EU vetos Deutsche Boerse-London Stock Exchange merger deal
A proposed 29 billion-euro merger between the British and German stock exchanges has been blocked by European regulators, ending a deal that floundered following the UK’s Brexit vote.
LSE Exchange Monopoly
The merger of the London Stock Exchange and the German Deutsche Boerse has ended. It would have formed the largest stock exchange in Europe. The European Commission’s objection was based on the premise that the merger would have resulted in a monopoly in the processing of bond trades.
The deal could potentially have been saved if MTS, the LSE’s Italian fixed income trading platform, had been sold. LSE were not willing do so, and the proposed merger effectively stalled.
Brexit Vote Still Resonates
Industry sources have intimated that Brexit could also be to blame for the failed merger. Brexit has seen demands from German politicians that the headquarters of the exchange group be relocated to Frankfurt from London. To further complicate matters, German police are investigating allegations of a possible insider dealing by Carsten Kengeter. He is the Chief Executive of Deutsche Boerse and was the potential boss of the combined group.
The LSE’s clearing arm, LCH, is one of the largest global clearing houses. Had the merger gone ahead, LCH’s Paris arm would have been sold to French bourse Euronext. This now won’t happen.
The failed deal causes a problem for Euronext. Euronext uses LCH Paris to clear its own share trades under a current deal that will expire next year. However, Stephane Boujnah, Euronext Chief Executive stated that it was still prepared to buy the business.
LCH domination
LCH London dominates the clearing of all euro-denominated derivatives. In the light of Britain’s imminent exit from Europe, EU policymakers want to see LCH London moved to the euro zone. The European Central Bank would then have direct supervision of the operation.
Interestingly, the Bourse merger may have helped this process. The deal would have meant moving euro clearing to Deutsche Boerse’s Eurex arm in Frankfurt. Now that the deal will definitely not be going ahead, the European Union may be prompted to take whatever action is required in order to engineer such a move.