Commission rejects stock exchange merger

Almunia says deal would create ‘near-monopoly’, while Deutsche Börse says it is a ‘black day’ for Europe.

What would have been the largest- ever merger between international financial exchanges has been blocked by the European Commission.

In a decision that will have a massive impact on the financial-transactions sector in Europe, Joaquín Almunia, the European commissioner for competition, yesterday (1 February) won the support of the rest of the Commission for blocking a proposed €6.8 billion tie-up between Deutsche Börse and NYSE Euronext.

It would have created the world’s largest exchange for the trading of derivatives – financial instruments whose value is derived from separate assets, such as commodities, interest rates and bonds.

Almunia ruled that the merger should not be permitted because it would lead to a “near-monopoly” in European derivatives trading worldwide and block out competition in the sector.

The executive board of Deutsche Börse, based in Frankfurt, said that the decision represented a “black day for Europe and for its future competitiveness on global financial markets”. Jan-Michiel Hessels, the chairman of New York-based NYSE Euronext, said that the Commission had based its judgment on a “fundamentally different understanding of the derivatives market” from that held by the two exchanges.

Competition concerns

More than most competition rulings, the decision became highly political. Almunia recommended that the merger be blocked, but the issue was discussed by all commissioners at their weekly meeting yesterday. Michel Barnier, the European commissioner for the internal market and services, who is spearheading the EU’s financial-services legislation, was among those who had earlier raised concerns about the prohibition.

The merger would have further strengthened Germany’s position as a centre of finance, but some German politicians and businesses had raised fears about US influence on the new company. US regulators had already approved the merger, subject to conditions.

Christian Krohn, a managing director at the Association for Financial Markets in Europe, which represents many exchange-users, said that the “potential benefits” of the merger were undermined by “serious competition concerns”, and that the decision was correct.

Although it is only the fourth prohibition since 2004, when the EU introduced new merger-control rules, Suzanne Rab, a competition lawyer with King and Spalding in London, said that the decision was not unexpected.

She said: “It demonstrates that the Commission is not shy of taking a stand in deals that it considers are problematic, and even where multiple rounds of concessions have been offered.”

? Despite an agreement between member states at a meeting of finance ministers on 24 January, officials from Denmark, which holds the rotating presidency of the EU’s Council of Ministers, were unable to reach a deal with the European Parliament on new EU rules for the trading of over-the-counter derivatives.

A meeting between the two sides on Tuesday (31 January) ended in deadlock because of diverging views on the powers of the pan-EU regulator, the European Securities and Markets Authority (ESMA).