Deutsche Boerse AG (DB1) asked European Union regulators to approve its plan to buy NYSE Euronext (NYX) in a deal valued at about $9.25 billion, creating the largest owner of equities and derivatives markets.
Deutsche Boerse and NYSE Euronext today formally requested the European Commission to examine the transaction, the companies said in a statement. The regulator said in an e-mail that it set an initial deadline of Aug. 4 to rule on the deal.
The combination would combine NYSE Euronext’s Liffe and Deutsche Boerse’s Eurex and put more than 90 percent of the region’s exchange-traded derivatives market and about 30 percent of European stock trading in the hands of one organization.
“The test of any exchange consolidation will be whether or not they bring benefits to the exchanges’ customers, whether they be listed companies, individual and institutional investors or market participants,” said Christian Krohn, a managing director at the Association for Financial Markets in Europe, which represents international lenders including Deutsche Bank AG, BNP Paribas SA and UBS AG.
Joaquin Almunia, the EU’s competition chief, said in March he expects to follow up the initial month-long review with an in-depth probe of the “complex deal,” lasting about 90 working days.
Almunia told a London conference yesterday that regulators would examine the plan with their “usual objectivity and wisdom.” The EU can require companies to sell off units or change their behavior if they conclude that a takeover would harm competition.
As exchanges and their rivals try to combine, regulators have been stepping up scrutiny of market structure.
Bats Global Markets Inc., the third-largest U.S. stock exchange operator, faces an extended U.K. antitrust investigation into its bid for Chi-X Europe Ltd.
Deutsche Boerse and NYSE Euronext said today their deal created significant benefits “thanks to increased efficiencies and reduced costs from opportunities for post-trade harmonization.”
Almunia indicated in March that Deutsche Boerse’s business model for clearing is not “the preferred one” to encourage competition. He said at the time he preferred NYSE Euronext’s “more open” model, which uses outside companies for some aspects of clearing, to Deutsche Boerse’s “vertical silo,” which routes clearing through its own services.
Clearinghouses -- such as Deutsche Boerse’s Eurex Clearing unit 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. The business is becoming more valuable amid firmer regulation of derivatives trading and a merger wave that has seen more than $20 billion of exchange takeovers announced in the last seven months.
“If costs are driven down through efficiencies and shared systems development and liquidity is improved, through dual listing capacity, for example, the outcome will be positive for our members and their customers,” AFME’s Krohn said in an e- mailed statement.
NYSE Euronext’s deputy chief executive officer Dominique Cerutti said in February the companies believe regulators will approve the deal because they aren’t dominant in clearing or derivatives. They hold only a small part of a global derivatives market where the vast majority of trades are over-the-counter, he said.
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 in February.
Deutsche Boerse and NYSE Euronext have resisted any suggestion that they would sell Eurex or Liffe, saying in a February statement 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.”
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