Under tough scrutiny from Europe’s anti-trust watchdog and complaints from competitors, Deutsche Börse and NYSE Euronext have extended their proposed remedies to the industry to ease concerns ahead of their looming merger.
The two exchanges today confirmed they had submitted to the competition division of the European Commission (EC).
The EC’s Directorate-General for Competition has been scrutinising the deal since 4 August 2011 amid concerns the combination of Eurex and NYSE Liffe, the European derivatives markets operated by Deutsche Börse and NYSE Euronext respectively, would create a monopoly that would prevent challengers from competing with the new entity.
Industry critics, the fiercest of which have been rival bourses the London Stock Exchange and Nasdaq OMX, have claimed a combined DB/NYSE would control upwards of 90% of many types of European listed derivatives. The prospective partners have countered these claims, stating the merger would lead to cost synergies of US$798 million, comprising US$580 million in cost savings and US$218 million in new revenue opportunities.
Nonetheless, the two bourses had sought to appease the industry’s concerns by offering a number of concessions, after the EC itself stated the merger “if implemented in its current form [i.e. prior to any remedies], would significantly impede effective competition in the internal market”.
Past remedies had focused on fair and open access to Eurex Clearing, which would allow competing derivatives trading venue operators to offer efficiencies to their clients through the ability to offer margin offsets in correlated products.
The exchange operators said the new revisions were designed to reflect the European Commission’s feedback on the initial proposal, and thereby fully address the Commission’s remaining concerns while preserving the industrial and economic logic of the merger.
Deutsche Börse and NYSE Euronext have acquiesced to industry calls to further divest some of their derivatives business. The firms will provide the purchaser of any divested derivatives business with an option to access Eurex Clearing for single equity derivatives products.
The parties have also yielded to demands to widen their clearing access remedy for innovative equity index and interest rate derivatives, and will licence the Eurex trading system to a third party interested in launching interest rate derivatives.
In order for third-parties to qualify for clearing on Eurex under the previous access remedies presented the bourses, the equity index derivatives they offer could not be more than 85% correlated with existing products on Eurex.