London Doubts Not Core to German Ruling on LSE, Minister Says

  • Local of headquarters, regulation ‘must be kept separate’
  • Brexit increases logic of Deutsche Boerse-LSE deal: Minister

The regulator of Frankfurt’s bourse will take its decision on the combination of Deutsche Boerse AG and London Stock Exchange Group Plc on legal grounds and won’t be swayed by the location of the new company’s headquarters, a government minister said.

The U.K.’s decision to leave the European Union has complicated Deutsche Boerse’s takeover of its London-based competitor as lawmakers and regulators voiced concern about basing Europe’s largest exchange operator in the U.K. capital, outside the jurisdiction of the EU. Shareholders of both companies have given their blessing to the deal, which would create a European mega-exchange that can better compete with giants in the U.S. and Asia.

The plan still needs to be approved by the European Commission and regulators including the German state of Hesse, whose economy ministry grants the license to operate the Frankfurt Stock Exchange, giving it veto rights on the deal.

“Regulation and the location of the holding company must be kept separate,” Thomas Schaefer, Hesse’s finance minister, said in a Sept. 7 interview. “Hesse’s economy ministry will conduct its examination purely according to statute and law.”

EU Membership

Hesse will take the U.K.’s decision on EU membership into account in its review, Economy Minister Tarek al-Wazir said in a May 13 interview in Frankfurt. Deutsche Boerse and LSE need to find a “creative” solution to appease concerns about London as a base, Carola von Schmettow, chairwoman of the Exchange Council of Deutsche Boerse’s Eurex Deutschland derivatives exchange, said in July.

Management at both companies understand the need to find a compromise on the new holding company’s location, separate people familiar have said. That may entail establishing the headquarters outside the U.K. to obtain approval for the merger, or even creating dual holding companies.

While a London base may not hinder the approval process, concerns remain high, Schaefer said. “The British side needs more time to accept that the model should be amended on this point,” he said. Changing the structure is “of vital interest” for the stakeholders, Schaefer said.

At the same time, the U.K.’s decision adds one more argument to the logic of the deal, he said. “Brexit gives a combined exchange the additional component of forging a possible bridge between Continental Europe and a U.K. fresh out of the EU, albeit under very different parameters.”

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