Almunia to extend probe into stock exchange merger

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A major stock exchange merger which would span operations across the US and the EU may need closer scrutiny than expected, the EU's competition commissioner hinted at a parliamentary hearing yesterday (22 March).

Joaquin Almunia yesterday told parliamentarians he was no fan of so-called 'vertical silo business models', whereby stock exchanges would also own or control their own clearing houses for derivatives, products which are currently a target of deeper regulatory controls.

"From the competition point of view, I tend to prefer models that are not a vertical silo," Almunia told the hearing.

In February, Deutsche Börse and NYSE Euronext admitted that they were in advanced talks to merge their operations, a move which would create the world's largest owner of equities and derivatives markets and secure a bigger slice of a booming derivatives market.

At the time Dominique Cerutti, deputy chief executive of NYSE Euronext, said he was confident the merger would be cleared by the European Commission quickly.

The exchanges have not yet filed the merger with the EU but recent media reports indicate they will make their case to Almunia's team in early April.

But Cerutti may have spoken too soon: "I will not be surprised – I cannot anticipate, but I will not be surprised – if this merger, once it is notified, will be one of those cases where we are obliged to go to phase two," Almunia said yesterday.

The first phase of an EU probe lasts about 25 days, the second 90 additional working days and the third, 105 days.

"More open competition, more opportunities, this more open business model, together with interoperability from the competition point of view, is preferred," Almunia continued.

If the deal was cleared the merged group would be the biggest exchange trading derivatives, a market estimated at $600 trillion, and its operations would dominate not only in the US but also in the EU's major financial centres: the United Kingdom, Germany, France, the Netherlands, Portugal and Belgium.

The EU's competition authorities will have to check whether NYSE's Liffe derivatives market competes with Deutsche Börse's Eurex platform. 


On 9 February 2011, Bloomberg reported that the Deutsche Börse was in advanced talks to buy NYSE Euronext. The news led both companies to freeze their shares for fear of large price movements before the deal had been signed.

The deal would see the new company become the world's largest stock exchange operator, with listed companies equal to US$15 trillion.

Derivatives have come under regulatory fire since the onset of the financial crisis. The advantage of derivatives is that they allow companies and governments to increase their means of managing risk. The disadvantage is that they are the top instrument for speculative operations and if used irresponsibly, they can increase risk at exponential levels.

Establishing central clearing houses is considered as a moderate way of reducing systemic risk related to derivatives. Instead of being exchanged privately ('over the counter'), they could be processed through an intermediary, a move which is expected to improve transparency and reduce risk. The European Commission clearly supported this approach in a communication published in July 2009 (EURACTIV 06/07/09).

  • April: NYSE Euronext and Deutsche Börse to file merger with EU.

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