Bloomberg News

Deutsche Boerse, NYSE May Need to Give Ground to EU on Deal

October 06, 2011

(Closes shares in eighth paragraph.)

Oct. 6 (Bloomberg) -- Deutsche Boerse AG and NYSE Euronext may need to offer concessions to quell formal European Union concerns over their plan to create the world’s largest exchange, lawyers said.

Deutsche Boerse and NYSE Euronext yesterday received a statement of objections listing the European Commission’s “provisional position” on the combination, the companies said. The statement lays out possible competition problems.

Joaquin Almunia, the EU’s antitrust commissioner, said last month that he’s “concerned” the deal may monopolize the derivatives market. Regulators have also cited fears of reduced innovation in derivatives products and technology and less competition for post-trade clearing services.

The EU’s “concerns are sufficiently real that the parties are going to want to offer something,” said Dennis Oswell, a lawyer at Oswell & Vahida in Brussels. It’s “pretty darn rare” for a deal to win EU approval without conditions after the EU has opened an in-depth “phase 2” investigation.

Eurex, Europe’s largest derivatives exchange, which is controlled by Deutsche Boerse, lists derivatives contracts based on the benchmark Euro Stoxx 50 Index of the euro area’s biggest companies.

“NYSE and Deutsche Boerse won’t want to lose the Euro Stoxx or their flagship derivatives contracts but there are others, on the side, that aren’t highly revenue generating, that can be offered as a sacrifice to the gods,” said Hirander Misra, who helped found Chi-X Europe, the biggest alternative trading system, and now runs a U.K.-based consulting firm that advises on market structure.

Vertical Silo

Robert Rendine, a spokesman for NYSE in New York declined to comment as did Frank Herkenhoff, a spokesman for Deutsche Boerse. Almunia also declined to comment on the details of the EU’s complaint today.

Deutsche Boerse shares rose 0.04 percent to 38.66 euros today in Frankfurt and NYSE stock dropped 0.6 percent to $24.11 at 12:44 p.m. in New York.

Deutsche Boerse’s “vertical silo,” which routes all trade clearing through its own services, was targeted by Almunia in March. He said he preferred a “more open business model” for markets.

Clearinghouses -- such as Deutsche Boerse’s Eurex Clearing unit and London’s LCH.Clearnet Ltd. -- operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the risk that a trader defaults on a deal.

Third Parties

Almunia’s comments suggest that the EU may seek remedies such as “product licenses to third parties, allowing third parties to use the Deutsche Boerse clearinghouse and fees concessions,” said Suzanne Rab, a lawyer at King & Spalding in London.

The EU can require companies to change their behavior or to sell off units to eliminate possible competition concerns. It currently has a deadline of Dec. 13 to rule on the deal, which it can extend if required.

“The commission is going to have to receive some sort of satisfaction that clients are not going to be forced into the vertical silo,” said Oswell. Regulators often don’t favor such behavioral remedies “because it requires a lot of monitoring on their part.”

Deutsche Boerse and NYSE Euronext have resisted any suggestion that they would sell derivatives exchanges Eurex or Liffe, saying in a February statement that they “complement each other ideally on interest rate products, with Eurex specializing in the long end of the interest rate curve and NYSE Liffe the short end.”

The companies may also try to counter the commission’s arguments against deal, said Emanuela Lecchi, a London-based lawyer at Watson, Farley & Williams LLP.

The exchanges may “consider whether the evidence really supports the concerns expressed” and whether they are able to rebut the EU’s reasoning, said Lecchi.

--Editors: Peter Chapman, Andrew Rummer

To contact the reporters on this story: Aoife White in Brussels at Nandini Sukumar in London at

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