NYSE Euronext expects an “intense” and lengthy European Union antitrust review of its proposed $9.53 billion takeover by Deutsche Boerse AG, a deal that would create the largest equities and derivatives markets owner, the company’s deputy chief executive officer said.
Dominique Cerutti told reporters in Brussels today that it could take “maybe twelve” months, or until February 2012, to win EU regulatory approval. U.S. and European financial markets supervisors aren’t expected to raise problems, he said.
The European Commission, the 27-nation EU’s executive arm, must rule on the takeover, which would combine NYSE Euronext’s Liffe and Eurex, the exchange jointly owned by Deutsche Boerse and the Swiss Stock Exchange. The deal would put more than 90 percent of the region’s exchange-traded derivatives market in the hands of one organization.
It is “likely” the commission will open an in-depth investigation, which usually takes up to five months, Cerutti said, and extensions could prolong the review until next February, he said. The companies said last week they expected to win approvals from the various regulators by December.
The EU’s review could focus on the impact on derivatives markets and clearing systems, he said. The deal won’t ultimately be rejected on antitrust grounds because “we don’t think we are in a dominant position” for either area, he said.
They hold only a small part of a global derivatives market where the vast majority of trades are over-the-counter and Europe’s fragmented clearing system and the “evolving” market as regulators push for more transparency mean that “we are not by far in a dominant position,” he said.
Amadeu Altafaj Tardio, a spokesman for the European Commission, declined to comment because the EU’s antitrust agency has not yet been asked to examine the deal.
Eurex and Liffe have 93 percent of listed derivatives in Europe, according to Donald Fandetti, an analyst at Citi Investment Research & Analysis, a division of Citigroup Inc., in a note to investors last week.
Deutsche Boerse and NYSE Euronext resisted any suggestion that they would sell Eurex or Liffe, saying in a statement last week that they “complement each other ideally on interest rate products, with Eurex specializing in the long end of the interest rate curve and NYSE Liffe the short end.”
The newly formed company would trade more than 19 million derivatives contracts a day, including more than 6 million U.S. options contracts, according to the statement.
The deal “would help restructure” financial markets as regulators call for more transparency, Cerutti said. The European Commission should use a planned overhaul of market legislation to impose tougher rules on so-called multilateral trading facilities such as Bats Global Markets and Chi-X Europe Ltd. that compete with traditional exchanges, he said.
An uneven playing field for the facilities “has to be fixed,” Cerutti said. The “level of opacity” in trading in the EU “has to be handled, it is dangerous for everybody.”
EU regulators should try to reduce how trading is spread across different venues, he said. The fragmentation makes it “way too complex to manage for the regulators,” he said. The commission published draft proposals on the changes in December.
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