Deutsche Boerse, NYSE seek EU approval for merger

June 29, 2011 - 7:44 AM

BRUSSELS (AP) — Deutsche Boerse and NYSE Euronext on Wednesday requested the European Union's approval of their merger, kicking off what is expected to be a lengthy probe of the potential threats to competition from the combination of the two stock exchanges.

Deutsche Boerse AG said in February that it would buy the parent company of the New York Stock Exchange for $10 billion, creating the world's largest exchange operator. Deutsche Boerse runs the Frankfurt Stock Exchange, while NYSE Euronext owns bourses in Paris, Lisbon, Brussels and Amsterdam, in addition to the flagship New York trading platform.

The takeover would create the "premier global exchange, allowing Europe to strengthen and solidify its role as one of the world's most important financial centers," the two companies said in a statement.

However, EU Competition Commissioner Joaquin Almunia has already indicated that approval may take longer than the usual 25 working days and might require the companies to address competition concerns.

The Commission can extend its examination of mergers to three months, giving it more time to check for threats from potential market dominance and offering companies the opportunity to propose remedies, such as selling off certain assets or restricting some business practices.

In addition to their trading platforms for regular shares, Deutsche Boerse and NYSE Euronext are also very active in the trading of derivatives, complex financial products that have grown more prominent in recent years. Regulators around the world have been pushing to move derivative trading onto regular trading platforms to increase transparency over ownership and their potential threats to market stability.

Deutsche Boerse may also face extra scrutiny from the EU for integrating its trading and clearing activities. Clearing is a process that adds extra security for buyers and sellers, but EU regulators fear that integrating it with an exchange that holds a dominant position could squeeze competing clearing houses out of the market.

However, the two companies argue that a combination of their businesses will create more profits for shareholders and better service for customer at a time when traditional exchanges are facing increased competition from smaller alternative trading platforms such as Chi-X and Turquoise.

Other traditional exchange operators have also opted for mergers to sustain growth amid such competition. Just days before Deutsche Boerse went public with its bid for NYSE, the London Stock Exchange Group said it was combining with TMX Group, the owner of the Toronto exchange.

NYSE shareholders are expected to approve the takeover at a meeting next week, after the company's board backed the offer. The board had rejected a rival bid from Nasdaq OMX and InterContinental Exchange, despite a higher offering price. Nasdaq and ICE dropped their offer for NYSE in May, after the U.S. Department of Justice threatened to block the deal on competition grounds.