No, non, nein. European antitrust regulators have spelt out reasons for blocking the proposed $7.5bn merger of Deutsche Börse and NYSE Euronext – only the fourth deal blocked by Brussels in eight years and by far the most significant. The objection turns out to be simple: the 90 per cent-plus share that the exchanges would have in the market for European financial exchange-traded derivatives (plus inadequate remedies to address this).
On balance, their conclusion looks wrong. Officials have decided the much bigger over-the-counter market does not act as a competitive check – a contentious line not universally followed by regulators. They have dismissed any potential pressures from the US’s CME, which has been clear about its European ambitions and is already sparring with NYSE over euribor/eurodollar contracts. They also appear to have given little weight to the offsetting benefits of the deal – notably collateral savings for customers, which the parties estimated at about $3bn but which were described by competition tsar Joaquín Almunia as “limited” (with no alternative estimate given). The very modest opening of D Börse’s formidable trading/clearing “silo” – offered by the parties as a concession to keep the merger proposal alive – will now not happen. Market users will instead have to rely on legislation to achieve this result in years to come.
Still, the world moves on. An appeal is possible, but will take many months. Meanwhile, the biggest loser would appear to be NYSE Euronext, which generates most of its revenues – perhaps 90 per cent in 2011 – from cash markets and derivatives, and lacks a substantial post-trade services arm. That leaves it exposed to trading volume vagaries and, in Europe, the threat of a financial transaction tax. The London Stock Exchange, finally pursuing a much-needed diversification strategy, should be relieved. But its “exclusive” talks with LCH.Clearnet have not yet resulted in a deal. And the London-based clearer could be a potential “Plan B” for NYSE.
