NYSE Euronext’s planned merger with Deutsche Boerse AG will help the businesses compete against rivals targeting emerging markets and derivatives, NYSE Euronext Chief Operating Officer Larry Leibowitz said.
NYSE Euronext, owner of the New York Stock Exchange and NYSE Liffe derivatives venue, has a market capitalization smaller than rivals Hong Kong Exchanges & Clearing Ltd. and Chicago-based CME Group Inc., Leibowitz said at a hearing in Washington yesterday before the House Judiciary Committee’s competition subcommittee.
These companies now are “better positioned” than NYSE Euronext to take advantage of industry consolidation in other parts of the world, Leibowitz said. “We must adapt and change in order to remain a leader among exchanges, a fierce competitor that services the needs of its clients.”
While the House panel is examining Deutsche Boerse’s $9.34 billion merger agreement, the lawmakers have no power to approve or reject it. The U.S. Justice Department and European regulators are reviewing the deal to see if it hurts competition. Last month, Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. abandoned their unsolicited bid for NYSE Euronext after the Justice Department threatened an antitrust suit.
Leibowitz said that 47 government agencies, both inside and outside the U.S., are reviewing the proposed deal. NYSE Euronext voluntarily provided information to the Committee on Foreign Investment in the U.S., or CFIUS, which studies the national security implications of a foreign-owned company investing in a U.S. business.
Lawmakers said the potential impact of the merger merited the scrutiny.
“The committee must ask whether this combination will threaten the robust competition in securities exchange markets that has reduced trading costs over the past two decades,” said Representative Robert Goodlatte, a Virginia Republican and the panel’s chairman.
Representative John Conyers of Michigan, the Judiciary Committee’s senior Democrat, said he has misgivings about the proposed merger.
Conyers said he is concerned about “the harm that it will impose on consumers and the job market, and the stifling effect it may have on innovation and transparency.”
Outside the U.S.
Leibowitz said the combined NYSE Euronext-Deutsche Boerse will eliminate some jobs, with most initially outside the U.S.
About $30 billion of exchange mergers have been announced since October as operators seek to expand revenue sources after profits fell in equity trading, according to data compiled by Bloomberg.
Leibowitz said he wants the deal to be approved because competitors such as Hong Kong Exchanges have advantages the NYSE doesn’t.
“Hong Kong is the best of all worlds,” he said. “They’re in a highly protective regime. They have very rapid growth,” giving the exchange a higher market capitalization.
Hong Kong Exchanges has the biggest market capitalization at $23 billion, followed by Chicago-based CME Group Inc. at $18.2 billion, Frankfurt-based Deutsche Boerse at $14.9 billion and Sao Paulo-based BM&Fbovespa SA at $14.4 billion, according to data compiled by Bloomberg.
NYSE Euronext has a market capitalization of $9.07 billion, in fifth place worldwide.
The union of NYSE Euronext and Deutsche Boerse won’t harm competition in the U.S., where there are 13 stock exchanges and nine options venues, Leibowitz said. Gary Katz, president and chief executive officer of International Securities Exchange, agreed that rivalry in the U.S. options market will continue. ISE is owned by Eurex, a joint venue of Deutsche Boerse and SIX Swiss Exchange Ltd.
“There are no signs that competition in U.S. options will abate,” Katz said.
The deal between NYSE Euronext and Deutsche Boerse may encounter resistance from European regulators, who could take issue with combining the biggest derivatives businesses in the region. In addition to joining the Eurex and Liffe markets within one company, the deal would place about 30 percent of European stock trading under common ownership, based on data compiled by Bats Global Markets.
In the U.S., the company would own three equity options exchanges, giving it 42 percent of the volume, based on April’s figures compiled by Chicago-based OCC, which clears equity derivatives transactions.