EU objects to NYSE merger

EUROPEAN regulators will today file a list of formal objections to the blockbuster $10.2bn (£6.6bn) merger of the NYSE Euronext and Deutsche Boerse stock exchanges, perhaps forcing the parties to offer concessions to get the deal approved.

The European Commission is concerned that the merger, which would create the biggest stock exchange in the world, could hurt competition in Europe’s market for trading stocks and other financial instruments such as derivatives.

It has been investigating the effect of the merger on competition and City A.M. understands its “statement of objections” will run to 200-300 pages of evidence.

The merger has drawn criticism from other European exchange operators, including the London Stock Exchange, which fear it will have too great a market share in some instruments.

Both Deutsche Boerse and NYSE Euronext own large derivatives trading operations – Eurex and Liffe respectively – which, when merged, will control about 91 per cent of the market for exchange traded derivatives.

“The European derivatives market is a duopoly,” the LSE Group said in its response to the European competition investigation in July. “NYSE Euronext and Deutsche Boerse dominate EU derivatives trading as each other’s closest competitors. New entrants have been unable to challenge their position because of restrictive licensing practices and closed clearing pools.”

The two exchanges will be able to respond to the objections and can offer concessions to the regulator to fix the problems, but have already ruled out selling any part of their derivatives businesses to satisfy the objections.

“If that was the case [selling the derivatives businesses], there would be no deal,” one source told City A.M.

A NYSE Euronext spokesman said it expected to win regulatory approval for the merger. “A statement of objections doesn’t prejudge the Commission's final decision,” he said. “We are confident the merger will be cleared.”