Deutsche Boerse AG may face demands from European Union nations to open up its derivatives-clearing business to competitors, as rivals Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE) entered the race to buy NYSE Euronext.
Exchange operators would be pressured to give clearinghouses run by other companies the data they need to handle trades, under the latest version of draft rules being discussed by EU governments. This would allow rivals to compete with Deutsche Boerse’s Eurex Clearing joint venture, which processes all of the exchange’s derivatives trades.
Deutsche Boerse and NYSE Euronext said Feb. 15 they will combine in an all-stock takeover valued on the day at $9.53 billion. The proposed deal, combining NYSE Euronext’s Liffe and Eurex, the trading venue jointly owned by Deutsche Boerse and the Swiss Stock Exchange, would put more than 90 percent of the region’s exchange-traded derivatives market in the hands of one organization.
If adopted, the measures “would have an impact on the value” of Deutsche Boerse’s plan to merge with NYSE Euronext since the two “have flagship brands for derivatives trading and clearing,” Niki Beattie, head of Market Structure Partners, which advises brokers and exchanges, said in a phone interview. “Changes to the current status quo means others may be able to compete on their turf.”
Nasdaq and IntercontinentalExchange today offered to buy NYSE Euronext for $42.50 in cash and stock for each NYSE Euronext share, or about $11.3 billion. The bid is a 19 percent premium to Deutsche Boerse’s February offer, based on the German exchange operator’s closing share price as of yesterday, Nasdaq and IntercontinentalExchange said.
The proposed EU rules would “unnecessarily intervene in the well-functioning market structure for listed derivatives,” Stefan Mai, head of market policy and European public affairs at Deutsche Boerse, said in a telephone interview.
“Given the experiences of the financial crisis, this is simply the wrong way to increase market safety and integrity,” said Mai.
The data-access plan is one of the possible alterations to proposals made by the European Commission last year to toughen regulation of derivatives traded away from exchanges. Hungary, which holds the EU’s six-month presidency, drew up the draft text, published on the EU website.
Under the possible rules, which are subject to further changes during talks between finance ministry officials, exchanges would have to give “full reasons” if they refuse to grant requests from rival clearinghouses for access to so-called trade-feed data.
“It will be a challenge to find legitimate reasons to refuse access,” Damian Carolan, a lawyer at Allen & Overy LLP, said in a telephone interview. “If you refuse, the regulators will be all over you.”
EU Antitrust Commissioner Joaquin Almunia, who has the power to block mergers or seek changes to deals that may harm competition, said last week he will take the possible rules into account during his review of Frankfurt-based Deutsche Boerse’s takeover plan. The proposed transaction is likely to require an in-depth probe, he said.
“During the analysis of this merger, we will have to be very well coordinated” with EU governments and lawmakers on the new derivatives legislation, Almunia told lawmakers at the European Parliament.
Clearinghouses -- such as Eurex Clearing and London’s LCH.Clearnet Ltd. -- operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the risk that a trader defaults on a deal.
Almunia said he prefers a “more open business model” than Deutsche Boerse’s “vertical silo,” which routes all derivatives clearing through Eurex’s clearing arm.
Exchanges have criticized the possible data-access rules as a distraction from global efforts to bolster regulation of derivatives that are traded away from exchanges. So called over-the-counter trading has been blamed by the Group of 20 countries for contributing to the financial crisis.
The plans would also “endanger the competitiveness of European financial markets,” Deutsche Boerse’s Mai said, as similar measures aren’t being considered in other regions, and could create “a potential race to the bottom” in how well clearinghouses manage risk.
Marton Hajdu, a spokesman for Hungary’s EU presidency, declined to comment on the discussions among governments. Lawmakers at the European Parliament would also need to approve the final text before it could become law.
Bertrand Benoit, a spokesman for the German finance ministry, declined to immediately comment on the discussions.
Heiner Seidel, a spokesman for Deutsche Boerse, declined to comment on how the rules might affect the company’s merger plans. James Barr, a spokesman for NYSE Euronext, declined to immediately comment.
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