Derivatives exchanges would have been unable to quell the combined market power of Deutsche Boerse AG and NYSE Euronext, European Union regulators said in disclosing their reasons for blocking the duo’s plans to join forces to create a global leader.
Regulators rejected the companies’ arguments that derivatives traded over-the-counter competed with those traded on exchanges, according to the 447-page filing made public last week. The two products are separate “rather than substitutable” for exchange customers, according to the document, which may set the tone for how the EU’s antitrust agency will view future exchange deals.
“It is unlikely that a timely entry would occur and sufficiently constrain the merged entity in its market behavior,” the EU wrote in the filing posted on its website. As a result, the companies’ “customers would likely face higher fees, less product innovation and would de facto have no choice of trading platform for these products.”
Since the deal was blocked in February, at least five new entrants have announced plans to enter the European derivatives market. Both CME Group Inc., owner of the world’s biggest futures exchange, and Nasdaq OMX plan derivatives markets in London, setting up in competition with Eurex and Liffe, the largest venues. EU lawmakers have also agreed on regulations that will stir competition in derivatives and clearing.
The commission blocked the $9.5 billion deal because it would have led to a near-monopoly in European exchange-traded derivatives. The acquisition of NYSE Euronext would have put more than 90 percent of Europe’s exchange-traded derivatives market and about 30 percent of stock trading in the hands of one company, the regulator said in February.
CME and other derivatives exchanges weren’t likely to “gain meaningful presence in European interest rate futures and options in the absence of a built-up margin pool of correlated European contracts,” the commission said in its filing on the veto decision. “None of these players would be in a position to discipline” a combined Deutsche Boerse and NYSE Euronext, it said.
While the commission’s ruling on how derivatives markets work isn’t binding, its decision sets a precedent that merger lawyers would look at to assess the difficulty of gaining approval for subsequent deals, said Matthew Hall, a Brussels- based lawyer at McGuire Woods LLP.