The European Union on Wednesday blocked the Deutsche Boerse's planned merger with NYSE Euronext, a $10 billion deal that would have created the world's largest financial exchange operator.
The European Commission, the EU's executive body, said it was ruling against the merger because the combined exchange would have controlled 90 percent of the trading in European derivatives — complex but highly profitable financial products that allow investors to bet on areas like interest rates or the price of oil. It said that dominance of that market would have made it almost impossible for competitors to offer rival trading systems.
"The merger between Deutsche Boerse and NYSE Euronext would have led to a near-monopoly in European financial derivatives worldwide," the EU's Competition Commissioner Joaquin Almunia said in a statement. "These markets are at the heart of the financial system and it is crucial for the whole European economy that they remain competitive."
The Commission's decision deals a blow to Deutsche Boerse AG and NYSE Euronext, who hoped combining their businesses would have allowed them to compete better with other large exchanges in the U.S. and Asia.
"This is a black day for Europe and its global competitiveness on financial markets," said Deutsche Boerse Chief Executive Reto Francioni.
Francioni added that the decision will prevent the creation of a "globally competitive" European exchange group that would have helped strengthen the Commission's push for transparent and stable financial markets across Europe and the world.
NYSE said in a statement that the two companies are now discussing terminating the merger agreement — an indication that they are not optimistic an appeal at the European Court of Justice would overturn the Commission's decision.
"While we are disappointed and strongly disagree with the EU decision, which is based on a fundamentally different understanding of the derivatives market, it is now time to move on," NYSE Euronext Chairman Jan-Michiel Hessels said.
The Commission's decision did not come as a surprise as last month a case team recommended the merger should be blocked, citing the combined exchange's dominance in the trading of key derivatives.
But the two companies argued that the vast majority of derivatives are traded directly between banks and other investors, or over the counter, rather than on exchanges and the Commission should have taken that into account in its decision.
The Commission asked the two exchanges to sell one of their successful derivatives trading platforms — Deutsche Boerse's Eurex or NYSE's Liffe — to make the merger acceptable, but the companies refused.
The German exchange announced nearly a year ago that it was looking to buy NYSE Euronext for $10 billion. NYSE Euronext owns bourses in Paris, Lisbon, Brussels and Amsterdam, in addition to New York.
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