29th Sep 2023

EU blocks German take-over of US stock exchange

  • Joaquin Almunia said the merger would have created a 'quasi-monopoly' on the derivatives market (Photo: Dan Nguyen @ New York City)

The European Commission has blocked a merger between Deutsche Boerse and the New York Stock Exchange, the two largest players in trading of derivatives - a financial product said to have helped cause the 2008 financial crisis.

"The merger would have led to the worsening of conditions for companies trying to access financial instruments and would have harmed the European economy as a whole ... In the end, we had no alternative but to prohibit the merger," EU anti-trust commissioner Joaquin Almunia told press in Brussels on Wednesday (1 February).

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The decision came as a surprise after EU single market commissioner Michel Barnier earlier voiced "reservations" on blocking the deal. But Almunia said it was taken by the full college of 27 commissioners without a vote.

Derivatives are complex financial products which bet on the performance of 'underlying' loans, mortgages or other financial transactions. Lack of regulation and transparency in the sector is widely seen as a cause of the financial crisis three years ago.

Almunia explained the two stock exchange operators - Eurex-DB and Liffe-NYSE - are the biggest competitors on the market, covering over 90 percent of trading in derivatives of European underlyings. The German company would have effectively taken over the New York-based one, as it would have held 60 percent of the new company after the merger.

The main concession the commission had asked for was for the companies to sell either Deutsche Boerse's Eurex or NYSE Euronext's Liffe. But the companies refused either option.

For its part, the German firm reacted furiously to Almunia's annuoncement.

"This is a dark day for Europe and its future competitiveness on global financial markets ... The EU Commission's decision is totally out of touch with reality and is based on a narrow definition of the markets which does not take into account the global nature of the competition on the derivatives markets," Deutsche Boerse said in a statement.

But its employees voiced relief because the merger was likely to cause redundancies in Frankfurt. The head of the Deutsche Boerse employee council, Irmgard Busch, told Spiegel magazine she was "happy that this mega-project failed."

The story is not over yet, with Deutsche Boerse expected to shortly make a bid for the London stock exchange.

"We'll see more of this in the coming years. It's a scale business - derivatives are a global market - so if you have big platforms, you increase the volume, reduce costs and make a profit," a market contact told this website.

Derivatives law stuck

Meanwhile, a long-awaited EU law - obliging all derivatives trades to be checked by clearing houses and registered in data bases under national and EU supervision - has hit an impasse.

The bill is stuck on a single issue - the mediation powers of the European Markets and Securities Authority (Esma), a newly created EU body based in Paris.

EU finance ministers last week agreed that Esma can intervene in disputes on the registration and authorisation of clearing houses when a two thirds majority of national regulators ask for it. MEPs say this makes no sense, because a two-third majority is anyway needed to approve or reject any decision.

"If they can't agree to it anyway, then why do they have to reach the same majority to ask for mediation? It should be just one country asking for mediation," a parliamentary source told this website.

The Danish EU presidency is seeking a compromise deal in the coming week.

It is unlikely that Britain will agree to the MEP's request however, as it has already made concessions. The UK moved from from a three-quarter to a two-third majority on mediation and accepted that Esma's decisions should be binding.

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