By Greg Hammond, J.D.
The European Commission (EC) has opened an in-depth investigation into whether the proposed merger between Deutsche Borse AG (DB) and London Stock Exchange Group (LSE) would reduce competition in a number of financial market areas.
DB is a diversified financial market infrastructure organization that is best known for operating the Frankfurt Stock Exchange, according to the EC’s announcement. Similarly, LSE is one of Europe’s pre-eminent financial infrastructure companies, best known for operating the London Stock Exchange.
The EC has preliminary concerns that the combination of the parties’ clearing houses could eliminate competition in a number of areas, including bonds, derivatives, and repurchasing agreements, as well as adversely affect competing trading venues that depend on clearing services provided by LSE’s clearing house and competitors in post-trade markets. In addition, there are preliminary concerns that the proposed deal could: (1) lead to a near-monopoly in single stock equity futures and options based on Italian underlying instruments or securities; (2) reduce competition in the repurchasing agreements market; (3) lead to a significant loss of competition for German stocks; and (4) reduce competition on Exchange Traded Products markets.
The EC will also use the in-depth investigation to analyze the impact of the proposed transaction on competition in a number of other markets, including the international listing of non-European Economic Area companies; dealer-to-dealer electronic trading of German government bonds; index licensing; trading and clearing of freight derivatives; settlement and custody services; IT services; and regulatory and trade reporting.
"Financial markets provide an essential function for the European economy," stated EC Commissioner of Competition Margrethe Vestager. "We must ensure that market participants continue to have access to financial market infrastructure on competitive terms."
DB, LSE response. DB and LSE acknowledged the EC’s investigation and noted that, to address the antitrust concerns, LSE and LCH Group Ltd. intend to explore a potential sale of LCH SA—LCH Group Ltd.’s French-regulated operating subsidiary.
Previous EC action. In March 2015, the General Court of Europe dismissed an appeal of an EC decision, prohibiting the proposed merger of NYSE Euronext and DB—competitors in the European financial derivatives market. The court agreed with the EC’s finding that the proposed merger would have led to a near-monopoly.
Companies: Deutsche Börse AG; London Stock Exchange Group
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