Although the last couple of years have seen a number of cross-border exchange mergers announced, slowly but surely they have fallen by the wayside. After a year-long courtship, the largest proposed merger has collapsed, with the European Commission blocking the merger of NYSE Euronext with Deutsche Börse.

Will Rhode, senior analyst at Tabb Group, says he initially expected the merger to be approved but things changed. “It was one of those things that snowballed. Over the December-January period, everything went south very quickly,” he says.

The European Commission formally rejected the merger on Feb. 1, citing competition concerns. In its decision, the Commission said that in the market for exchange derivatives based on European underlyings, Eurex (Deutsche Börse) and Liffe (NYSE) are the two largest exchanges in the world and each other’s closest competitor.

“The European Commission has been working toward competition in most aspects of trading,” says Simmy Grewal, senior analyst at Aite Group. “A combined NYSE-Deutsche Börse would have created a dominant entity, basically a monopoly, in the derivatives space.”

Unlike other proposed multinational mergers, nationalistic sentiment did not become an issue, Rhode says. “There was a distinctly muted response to this merger. This raised suspicion in Europe about [who was acquiring whom],” he says.

Some analysts were concerned that the merger was more a stealth initiative by NYSE into the European market, rather than Deutsche Börse acquiring NYSE.

Considering the route that regulatory reform is taking around the globe, Rhode calls it a “strange coincidence” that the merger got called off at the same time that we’re seeing exchanges become more regional because of over-the-counter regulatory reform. “It might be that regional exchanges take better to that kind of a trend than a global exchange does. We’re not seeing the market become more global, we’re seeing it become more regional,” he says.

Still, Grewal expects other multinational exchange mergers in the future, particularly as the Asian marketplace grows. “It is something that’s the future of trading, but we’re not there yet. People aren’t comfortable letting go of their national treasures,” she says.
End-users had looked forward to the potential for efficiencies if the merger had occurred, but Grewal points out that most brokers already have connections to both NYSE-Euronext and Deutsche Börse.

Neither company’s stock was affected seriously by the news. “[Stockholders] were pretty aware that there were regulatory issues,” Grewal says.