Brussels, 01/02/2012 (Agence Europe) - As expected, on Wednesday 1 February 2012, the European Commission blocked the planned merger (announced in June 2011) between the German stock exchange, Deutsche Börse, and NYSE Euronext, as it would have resulted in a quasi-monopoly in the area of European financial derivatives traded globally on exchanges. The companies offered to sell certain assets and to provide access to their clearing house for some categories of new contracts, but overall, the commitments were inadequate to assuage the identified competition concerns. All the EU commissioners agreed with the decision so a vote was not needed, explained EU Competition Commissioner Joaquin Almunia, suggesting that the commissioners who had supported the deal had ultimately seen the merits of the case made by DG Competition.
Eurex, operated by Deutsche Börse, and Liffe, operated by NYSE Euronext, are the world's two largest exchanges for financial derivatives based on European underlyings (European interest rate, single stock equity and equity index derivatives). They compete head-to-head and are each other's closest competitors. Both Eurex and Liffe operate closed vertical silos linking their exchange to their own clearing house. The merger would have resulted in a single vertical silo, trading and clearing more than 90% of the global market of European financial ETDs. It would have been difficult for a new player to enter the market because, given the advantages of clearing similar contracts in a single clearing house, customers would have been reluctant to trade similar derivatives at another exchange. Therefore, the dynamics of the market would have reinforced the monopolistic position of the merger, explains the Commission, thus resulting in higher prices and lower incentives to innovate.
The companies did not meet the Commission's demands in full, only offering to sell Liffe's European single stock equity derivatives products where these compete with Eurex. However, the divested assets would be too small and not diversified enough to be viable on a stand-alone basis, explains the Commission. In the commercially more significant area of European interest rate derivatives, the companies did not offer to sell overlapping derivatives products, but only offered to provide access to the merged company's clearing for some categories of “new” contracts. This was considered insufficient because it did not extend to existing competing products.
It is known that a number of EU Commissioners, including Internal Market Commissioner Michel Barnier, backed the merger as a way of creating a European heavyweight to compete with global market leaders. The merged entity would have had earnings four times higher than the London Stock Exchange from the global market, for example, although it would only have 16% of the derivatives market, compared with 19% for US competitor CME. The Deutsche Börse/NYSE Euronext merger would have created a counterbalance in the eurozone to the all-powerful City of London at a time when the planned Financial Transactions Tax looks like it would send business to the City or other stock exchanges around the world, due to the unattractiveness of smaller European bourses. (FG/transl.fl)