Financial exchanges Deutsche Boerse AG and NYSE Euronext are offering to sell some businesses and give rivals access to a major derivatives clearing house to win support from antitrust regulators for their $9-billion (U.S.) merger.
The concessions offered by the two companies on Friday could clear the way for the biggest of a raft of planned exchange mega-mergers announced in the past year and the only one still surviving regulatory scrutiny and other obstacles.
The announcement confirmed an earlier report by Reuters. Sources said the exchange operators submitted the plan to the European Commission late on Thursday, right on deadline for addressing the concerns raised over their combined grip on derivatives trading.
Deutsche Boerse and NYSE Euronext said they planned to sell off significantly overlapping parts of their single-stock equity derivatives businesses in key markets, which include France, Belgium, Germany, the Netherlands, and Britain.
They also said they would allow rival exchanges to clear interest-rate and equity-index derivatives on Deutsche Boerse’s clearing house, Eurex Clearing, but only if the products were “new and innovative”.
That means rivals such as London Stock Exchange Group PLC or Chicago-based CME Group Inc. would not be able to clear existing, or even new “copycat” products, under the plan.
Amelia Torres, the EU Commission’s competition spokeswoman, confirmed that the regulator had received the exchanges’ proposed remedies and said deadline for a decision has been extended to Jan. 23 from Dec. 22.
Deutsche Boerse shares rose on the news, up 2.7 per cent by 1210 GMT, recovering from a 2.2 per cent drop, while NYSE Euronext shares put on 0.6 per cent in thin Paris trading.
“I think this is a good way for Deutsche Boerse and NYSE to make concessions which address the Commission’s issues without giving up too much,” said analyst Christian Muschick at Silvia Quandt Research.
Antitrust lawyers see the remedies as “major”, at least from the perspective of the companies.
“I don’t know from the commission’s point of view,” said Martin Bechtold, a partner at law firm Allen & Overy. “This is a mixture of behavioral and structural remedies which allow both sides to have discussions.
“In a transaction like this where the Commission has identified substantial risks from its perspective, the likelihood of getting clearance with only behavioural remedies is very small,” he added.
Xavier Rolet, Chief Executive of the LSE Group, said in an e-mail that he was not opposed to the merger in principle, but he did not comment on the value of the announced concessions.
The Commission has repeatedly voiced concerns that the combined group’s 94-per-cent share of listed derivatives trading in Europe due to its captive clearing and settlement operations could thwart competition.
These so-called vertical “silos” should be broken up, some of Boerse’s and NYSE’s opponents have said.
Another antitrust lawyer who declined to be identified said that giving competitors access to the Eurex clearing house at least addresses the European Commission’s fears.
“The companies seem to be willing to resolve issues with remedies. It seems they are negotiating, it’s not a showdown with the regulator.”
A key question remains over how the Commission defines derivatives markets, in particular on whether it sees the potentially anticompetitive aspects of a combination of Eurex and Liffe in a global or primarily a European context.
The regulator has signaled it would not consider the over-the-counter derivatives market when it assesses the deal.
The Deutsche Boerse-NYSE Euronext tie-up was announced amid a flurry of cross-border merger attempts earlier this year by exchanges eager to cut costs and diversify in the face of fast-eroding market share in their traditional stock-trading businesses.
It was the biggest of the planned mega-deals, and the lone survivor after others fell apart. Nationalistic and regulatory concerns have derailed many of the bourses’ attempts -- from Asia to Europe to North America -- to band together to cut costs and ramp up higher-margin derivatives trading and clearing.
It will create the world’s largest exchange operator if it receives approval.