that its could compete effectively against rival exchanges when the Financial Services Action Plan came into force, and the level of fees charged by competitor exchanges. The level of the fee increases does not appear to have been related to increased costs.

While the OFT was investigating, the LSE agreed to reduce most of its issuer fees from 1 April 2004. The reductions removed much of the effect of the increases made in April 2002. The LSE also agreed not to increase these fees again until 1 April 2007 (other than to reflect changes in the ONS Services Sector Wages Index. The LSE regards this index as a reasonable measure of increases in costs in the financial services sector).

The OFT concluded that the LSE is in a "position of strength in the market for issuer services for the issuing and public trading of UK equity in the UK". It found that the LSE exploited this market strength by raising issuer fees by more than it could otherwise have charged. However, due to the fee reductions agreed with the LSE, the adverse effect on competition brought about by this exploitation of market strength was not significant. On that basis, the OFT has decided not to refer the case to the CC for further investigation.

To review the OFT's full report, click here.

For more information on this investigation or any other competition issues in the financial services sector, please contact Nick Paul at [email protected] [email protected] or on +44 (0) 207 367 2806.