The proposed deal will create a European derivatives
powerhouse. Advocates of the deal claim that the merged group
provides ballast to the CME Group on the other side of the
Atlantic and that competition from OTC trading and MTFs will
prevent market dominance.
It appears that Joaquín Almunia, Commission Vice
President in charge of competition policy, is not so sure. In
yesterdays statement, the Commission said it had
significant concerns over the possibility of a
negative impact on impact on innovation in derivatives
products and technology solutions.
The Commission raised concerns over almost every aspect of
the derivatives side of the deal, highlighting the possible
reduction of fee competition, the
vertical silo clearing model as well as a number of
other areas including, crucially, index licensing.
Executives in Paternoster Square, the headquarters of the
London Stock Exchange will welcome the statement. The LSE ,
through its derivatives platform Turquoise, is
leading the charge for competition in the European derivatives
market having launched with a whimper its FTSE 100 futures
contract in June in direct competition with NYSE Liffe.
The cynical among us might speculate the contract was
launched to prove that competition without fungibility was a
But the statement raises some interesting questions about
what the ultimate result of the investigation might be. Outside
an outright rejection of the deal, which remains unlikely
despite yesterdays statement, there are a number of
possible requirements the Commission might force in order for
the deal to proceed. These include:
1. A spin off of Eurex Clearing
2. A spin off of NYSE Liffe
3. A mandate to make trading on Stoxx and
other index products fungible
4. Forced access to clearing for all
Points one, two and three may be too high a price to pay for
the two companies and their shareholders (although ICE will be
waiting in the wings if a Liffe spin off is proposed) and point
four may be hard to enact.
There is a precedent here. In 2005, when Deutsche Börse
and Euronext were competing for control of the LSE, a report by
the UK Competition Commission suggested a number of
requirements for the deal to proceed. By the time the report
came out the deal was already dead in the water but the
proposals are worth looking at.
In particular, in the case of Deutsche Börse, it
suggested a divestment of Eurex Clearing, a requirement that
Eurex Clearing not be used as the provider of clearing services
to LSE, or a set of behavioural commitments to
prevent it from denying access to competitors.
Mr Niederauer and Mr Francioni will argue that the world has
changed since 2005 and the technological requirements needed to
compete today require economies of scale that only the tie up
can achieve. But it seems that Mr Almunia might well disagree.
December 13, when the final report is released, will be an