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Deutsche Boerse, NYSE Offer Remedies for Derivatives Overlap

Deutsche Boerse AG and NYSE Euronext offered to sell overlapping derivatives businesses and give rivals some access to their clearing services to soothe European regulators’ concerns over their proposed merger.

NYSE Euronext would divest its pan-European single-equity derivatives units and Deutsche Boerse would sell businesses in NYSE’s “home markets” of France, Portugal, Belgium and the Netherlands, the two companies said in a statement today. The exchanges also offered rivals some access to Deutsche Boerse’s clearinghouse, Eurex Clearing, to assuage competition concerns in European interest-rate and equity-index derivatives.

“It’s clever,” said Richard Perrot, an exchange analyst at Berenberg Bank in London who rates Deutsche Boerse a “buy.” “The divestment is relatively small from an economic point of view but, with clearing, they are offering something even if it still protects their existing products. It’s not clear it’s enough, but it’s worth trying.”

Deutsche Boerse and NYSE Euronext are trying to prevent regulators from blocking a $7.2 billion deal that would create the world’s largest exchange operator. The European Union can block anti-competitive mergers or require companies to sell units or change the way they do business to eliminate potential antitrust problems.

90% of Derivatives

The takeover would 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. Deutsche Boerse owns Eurex, Europe’s largest derivatives exchange, while NYSE Euronext owns Liffe, the second-biggest in the region.

NYSE Euronext proposed selling its pan-European single equity derivatives business, including Bclear, a trade processing and confirmation business. It would keep the options businesses in its home markets and Deutsche Boerse would sell any overlapping units, the exchanges said.

“We have identified several potential buyers,” Duncan Niederauer, NYSE’s chief executive officer, said in an interview today. “Two to three have reached out to us. We are ready for an expeditious transition.”

Clearinghouse access will only be available for new products, rather than existing ones, Neideraurer said. Deutsche Boerse and NYSE will likely mandate an independent body to determine what products are eligible for the so-called cross margining, which reduces how much cash investors have to deposit with clearinghouses to back their trades.

Shares Gain

Deutsche Boerse shares climbed 2.7 percent to 42.48 euros at 5:19 p.m. in Frankfurt trading, a three-week high. NYSE advanced 3.8 percent to $27.60 in New York.

The remedies “have the capacity to address the Commission’s concerns, provided that a credible buyer can be found for NYSE’s pan-European single-equity derivatives units and that the Commission accepts that the parties’ would face sufficient competition in exchange-traded derivatives,” said Emanuela Lecchi, a lawyer at Watson, Farley & Williams LLP in London. “If the Commission is not satisfied with the commitments, I can see only limited scope for the parties to make adjustments.”

Filing the proposed remedies means European Union regulators will extend their review timetable and will now complete the process by Jan. 23.

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