TRADING VENUES

LSE confirms Deutsche Boerse merger talks

If completed, the move would create one of the world’s largest exchange groups.

By Joe Parsons and Jonathan Watkins joe.parsons@information-partners.com February 23, 2016 2:15 PM GMT

The London Stock Exchange (LSE) has confirmed it is in talks over a potential merger with Frankfurt-based exchange group Deutsche Boerse.

If completed, the move would create one of the world’s largest exchange groups.

According to a release from the LSE, Deutsche Boerse shareholders would hold 54.5% of the combined group, while LSE shareholders would hold 45.6%.

"[A merger] would combine the capabilities of Eurex and Clearstream with LSE’s equities arm, index and data business to create a global powerhouse,” said Hirander Misra, CEO, GMEX.

"LSE has struggled to create a derivatives business, though it does have its Curve initiative. Unlike the Deutsche Boerse and NYSE talks, there is less cross-over here from a competition perspective."

According to Rob Boardman, European CEO of brokerage ITG, the potential merger would be a “cost-savings play.” 

“LSE has long admired Eurex and aspired to a stronger derivatives strategy. For Deutsche Boerse a deal would likely offer cost savings as well as access to LSE’s diverse global distribution, index and post-trade businesses,” Boardman added.

All key businesses of both organisations, such as LSE’s LCH.Clearnet and Deutsche Boerse’s Eurex, would continue to operate under their current brand names, the release said.

“The Boards believe that the 'Potential Merger' would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group,” the LSE stated.

“The combination of LSE and Deutsche Boerse's complementary growth strategies, products, services and geographic footprint would be expected to deliver an enhanced ability to provide a full service offering to customers on a global basis.”

Despite the possibility of the merger creating a new single holding company, the potential reduction in the number of trading venues is unlikely, according to Steve Woodyatt, chairman and CEO of Object Trading.

"Looking at history, for any span of time including M&A activity, we always witness a net increase globally in the number of venues, products, and connectivity protocols for trading.  This is yet another example of the relentless updates, upgrades, migrations, and product launches in the name of innovation at the exchanges," Woodyatt added.

"Even with a consolidation of liquidity pools, again from experience we may eventually see changes at the product level or at the market interface."

If completed, the deal would significantly boost Deutsche Boerse following its failed attempt to takeover NYSE Euronext in 2011, which was blocked by regulators due to anti-competition rules.

The potential merger could be one of the biggest since the NYSE Euronext – as it was then known- takeover by IntercontinentalExchange (ICE) in 2013 for $11 billion.