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January 11, 2012 5:19 pm
Unlucky number four? In spite of a reputation for toughness, European Union regulators have blocked only three proposed mergers since 2004, including two blatantly anticompetitive airline tie-ups. Now they have their sights trained on the plan by Deutsche Börse and NYSE Euronext to form the world’s largest exchange operator.
Competition tsar Joaquín Almunia is backing his officials’ view that remedies offered by DB/NYSE to address a potentially commanding position in European exchange-traded derivatives are inadequate. That bodes very badly for the deal, given the competition commissioner’s traditional clout. Trouble is, blocking the merger would probably be the wrong call. Even critics concede that the deal would bring market benefits. (The parties themselves claim that cross-margining could free up as much as $4bn for market users over 2-3 years.) Promised concessions would also give rivals some access to DB’s Eurex Clearing arm, so starting to open the exchange’s trading/clearing silo. Maintaining the status quo would mean that it will be down to legislation to achieve this result. That could take years.
Opponents argue that blocking the deal will help maintain competition in terms of new products in Europe while keeping pricing honest. But this is hardly an industry on the take: pricing pressure is downward, technology changes rapidly, and the landscape for players and products is shifting. The exchange trading of derivatives in particular is a global – not regional – playing field and should be assessed as such. A final decision is due by February 9 and rests with all 27 EU commissioners. A ‘no’ would benefit the City of London and the London Stock Exchange. And there would also be smiles in Chicago, where the US has already created its own exchange behemoth through the 2007 CME/CBOT merger.
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