Bloomberg News

EU Seeks Response to NYSE-Deutsche Boerse Revised Remedies

December 28, 2011

(Adds details of revised remedies from 11th paragraph, EU’s questions from 15th, comments from companies in last.)

Dec. 15 (Bloomberg) -- European Union regulators asked clients and rivals of NYSE Euronext and Deutsche Boerse AG whether the revised concessions offered this week are sufficient to eliminate antitrust concerns over their planned combination.

The European Commission asked if the revised remedies package is sufficient to restore the existing competition in derivatives between the two exchanges. The questionnaire also asks whether the concessions mean there’s potential to create “a viable” business capable of competing with the merged exchange in derivatives trading and clearing in Europe, according to the document obtained by Bloomberg News.

The two exchanges are struggling to convince European regulators that their takeover, creating the world’s largest exchange, won’t stifle competition in derivatives and clearing. On Dec. 13, Deutsche Boerse and NYSE Euronext said they offered further concessions to the European Commission to stop it from blocking the deal.

The companies have now offered to sell all of NYSE’s Liffe single-stock derivatives business, according to two people familiar with the situation who declined to be identified as the remedies are private. The companies will also give any buyer the option to access Eurex Clearing for post-trade processing and said they will license the Eurex trading system to a third party interested in offering interest-rate derivatives. Liffe is based in London.

‘Scale And Scope’

In the market-test document, the Commission asked whether the single-stock derivatives business has “sufficient scale and scope” to compete with the combined NYSE-Deutsche Boerse. It also asks if so-called “fungibility” is necessary for a buyer to develop the business.

Contracts are said to be fungible if they can be bought on one exchange and sold on another. Most futures exchanges do not allow their contracts to be fungible.

The Commission’s deadline for responses to the market-test document is Dec. 19 and the last day that it can rule on the merger is Feb. 9.

EU officials told Frankfurt-based Deutsche Boerse and New York-based NYSE at a meeting in Brussels on Dec. 6 that their Nov. 17 offer to divest some European single-equity derivatives units didn’t sway customers and rivals, according to people familiar with the discussions. Regulators also weren’t convinced that offering competitors limited access to Deutsche Boerse’s clearinghouse would do enough to foster competition for exchange-traded derivatives, the people said.

Talks With Regulators

The meeting followed two days of talks with regulators in October where the exchanges also failed to alleviate antitrust concerns. Regulators have told the two companies that their merger would monopolize derivatives trading in the region. The EU can block a takeover or require concessions from companies to eliminate potential antitrust problems. The takeover would put more than 90 percent of the region’s exchange-traded derivatives market and about 30 percent of European stock trading in the hands of one company.

Other remedies offered in the revised offer included increasing the degree to which rivals’ derivatives can mirror products offered by Deutsche Boerse and NYSE before they are excluded from using the exchanges’ clearinghouse, according to two people familiar with the situation.

Bond-Based Products

The companies have offered to boost the so-called correlation coefficient at which access is allowed for European bond-based products to 90 percent from 85 percent, according to the document, which also shows that for European equity index- based derivatives the threshold has risen to 99 percent from 85 percent. The limit remains unchanged for Liffe’s benchmark short-term interest-rate contracts.

The European Commission document asked if new levels would allow rivals to introduce contracts that can compete with NYSE- Deutsche Boerse’s existing European interest-rate derivatives and equity-index derivatives.

The exchanges also offered to increase the number of members on the committee that would review the applications to eight from five with four independent members instead of one previously.

“The revisions are designed to reflect the European Commission’s feedback on the initial proposal,” James Dunseath, a spokesman for NYSE Euronext in London said, referring to the company’s Dec. 13 statement. “And thereby fully address the Commission’s remaining concerns while preserving the industrial and economic logic of the merger.”

Frank Herkenhoff, a spokesman for Deutsche Boerse in Frankfurt, declined to comment. Amelia Torres, a spokeswoman for the European Commission in Brussels, didn’t immediately return a call seeking comment.

--Editors: Andrew Rummer, Will Hadfield

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net;

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net;


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