Deutsche Börse-LSEG merger blocked
29 March 2017 Frankfurt
Image: Shutterstock
The European Commission has prohibited the proposed merger between Deutsche Börse and the London Stock Exchange Group, saying it would cause a “de facto monopoly”, and that the proposed measures to counter this were not enough.
Although LSEG’s sale of its France-based clearing house LCH.Clearnet SA would have resolved concerns around single stock equity derivatives, it would not have addressed the creation of a monopoly in fixed-income clearing
Margrethe Vestager, commissioner in charge of competition policy at the European Commission, said: “The European economy depends on well-functioning financial markets. That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets.”
“The merger between Deutsche Börse and the London Stock Exchange would have significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed-income instruments. As the parties failed to offer the remedies required to address our competition concerns, the commission has decided to prohibit the merger.”
In February, despite the proposed sale of LCH.Clearnet SA, the commission raised concerns regarding MTS, LSEG’s Italian electronic trading platform for European wholesale government bonds and other fixed-income securities.
Following market testing of the proposed merger, the commission requested LSEG to sell the MTS platform. However, the board of LSEG declined, calling the request “disproportionate” and suggesting structural changes that would have meant MTS accounted for less than 10 percent of its overall gross income.
In a statement, LSEG disputed the notion that these measures were inadequate and criticised the decision to block the merger.
The statement said: “LSEG does not agree with the view that a business of LCH SA's scale would not be a viable stand-alone competitor without the concurrent sale of MTS.”
It went on to say that that package it put forward was “clear cut, viable, and addressed the commission’s competition concerns”.
While the statement affirmed LSEG’s confidence as a standalone business, it also said: “LSEG believes the proposed merger with Deutsche Börse, in combination with the LCH SA remedy, would have preserved credible and robust competition in all markets.”
“This was an opportunity to create a world leading market infrastructure group anchored in Europe, which would have supported Europe's 23 million small and medium-sized enterprises and the development of a deeper Capital Markets Union.”
Deutsche Börse also said in a statement that it “regrets the decision taken”, and will now focus on other initiatives, including its Accellerate growth strategy. It also argued that this is a negative development for Europe’s Capital Markets Union.
Joachim Faber, chairman of the Supervisory Board of Deutsche Börse, said: “The prohibition is a setback for Europe, the Capital Markets Union and the bridge between continental Europe and Great Britain. A rare opportunity to create a global market infrastructure provider based in Europe and to strengthen the global competitiveness of Europe’s financial markets has been missed.”
Carsten Kengeter, CEO of Deutsche Börse, added: “Deutsche Börse is well-positioned on a stand-alone basis to compete at a global level with other market infrastructure players.”
“We will continue to pursue our growth strategy, to strengthen our innovation capabilities and to even better serve market and customer needs. Through this strategic approach we want to create added value for our clients and shareholders and contribute to the positive development of Frankfurt as financial centre.”
Although LSEG’s sale of its France-based clearing house LCH.Clearnet SA would have resolved concerns around single stock equity derivatives, it would not have addressed the creation of a monopoly in fixed-income clearing
Margrethe Vestager, commissioner in charge of competition policy at the European Commission, said: “The European economy depends on well-functioning financial markets. That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets.”
“The merger between Deutsche Börse and the London Stock Exchange would have significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed-income instruments. As the parties failed to offer the remedies required to address our competition concerns, the commission has decided to prohibit the merger.”
In February, despite the proposed sale of LCH.Clearnet SA, the commission raised concerns regarding MTS, LSEG’s Italian electronic trading platform for European wholesale government bonds and other fixed-income securities.
Following market testing of the proposed merger, the commission requested LSEG to sell the MTS platform. However, the board of LSEG declined, calling the request “disproportionate” and suggesting structural changes that would have meant MTS accounted for less than 10 percent of its overall gross income.
In a statement, LSEG disputed the notion that these measures were inadequate and criticised the decision to block the merger.
The statement said: “LSEG does not agree with the view that a business of LCH SA's scale would not be a viable stand-alone competitor without the concurrent sale of MTS.”
It went on to say that that package it put forward was “clear cut, viable, and addressed the commission’s competition concerns”.
While the statement affirmed LSEG’s confidence as a standalone business, it also said: “LSEG believes the proposed merger with Deutsche Börse, in combination with the LCH SA remedy, would have preserved credible and robust competition in all markets.”
“This was an opportunity to create a world leading market infrastructure group anchored in Europe, which would have supported Europe's 23 million small and medium-sized enterprises and the development of a deeper Capital Markets Union.”
Deutsche Börse also said in a statement that it “regrets the decision taken”, and will now focus on other initiatives, including its Accellerate growth strategy. It also argued that this is a negative development for Europe’s Capital Markets Union.
Joachim Faber, chairman of the Supervisory Board of Deutsche Börse, said: “The prohibition is a setback for Europe, the Capital Markets Union and the bridge between continental Europe and Great Britain. A rare opportunity to create a global market infrastructure provider based in Europe and to strengthen the global competitiveness of Europe’s financial markets has been missed.”
Carsten Kengeter, CEO of Deutsche Börse, added: “Deutsche Börse is well-positioned on a stand-alone basis to compete at a global level with other market infrastructure players.”
“We will continue to pursue our growth strategy, to strengthen our innovation capabilities and to even better serve market and customer needs. Through this strategic approach we want to create added value for our clients and shareholders and contribute to the positive development of Frankfurt as financial centre.”
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