Brexit Offers Frankfurt Chance to Reverse Decline: Report

  • Study commissioned by Deutsche Boerse amid LSE antitrust probe
  • Location changes of businesses not being considered, LSE says

Brexit will help strengthen Frankfurt’s status as a main European financial hub if Deutsche Boerse AG completes its $12.4 billion purchase of London Stock Exchange Group Plc, according to research commissioned by the German exchange operator.

The merger “produces a wide range of potential opportunities and positive network effects for Frankfurt as a financial center” to counter the city’s recent decline in significance, said the report, which was produced by Professor Dirk Schiereck of the Technische Universitat Darmstadt.

The report supports Deutsche Boerse’s rationale to take over LSE and comes before executives at both companies meet politicians from the German state of Hesse on Tuesday in an attempt to overcome objections. Hesse has the power to block the deal.

German politicians and regulators have voiced concern about putting the headquarters of Europe’s largest exchange operator in London, outside the European Union.

Political leaders in several euro-zone countries have called for a rule change to force euro-denominated clearing to take place within the EU once the U.K. leaves the bloc. LSE subsidiary LCH is the world’s largest clearinghouse for off-exchange interest-rate derivatives. Trading these products, which currently takes place between banks, could move to Frankfurt if the contracts can be turned into on-exchange derivatives, the report said.

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“The LSEG/DBG merger is not about relocating businesses,” Deutsche Boerse said in an e-mailed statement. “We do not want to prejudge the decisions that politicians, central banks and regulators may or may not take in future.”

LSE, in a statement, said possible changes to the location of certain businesses after the deal completes are not being considered, and suggestions otherwise are “inaccurate and misguided.”

“LSEG and Deutsche Boerse are committed to maintaining the strengths and capabilities of their respective operations in London and Frankfurt,” the London-based company said. “The existing regulatory framework of all regulated entities will remain unchanged.”

The Times earlier reported the findings of the research commissioned by Deutsche Boerse.

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