Deutsche Boerse AG and NYSE Euronext face an in-depth European Union review of their proposed merger, according to the region’s antitrust chief.
The “analysis of this operation will not be a simple one,” Joaquin Almunia, the EU’s antitrust commissioner, said in Brussels today. “I will not be surprised if this merger, once it is notified, will be one of those cases where we are obliged to go to phase two,” he said, referring to the extension of a review beyond an initial month-long probe.
The European Commission, the 27-nation EU’s executive arm, must rule on the takeover, which would combine NYSE Euronext’s Liffe and Eurex, the exchange jointly owned by Deutsche Boerse and the Swiss Stock Exchange. The deal would put more than 90 percent of the region’s exchange-traded derivatives market in the hands of one organization.
Almunia also said that he preferred a “more open business model” like the one used by NYSE Euronext, which uses outside companies for some aspects of clearing, to Deutsche Boerse’s “vertical silo,” which routes all clearing through its own services.
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.
“I tend to prefer models that are not a vertical silo,” said Almunia, without giving details of how this may affect the way he views the merger review. “This creates more competition, more opportunities and this more open business model -- together with interoperability -- from the competition point of view is the preferred one.”
Naomi Kim, a spokeswoman for Deutsche Boerse in Frankfurt, declined to comment on Almunia’s remarks.
“It’s absolutely crucial that investors can make their own choice where to clear, trade and settle,” Rob McIvor, a spokesman for the Association for Financial Markets in Europe, said in a telephone interview. AFME represents international lenders including Deutsche Bank AG, BNP Paribas SA and UBS AG.
“What banks and end users are looking for is interoperability between clearers, so they are not channeled down a particular route for clearing,” McIvor said.
Almunia said the EU’s probe would need to dovetail with planned rules governing derivatives in the region.
The EU is considering plans to increase the use of clearinghouses in trading of so-called over-the-counter derivatives. The draft rules, proposed by the commission in September, also contain provisions to increase interoperability between different clearinghouses. The extent of this interoperability is still being discussed by governments and members of the European Parliament.
“During the analysis of this merger, we will have to be very well coordinated” with EU governments and lawmakers on the new derivatives legislation, he said.
Dominique Cerutti, NYSE Euronext’s deputy chief executive officer, said last month he expects an “intense” and lengthy EU review, lasting as long as a year. U.S. and European financial markets supervisors aren’t expected to raise problems, he said.
In most cases, an in-depth EU probe adds an extra four to five months to the approval process.
Almunia said today he’s met with officials from both sides of the deal to discuss “their intentions” and didn’t know when they would formally ask the EU to start reviewing the deal.
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