The DG Competition investigation into the merger between Deutsche Borse and NYSE Euronext is a delicate balancing act enforcing conditions that will promote competition without blocking the deal. At the root of the commission’s concern is the merger of the two derivative subsidiaries Liffe and Eurex, a deal that would create a 90% market share of exchange traded derivatives.

There are certain measures it could take that would be deal-breakers: a spin-off of Liffe or a spin-off of Eurex Clearing for sure would constitute a de facto blocking of the deal affecting the material value of the bid to such a great extent that it would not be worth pursuing.

The reported-130 page Statement of Objections that was sent out to both parties this week was not unexpected and has been played down as part of the process but one of the key points is sure to be ensuring competition within European exchange traded derivatives.

Liffe and Eurex argue that a single pool of liquidity is beneficial to the market and to some extent this is true but opponents argue that the removal of competition is perhaps more damaging in the longterm than the benefits of a single liquidity pool.

The new Markets in Financial Instruments Regulation, a draft of which was leaked last month, could go some way to countering this lack of competition imposing open access to clearing on Eurex Clearing but there is little benefit of open access to clearing if that does not also force open access to cross-margining and netting. This is not mentioned in the Mifir draft and is highly unlikely to be implemented.

So, despite suggestions in the press to the contrary, the Mifir draft does not make the job of the competition commission any easier and further caveats will be imposed if the deal is to go ahead. One such caveat could be a break-up of Liffe and a spin-off of the equity derivatives business.

This would be almost certainly be an acceptable solution to the opponents of the deal, principally the London Stock Exchange and its derivatives platform Turquoise Derivatives, who launched futures and options on the FTSE 100 contract this year.

It would also probably be acceptable to NYSE and Deutsche Börse who stand to benefit considerably from what would be a vicious bidding war between at least two parties: the LSE and the US-headquartered InterContinental Exchange (ICE).

The decision is due in December but the Statement of Objections will almost certainly be leaked before then. It will make for interesting reading.