Daniel Hodson, former chief executive of LIFFE and non-executive director of The London Clearing House, says Yes.
At the heart of both the rationale and risk to London for this transaction is clearing. The London Clearing House (LCH), 57 per cent owned by the London Stock Exchange (LSE), is a City icon, a multitrillion highly complex organisation at the centre of global risk management and London’s dominance of European capital markets, clearing diverse and multicurrency products.
Deutsche Boerse (DB) and LSE shareholders recognise this as a massive merger opportunity. But the benefits can only accrue if LCH and Eurex clearing is combined in one legal entity, given the practicalities of cross margining, minimising market participants’ capital requirements, and default management, requiring nanosecond reactions.
Simultaneously, the European Central Bank is seeking to move euro-clearing to the Eurozone, although the critical mass of European clearing should remain in London as long as LCH remains independent. It is high folly to let this merger go through unchallenged, and a major worry removed if it fails.
Syed Kamall, Conservative member of the European Parliament for London, says No.
The European Commission has held up the London Stock Exchange (LSE)/Deutsche Boerse (DB) merger after concerns over reduced competition. Even if the LSE were to address these concerns, there is an argument not to block the deal, but to delay it.
In 2015, the UK government won a European Court of Justice case to block the European Central Bank’s insistence that all euro-denominated transactions should be conducted in the Eurozone. After Brexit, EU politicians and the ECB will try again. There are also some German politicians who see the LSE/DB merger as as a way to move the euro-clearing business of LSE’s subsidiary LCH.Clearnet – which dominates the market in euro-denominated clearing – to Frankfurt.
So while the deal should not be blocked, it would be prudent to wait until after the UK has left the EU – and the new relationship between the UK and the EU is clearer – before approving the deal, assuming concerns over competition issues can be overcome.