Deutsche Boerse AG’s planned takeover of NYSE Euronext faces intense scrutiny from German regulators and European antitrust authorities, potentially putting the blockbuster exchange tie-up in peril.
It could also face hurdles in Washington as US lawmakers and regulators consider whether they are prepared to allow the citadel of US capitalism to fall into foreign hands, although there has been virtually no public criticism in the US as yet.
The companies said on Wednesday they were in “advanced talks” to join forces and create an exchange operator with unprecedented global reach and — most worrisome for regulators — a dominant grip on Europe’s lucrative derivatives markets.
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While executives from Frankfurt and New York have hatched a tentative agreement, there are still obstacles that must be overcome — hurdles that scuppered past attempts to combine Deutsche Boerse with Paris-based Euronext.
“These key questions are not yet resolved,” a senior German financial source said on Thursday.
A financial regulator from the German regional state of Hesse — which must approve the deal — said it would seek to preserve the interests of Frankfurt as a financial center. Likewise, French regulator AMF said it would be vigilant about preserving Paris’ status.
Once notified, European Commission competition authorities have 25 days to decide on the case.
“The biggest danger of a failure for the deal at this point is antitrust concerns in the derivatives market, because Eurex and Liffe would have a market share of more than 90 percent in Europe,” said Stefan Brugger, a fund manager at Union Investment in Frankfurt.
“We consider these concerns as overdone,” he said.
US politicians were unusually quiet about the deal that would see the Big Board bought out and would put more than 40 percent of US options trading under one roof.
US Commodity Futures Trading Commission Chairman Gary Gensler said the companies informed his agency of their plans on Wednesday, although he declined further comment.
French Economy Minister Christine Lagarde said she was watching negotiations closely with an eye on market stability and security and the development of value on French soil.
The companies have released few details on the merger, which would create an exchange behemoth with more than US$20 trillion in annual trading volume and would give 60 percent of it to Deutsche Boerse’s shareholders.
The combination of Deutsche Boerse’s Eurex and NYSE Euronext’s London-based Liffe platforms would dominate trading in interest rate, fixed-income, as well as equity and index-based products in Europe.
Given NYSE Euronext’s plans to launch a US futures exchange and clearinghouse next month, it puts pressure squarely on Chicago-based CME Group Inc, currently the world’s top derivatives exchange operator.
“There’s a competitive element to this,” Joe Mecane, the chief administrative officer of NYSE Euronext’s US markets, said in New York. “Being able to compete with CME ... is an issue in this merger.”
CME Group executive chairman Terrence Duffy told reporters in Washington his company was ready for the competition.
“We positioned ourselves exactly because we could anticipate this coming down the pipe,” he said.
There were also questions on the benefits that will fall to shareholders, and how the combined company would distribute its headquarters and executives on the two continents.
Two people close to the deal said that the combined group’s derivatives unit — the key money maker — would be headquartered in Frankfurt, while New York would get stock trading.
Another source said Paris would handle European equity trading, including what is now done in Germany.
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