The UK's Office of Fair Trading (OFT) has referred Bats Global Market's planned acquisition of rival MTF Chi-X Europe to the Competition Commission.
After the LSE, Bats and Chi-X are the two largest MTFs for the trading of UK-listed equities and the OFT says a merger therefore reduces the number of "significant" suppliers from three to two.
Although it concedes the evidence is mixed, the OFT argues that there is a "realistic prospect" that without a merger the pair could have "competed more strongly against each other, as well as competing against the LSE".
The Competition Commission will now look into the case and is slated to report its findings by 2 December.
Ali Nikpay, senior director, OFT, says: "This case is not one in which we have encountered widespread customer complaints. However, we cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition. We have therefore referred the merger to the Competition Commission for a more detailed investigation so it can determine whether a substantial lessening of competition is probable."
Responding to the news, Joe Ratterman, CEO, Bats Global Markets, says: "We are discussing this matter with our shareholders and the relevant authorities and remain optimistic about completing the deal."